Charge retail deposits to avoid cancellation blues

Just as with Covid-19, the war in Iran is causing major travel disruptions and many cancellations, often leaving travel agents who have done a lot of work with zero commission to show for it.

For years, the travel trade has debated charging customers for the time they spend making bookings, but competitive pressure has always forced them to steer clear of this and to continue to rely on commission payments from their tour operator suppliers and I don’t see this changing any time soon.

However, after Covid-19, I have always advised all the travel businesses I consult with or own a stake in to introduce a non-refundable “Retail Deposit” of at least £50 per person on top of the tour operators’ deposit. 

To be clear, the final holiday price remains the same, and this deposit is simply a forward payment of the retailer’s commission. 

The crucial benefit is that the retailer has certainty that they will receive this element of their commission no matter what happens, and, as a result, can recognise this part of their commission on booking and release it from any relevant trust fund that their consortia or head office may operate to protect consumer funds.

Assuming an average short-haul booking value of £2,500 and a 10% commission on the booking, the retailer can recognise £100 of their £250 commission on booking, with the remaining £150 recognised when the final balance is paid, but it also means if the customer cancels the holiday that the retailer retains £100 to cover the work they have already done.

Of course, you would need to change your booking terms and conditions to reflect this, but it is perfectly legal, and few customers object because, although most shop around based on price, few compare payment schedules.

If you’re worried that you will lose bookings because others are offering low deposit levels of £60 on Jet2 holidays, for example, don’t, because you just keep this initial low deposit to secure the booking and collect your retail deposit one month later as part of the payment schedule.

The retail deposit also needs to reflect the value of the booking, with higher value long-haul or cruise bookings attracting a retail deposit of £100 per person.

Most retailers already offer monthly payment plans, as many customers prefer to pay for their holiday in regular instalments. 

However, some have missed the neat trick introduced by the likes of Love Holidays, which charges a sneaky £4.95 admin fee for every monthly payment collected under its ‘spread the cost’ scheme. 

Assuming six payments, this adds an extra £30 margin per booking. These fees are not even included in the total holiday price because they are not a compulsory charge, as customers can pay the full costs in one go. 

Again, perfectly legal and a neat way for a retailer to earn higher commission without affecting their competitive pricing.