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Analysis: Bed banks and principal status – 19 Apr 2007

Last week saw the Triton super consortium take a clear stand by demanding that its accommodation-only suppliers adopt principal status.

The threat to ditch Holiday Brokers, Hotels4U.com and Lowcostbeds.com because they have refused to adopt principal status stems directly from agents’ concerns after the deaths of two children from carbon monoxide poising in Corfu last October.

The tour operator at the centre of that tragedy, Thomas Cook, has faced a barrage of damaging publicity, including a Panorama investigation on BBC One, but many in the industry say the travelling public is at far greater potential risk when buying holidays outside of the traditional package market.

Independent agents who create their own packages from components are understandably concerned about being held liable and facing a business crippling claim if a similar incident befalls one of their customers.

Meeting a need

Taking on principal status means the accommodation-only supplier is liable in the same way as a package holiday operator is under the strictures of the Package Travel Regulations.

New supplier Youtravel has made a virtue of its principal status since launching and Medhotels.com announced last week it will adopt principal status from June 1.

Commercial director Carl Burrows stressed the timing of the announcement had nothing to do with ultimatums, but instead follows months of research with agents, which found they are concerned about being the subject of a law suit.

“By acting as a principal, we are showing agents a high level of commitment,” Burrows said. “If a travel agent has a claim in relation to a hotel that we supply, we will be contractually and financially liable.”

Advantage and Triton board director Steven Freudmann agreed with Burrows and claimed Triton’s move is solely about protecting its members.

“It’s not that we want to stop working with these suppliers,” he said. “It’s just that we want them to accept their responsibilities.”

Freudmann’s leading role in enforcing the stance on principal status has been called into question because he also holds the position of non-executive chairman at principal accommodation-only supplier Seligo – one of the firms sure to benefit if and when a number of its rivals are taken off Triton’s preferred supplier list.

“We don’t want to stop working with these suppliers. We just want them to accept their responsibilities.”

Freudmann dismissed the significance of this, saying he declared his Seligo role to both the Advantage and Triton boards before the subject was discussed. He also said both boards were unanimous in their decisions to stop working with non-principals.

“My responsibility is to protect the Triton members,” he added.

However, this spat only serves to demonstrate the divisive nature of this question of principal status.

Cost conscious

The additional costs associated with being a principal are widely believed to be the main reason why accommodation-only agents are reluctant to go down that route. Earlier this year, Hotels4U announced it was to adopt principal status only to backtrack – it continues to act as a booking agent.

Sources have told Travel Weekly Hotels4U discovered it was unable to afford the increased health and safety costs and VAT it would incur under the Tour Operators’ Margin Scheme. Hotels4U, the market leader in accommodation-only sales in terms of volumes, operates a traditional package holiday low-margin business model with the number of pounds profit per passenger in low single figures.

Somewhere2stay.com sales director Andy Washington doubts rival accommodation-only suppliers will adopt principal status because it costs around 6% of revenue. “It can hit the bottom line quite quickly,” he said.

However, despite Washington being an outspoken critic of those firms avoiding principal status, the Cosmos-owned firm has itself started offering agents the option to book with the supplier as either an agent or a principal.

This came after Somewhere2stay managing director Stuart Jackson called non-principal suppliers “cowboys who have taken the industry back 20 years“.

Washington urged agents to continue booking with the supplier as a principal despite the fact bookings are £5 more expensive per passenger.

Burrows, meanwhile, claimed MedHotels has managed to absorb the cost of becoming a principal and its prices would not increase thanks to the buying power of parent companies Lastminute.com and Sabre.

Healthy choice

All this jostling for position does not worry Holiday Brokers chief executive Steve Endacott, who doubts that principal status affords agents the protection they are demanding.

Having taken legal advice he has, instead, proposed an indemnity insurance scheme, although Advantage has rejected this as an alternative to principal status.

Both Lowcostbeds.com and Holiday Brokers’ parent company the On Holiday Group signed up to Travelsafe in February, a scheme it was hoped would make health and safety a non-competitive issue but that failed to win wide support.

So, while accommodation-only suppliers vie for position, they are at least offering a choice, if not a consistent message, and it is up to agents to decide where their principles lie.

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