The last few days have seen the travel industry rally to assist the Civil Aviation Authority in organising the repatriation of some 80,000 people that were abroad when XL collapsed.
However, what immediate impact will the failure of XL have on the industry, particularly smaller operators and agents?
Longer term, the general market will improve for most operators, particularly the big two. There will be less capacity and thus the market will tighten, causing prices to rise.
This, together with a substantial additional client base to sell to, must mean increased profitability for the industry as a whole.
However, in the shorter term, there could be a massive knock-on effect to some operators and agents.
Tour operators who bought product from XL are faced with three immediate problems.
First, they will need to repatriate their own clients who flew with XL. Many sharers on XL flights will likely piggyback on the repatriation arrangements for XL clients made by the CAA.
However, the CAA will prioritise XL customers in any airlift, so operators will need to liaise with it and keep a careful monitor on all clients overseas.
Second, many operators would have lost money on aviation deposits and pre-paid flying paid to XL. Any creditor distribution from the administration and ultimate liquidation of XL will take years to filter through and is unlikely to be substantial. These monies will be lost and will hit the bottom line.
Finally, where will the operators find the capacity that has been lost over the rest of the year and at what cost? While there was bonhomie from the ‘big two’ in providing a free repatriation flight from Alicante last weekend, the trade cannot expect such largesse if purchasing its replacement seats from them or elsewhere. It will be more expensive and difficult to come by all round.
Many agents who ad hoc purchased from Freedom Flights will also face difficulties. In January, the Department for Business, Enterprise and Regulatory Reform released guidelines on what constitutes a flight-related package, which the CAA interpreted to mean many former dynamic packaging agents needed an ATOL.
Under the threat of personal prosecutions from the CAA, many such companies obtained an ATOL or increased their existing ATOL capacity.
They are now faced with having to replace flights purchased from XL at their cost. Even more galling to them is that one or two of the dynamic packaging agents have continued to flout the CAA’s interpretation of this guidance and yet no promised legal proceedings seem to be in sight.
One hopes the CAA will in such circumstances apply a level playing field in dealing with all such agents in exactly the same way, whether they have a licence or not.
My advice for any operators and agents is to take professional advice on financial and solvency matters and to seek clear guidance from your trade association, particularly in relation to surcharging possibilities.
My fear is that a number of operators and agents will fail as a result of insurmountable financial problems caused by the demise of XL.
This is regrettable but, in my opinion, in many cases could have been avoided because, for some months, it was hardly a secret that XL was in financial difficulties.
Too many travel companies bought solely on price without reflecting on the consequences of a high-season failure. The grim reaper is now calling.
