Opinion: Sudden failures hurt everyone – if you’re struggling, get advice

Chris Photi, partner, White Hart AssociatesThe failure of Kiss Flights comes in the most turbulent time I can remember in the travel industry. The extraordinary events of 2010 – severe weather, ash cloud, strikes, austerity measures, supplier failure – have put more holes in an already ailing sector.

At the recent Barclays Forum both the CAA and a number of industry commentators, myself included, predicted a high level of failures in autumn 2010. None of us expected these in July and August as opposed to September and October. Regrettably the knock-on effect of the most recent failures will undoubtedly be others to follow.

The one thing I would urge directors of travel companies to do in the current circumstances is face up to unpalatable issues and seek early advice. Approaching the right professional advisers and holding discussions with key suppliers (and regulators) would allow a more controlled approach to what appear to be inevitable failures.

One of the problems on the travel rescue side of things is that ATOL holders no longer have substantial insurance bonds. Historically insurance companies were a good “short-term bank” for cash needed in the event of difficulties. Insurers would lend up to 30% of the value of their bonds to companies by way of short-term funding if they could see the company’s long-term position improving as a result.

The new ATOL Protection Contribution Scheme without bonding precludes such arrangements. Nevertheless, if a company in difficulty takes the right advice and acts promptly, then even if the business cannot ultimately be saved it is possible to improve the position of creditors, staff and consumers by seeing it administered in a controlled manner – perhaps with the company ceasing to trade in a quieter period.

Specialist insolvency advice would be needed under such circumstances, but if the business can find some breathing space then a longer term solution may be found. As with everything in life today, “cash is king”. If you cannot pay your bills then you are likely to fail but in the medium and long term a failure never ever benefits a travel supplier.

Additionally, the CAA is very pragmatic in its approach to dealing with licence holders in the current economic climate. It certainly does not want to see a high season failure. My advice to any travel company is to seek specialist professional help and to speak openly with suppliers and regulators with a view to controlling what appears to be the uncontrollable.

Just a week or two’s notice would give sufficient time for a structure to be put in place that would be far better than a 5pm call advising everyone that the company is failing.

I think that after this turbulent period I and other professional colleagues and regulators will stand back and consider some structure or helpline arrangement that can offer travel companies some assistance, and thus avoid the stressful situations we have seen in recent weeks.

Chris Photi is a partner at White Hart Associates.

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