Comment: The coronavirus crisis and customer refunds

Agents and operators urgently need guidance, says Ian Taylor

Two priorities dominate the industry’s response to the Covid-19 crisis at present.

One is repatriating customers. The other is refunds on cancelled bookings of Atol-protected holidays.

Both relate to customers, but the latter will determine whether many companies survive to carry customers in future – or, indeed, are able to refund all clients now.

Many could file for insolvency sooner rather than later if there is no change in the legal requirement, under the Package Travel Regulations (PTRs) to make a full refund on cancelled bookings within 14 days.

Abta has been in talks with the CAA all week and was urgently seeking a relaxation of the rules in a meeting with representatives of the Departments for Transport (DfT) and Business (BEIS) on Thursday.

The DfT oversees the Atol regulations and deals with the CAA while BEIS has responsibility for the PTRs.

Unfortunately, immediate clarification appears unlikely. Businesses may need to remain patient, perhaps until early next week.

That won’t be easy with consumers wanting payments, many airlines and flight-only sellers switching to credit notes in place of cash refunds and all businesses at pains to conserve cash or go under.

The law is clear. The “organiser” of a package – a combination of two or more travel arrangements – must reimburse payments “without undue delay and in any event not later than 14 days after the contract is terminated”.

Airlines and flight-only sales are not covered by the PTRs so not bound by this regulation.

The issue right now for tour operators and agents is also clear.

Many will go out of business if they refund all customers in 14 days after the cancellation of bookings caused by travel restrictions turned into an avalanche on Tuesday when the Foreign Office advised against all non-essential travel overseas.

‘Remove the 14-day window for refunds’

Abta laid out the action it wants on Monday, urging: “The 14-day window for refund payments be removed” and “refund credits” be allowed as an alternative to cash refunds.

Alistair Rowland of Midcounties Co-operative and chairman of Abta explained: “We need to know about refunds because no one is getting money from anyone.”

Leading industry accountant Chris Photi of White Hart Associates spelled out what is at stake: “If firms don’t have to repay cash, they won’t have to put themselves into insolvency. They need this now.”

Photi pointed out correctly: “Half of Europe has tweaked the law so companies don’t repay but give a voucher.”

Unfortunately, some of the ‘tweaks’ in EU member states may yet be challenged in law.

Abta is seeking a legal work-around – proposing a temporary switch from cash repayments to “delayed refunds”

The issue with ‘vouchers’ or credit notes is what happens if the business which ‘refunded’ the holiday payment with a voucher goes bust before the consumer receives the outstanding payment or takes the holiday.

Vouchers are not covered by the PTRs/Atol Regulations so not financially protected.

However, Abta notes: “Where a refund is due [for a routine cancellation] and a company fails before the refund is paid, the refunds have always been protected by Atol.”

Hence, its proposal is to offer consumers ‘delayed refunds’.

The source points out: “This has to work legally for the Air Travel Trust. It’s legally important.”

We must hope the government agrees quickly to the proposal, or a version of it. In the meantime, the uncertainty must be excruciating.

But there are good reasons for believing clarity will come. The government clearly appreciates the dire straits businesses are in and won’t want to add to the immediate burden on tax payers from companies going into insolvency.

The same source notes: “It is in no one’s interest to have a further crisis of confidence. That point weighs heavily. This is an extraordinary crisis and everyone is looking for something that works.”

Refunds: the advice for now

For now, the best advice is to pause, not panic – hang on while the situation is clarified. It is important that businesses do not go bust because they are making refunds.

No one is legally obliged to refund customers before the 14-day window has elapsed.

Agents should note refunds should be paid by Atol holders/suppliers, so tell customers that.

Consider the system is likely to change within 24-72 hours and ask: ‘Will the business survive if we refund now and thereby deny other customers their refunds?’

The industry source noted: “It is not good practice to start refunding until you run out of cash and cannot refund anymore. It’s not legally right to refund only the first customers you can.”

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