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Comment: Firms should make tough choices to put customers first on refunds

A sensible approach must not be left open to abuse by companies who will stretch rules for their own gain, says ATD Travel Services founder Oliver Brendon

The travel industry is currently getting a bad press.  This is partly because many, probably most, travel companies are breaking the law by not refunding customers within 14 days, as stipulated by the 2018 Package Travel Regulations.

Clearly these regulations were not designed for a situation where every flight and every holiday is cancelled.  So, Abta is correct to request customers to be patient and to encourage members to issue credit refund notes whilst processing refunds as soon as they are able to do so.

It is also sensible to lobby government for an extension to the regulatory window so that travel companies can work to clear, legal and realistic deadlines, and consumers know the very last date when they will receive their money back.  Make no mistake, many customers need their money urgently.

I talk to customers every day and have heard some heart-breaking stories from extremely stressed health care workers and from people who have lost a member of their family and from families who have lost all sources of income.

The lack of any legal guidance from government is deplorable.  As a result, some Abta members (and indeed some non-Abta members) are referring customers to selected sections of the Abta guidance – especially the parts relating to credit refund notes – and using these ‘rules’ to delay customer refunds.

With the lack of a law that is fit for purpose, travel companies are in effect making up their own rules.  They do anything from paying cash refunds in instalments to supplying ‘Abta-backed credit refund notes’ or to simply saying that ‘holiday dates are flexible’.

Five approaches to refunds

I can identify five groups of travel companies by their different policies of giving customer refunds relating to Covid-19.

The first group are those companies doing their utmost to get money back to customers promptly.  There are many and this group is significantly larger than the consumer press would lead you to believe.

The second group are those companies who are simply unable to refund customers.  These are mainly smaller tour operators and travel agents who have already paid money to suppliers and have not had it back.  Money is flowing from suppliers to agents though.  My company has refunded every trade booking for departures until the end of May, for example.  Airlines probably have most of the funds and Abta lobbying should be focused on getting this money moving from airline to tour operator to agent to customer.  Thereafter, it’s imperative that airlines are regulated and customer money is kept safe in trust funds.

The third group are unwilling to pay refunds.  Multi-national tour operators will not have paid many suppliers and they are holding large amounts of customer cash.  They can raise more funds via debt or equity.  Yes, it would be painful.  Yes, it would be disruptive.  Yes, it would impact shareholders’ dividends and directors’ bonuses.  But this group have by no means exhausted all available means to refund customers.  They are not doing all they can to abide by the law.  That should be their number one priority and it should certainly come above ‘maximising shareholder value’.

The fourth group would probably struggle to survive any crisis let alone one as significant as this.  It is heart-breaking to see any company fail.  Dreams of the founder are shattered, and loyal staff lose their jobs.  However, that is the very nature of business and every year in this industry many companies disappear.  It’s probably better to admit defeat and perhaps try again once this is all over.  From a customer refund point of view, at least, the credit card chargeback route becomes a viable option for them if the merchant ceases to trade.

The fifth group – and this group is significant – are those travel companies owned by private equity (PE).  Look around at the terms and conditions of PE-backed travel companies and the trend becomes clear.  There is lots of talk about ‘flexibility’ and ‘financial protection on new bookings’ and ‘we are here for you to discuss your options’ and ‘credit refund notes’.  But there are no promises of prompt refunds.

These companies are highly leveraged with debt and they have paid huge dividends to new PE owners in recent years, as well as substantial finance costs to banks and other lenders.  Travel appeals to PE because of the positive cash flow – companies receive cash from customers many months and sometimes years before the travel date.    But there needs to be a realisation that customer cash is not your cash.  Travel companies cannot and should not recognise revenue and profit based on booking date as many PE-backed companies do.  The revenue and profit should only be recognised once customers have departed or returned from holiday.

Customers must be number one priority

The number one priority of all companies – but in particular travel companies – should be the customer.  PE firms buy companies to sell them again.  Their prime objective is to maximise their financial return.  But that objective simply doesn’t work now and for the foreseeable future.  This group of companies are choosing to bend the rules.  They have access to more debt and to capital but do not want to use it to refund customer money that invariably they have already taken out of the business.  Putting this cash back in will be difficult and uncomfortable, re-financing the business may lead to dilution, refunding customers will lead to some financial losses.

I would urge them to take the necessary action though because by not refunding customers promptly or at all they are giving the whole industry a bad name and threatening our future.  PE can be of enormous benefit when times are good by releasing shareholder value, helping companies to grow and become more professional.  They do, however, need to take the rough with the smooth.  The travel industry is volatile and risky.

Rules will be stretched

Which brings me to Abta’s decision to lobby government for a regulatory window extension to March 2021.  That is a year from when the crisis struck and unacceptable to consumers.  Furthermore, it is clear that some travel companies are already stretching the refund period and using Abta’s current guidelines as an excuse to delay refunds for unacceptable periods.

If March 31, 2021 becomes the last date that travel companies are legally allowed to refund customers, it will become the last day that many of them do refund customers.   It is naïve to think that PE backed companies or multinational corporations will not make full use of any extension to the regulatory window.  They will be hoping to use cash from new bookings to refund cancellations from Covid-19, setting the whole industry up for yet another disaster the next time a crisis hits or a second or even third wave of the virus arrives.

Those healthcare workers, people who have lost a member of their families to Covid and families who have lost all sources of income will have had to wait a year to get their money back.  That is wholly unacceptable, especially because the shareholders of some companies are clearly not exhausting all other means to raise the necessary funds.  Regardless of how long the regulatory window is extended, customer refunds need to become a moral question rather than a legal or financial question for the shareholders of some of the companies in the third and fifth group that I have identified.

They should do what is right.

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