Travel companies operating best practice are stuck down the supply chain, says Lusso managing director James Weaver
I have seen much written and comment provided around the ‘trust’ model being proposed as being the silver bullet going forward, however this model of trust has to be enacted at all levels of the supply chain.
Having founded my business on the core principle of a segregated ring-fenced environment for client monies, I have never needed nor wanted credit from any supply chain partner. We have always paid airlines and hotels promptly in advance of travel. This undoubtedly mitigates against client detriment in the event of tour operator failure as those clients will have had their holidays paid for in advance of travel, or the money is protected to return to clients.
However, companies such as ours which run on this arguably best practice basis are now needing to retrieve these large sums of money from further up the supply chain. No company could ever see a situation where 100% of all prepayments would need immediate retrieval and no regulator would ever mandate that there was 100% cash cover in the business for such event.
Cue the musical chairs. Now the music has stopped, who is sat on the money? Unfortunately, it’s hotels and airlines. They are now either unwilling or incapable of returning these monies as they do not operate on the trust model. If they did, they would return the money in an instant. This has been compounded by the fact that many offer credit terms to the big players, many of whom are also guilty of not running on segregated trust and client money principles.
Strong, independent operators such as ourselves who have endeavoured to create a best practice and ethical business that looks after clients and suppliers are now being affected by hotels that do not have the available funds to return to us quickly. I really feel for them, some are not huge chains but independently-run family businesses that now also have the monumental task of juggling cashflow. Many are appalled they are now in the situation that they cannot return funds for stays not yet enjoyed for clients of pre-pay operators while large tour operators extend credit terms on bills that have not been settled for, in some cases, stays as far back as Christmas 2019.
There are reports of some operators extending credit up to 120 days, which means that client money will be utilised by those companies for up to six months. These hotels fundamentally recognise this is causing damage to the relationships of agents, clients and tour operators alike who are asking those clients to give them time to retrieve the funds. Those same hotels are acutely aware that the client knows their refund is delayed due to the delay by the supplier in returning those monies down the supply chain. I am sure many hotels and suppliers will review these credit terms going forward and recognise it has to end.
I would like to say, however, that our suppliers have been phenomenal and are trying their best to get these funds back to us as soon as practically possible. Speaking with industry colleagues, there are also a number of great small tour operators who are in an impossible position in the short term as they are being told by suppliers, airlines and hotels alike they will only give the client a credit. Thankfully, while we are suffering delays back to us in the majority of cases we are at least being offered the cash refund.
Being 100% trade-only, many of our agent partners have achieved fantastic rebooking rates for affected clients. Dialogue has been essential in this process both with agents and their clients, and we have continued to operate with 50% of our business operational across all departments despite, like many travel companies, needing to take the relief offered through ‘furlough’ for the other half of our staff.
We absolutely recognise that clients have a right to a refund and our refunds are well underway, having started at the end of March. We have now refunded more than 50% of those clients who have asked for a cash refund despite the scale of the challenge. The open dialogue with clients has significantly helped, as no one wants to be an unwilling creditor of their travel company, but many clients recognise the significant challenges involved even for those operators which have never traded off client cash and are assisting in the knowledge they will get their refund without undue delay once funds are passed back to their operator.
The speed of refunding is being affected by many factors, such as the sheer scale of affected bookings, reduced staff numbers at suppliers, lockdowns in other countries and banking restrictions. Unfortunately, this process is now significantly harder as the ‘big boys’ flex their corporate muscle, dictating new credit terms to common suppliers. Cashflow has crunched with some suppliers and if you follow the money flow, my message is simple to these big companies: you have my agents’ client’s money, and they want it back!