Lowcost Travel Group’s failure raises serious questions. The first is why were administrators called in only in mid-July?
A second is why wasn’t there greater provision for consumer protection? Upon relocating the business to Majorca in 2013, chief executive Paul Evans claimed: “All our customers are fully protected.”
Not so, according to the Balearic Islands government, which confirmed Lowcost Holidays Spain had a “total” guarantee of €1.2 million to cover just those with bookings for flights plus accommodation.
Were the joint administrators and all other creditors to take nothing there would be less than €8.76 for each of the 27,000 customers and the holders of 110,000 forward bookings.
There will be knock-on effects for companies that contracted beds from Lowcost. Fortunately, the CAA’s insistence on trust arrangements to cover flight-plus Atol business should minimise the impact. But rebooking clients could be challenging.
The CAA and Abta, to which consumers and the industry would normally turn, are largely powerless because Lowcost Travel turned its back on them.
The company deserted the Atol scheme in November 2013. The CAA warned at the time: “The Balearic scheme provides little protection for UK consumers.”
A third question is why was Lowcost not prepared to submit to the scrutiny of the UK regulator? Had it retained an Atol, the CAA would have nursed the company through to the autumn to limit the damage to holidaymakers, and the Air Travel Trust would have fully protected bookings.
Indeed, we can assume the CAA would have acted before the summer to ensure Lowcost had sufficient capital to continue trading or sufficient collateral to cover its liabilities, or have pulled its licence.
Lowcost claimed attempts to save it had been “hampered by the turbulent financial environment”, while the administrators suggested: “The group experienced significant headwinds in the run-up to the EU referendum…compounded by the subsequent fall in the pound.”
This may explain the failure of a last-ditch rescue, but it won’t wash as an explanation for the group’s demise. This is not a distressed outbound market.
Holiday departures from the UK were 8% up year-on-year in the 12 months to April, and industry analyst GfK reports bookings for this summer up 5% year-on-year to the end of June, despite the uncertainty.
So what state was Lowcost Holidays in when it moved to the Balearics? What was its state when it restructured last year and moved to Krakow? What provisions have been made since? What money, if any, is left in the business?
And, if there was no money to pay for the rooms of so many clients, why was the company trading up until last Thursday?
The cash from the customers’ accommodation bookings must run into millions – and it must be somewhere. However, the questions extend beyond Lowcost to the government and EU, because there is nothing to suggest the group was trading illegally.
The EU opened the door to this debacle through its Services Directive, which allows companies based in one state to trade in another under the rules of the state in which they are established.
The new Package Travel Directive, which the government is bound to bring into UK law before Britain leaves the EU, will embed this principle. The problem this poses could not now be clearer.