Tuesday, 26 July 2016

Lowcostholidays - early warnings ignored

I wrote this article in 2013 for a publication specialising in travel law. I've resurrected it now to illustrate the failure of the mainstream media - of which I was long a part - to run complex stories on financial protection for travellers. A Fleet Street editor once told me he didn't want "anything about insurance" in the travel pages. I doubt if this will ever change. Yet his and other paper have always been quick to attack when thousands of Brits are left out of pocket or stranded in foreign resorts when a tour operator collapses. 

Though it passed almost unnoticed except by customers directly affected and travel industry insiders, the decision by Lowcostholidays to shift its business base from Britain to Spain was a seismic event in the development of protection for consumers booking holidays by air. The move coincided with debate over the European Commission's blueprint for updating its 1990 Package Travel Directive, which includes a proposal to make the cross border sale of holidays easier. The Commission cites a fictitious operator in Luxembourg who wants to sell packages in Belgium, France and the Netherlands but can't, because they won't accept the protection regime in the company's home country. In the case of Lowcostholidays we have an operator based in Spain, wanting to sell holidays in the UK. To the lay eye it would seem that under current EU law the UK authorities would be justified in taking the same view as the three countries in the EU example. I should add here that, after some initial confusion the Civil Aviation Authority confirmed that customers who had booked before the operator' transferred its business on November 1 would continue to be protected under Its UK ATOL certificate but that any protection for those booking after that date would be provided by the Spanish authorities. According to the Authority, which issued that ATOL, Lowcostholidays was selling holidays under the recently introduced flight plus rules in Britain but in Spain it will be selling them as packages. Flight plus protects consumers against insolvency but doesn't covers all the other elements of the Package Travel Regulations such as the right to cancel if an essential part of the holiday is changed. So where's the problem, you might wonder? Aren't Lowcostholidays customers getting better protection as a result of the move than they would have received if the company had stayed here? That's a tricky question to answer. In Spain EU directives are adopted by Madrid but implemented regionally. The region in question comprises the Balearic Islands. Under EU law, of course, travellers must be reimbursed if an operator fails before they depart. How easy would it be for them to secure that reimbursement if they had to deal with a foreign authority? The law also requires that that they must be repatriated in the event of a failure while they are on holiday. But where to? Harking back to the EC's example, it might not be such a problem if holidaymakers from Luxembourg were flown back to, say, an airport in Belgium. But what would happen if a company based in Mallorca - carrying passengers living in Britain - were to go under. Would the the Balearic Island Government be required to organise repatriation to British airports? Where would it find the aircraft? How much expertise do the authorities there have in such emergency situations, compared with the UK CAA? In theory a single, mutual recognition of protection regimes between EU member states may look attractive. In practice it would run counter to a priority long recognised in London and Brussels, which is to make protection simpler to understand for travellers. Imagine a future in which consumers have a choice of booking with operators based in three or four different countries, all offering the protection required by European law but all interpreting that law in slightly different ways. The result would be more, rather than less, confusion. One way of dealing with the problem of cross-border sales is through bi-lateral agreements between states, though for some in Brussels this may sound a retrograde note, evoking memories of air service bi-laterals in the dark ages before the single market in air travel. This would at least allow authorities in one country to thrash out agreed mechanisms for refunds and repatriation. What such agreements cannot do is ensure that the best expertise available is employed in ensuring that, whenever possible, companies go under at relatively quiet times of year, when the damage to holidaymakers is least severe. This is something Britain's CAA has become adept at over the four decades or so since Court Line, owner of when was then the UK's largest tour company, Clarkson's, collapsed slap in the middle of the summer peak. It should not be forgotten that even if consumers are guaranteed to get their money back when operators fail, they still often face disappointment that a carefully chosen and much looked forward to holiday now won't happen as originally planned. The mutual recognition proposal is not the only flaw in the draft directive. What exactly is an "assisted travel arrangement"? Does it include sales made on airline websites where a customer clicks through to book a hotel or rental car under a separate contract? Some experts think it does but it's not at all clear to me. Where does responsibility lie for organising protection? And why place an absurd arbitrary minimum value - ie 20% of the holiday price - on an additional element which, sold with a flight, turns the arrangement into a package? All these questons gether greater gravity in light of noises from Government suggsting ministers will be reluctant to "gold plate" new EU regulations for the better protection of UK consumers. Better make sure that they get it right to start with.

Saturday, 23 July 2016

Travel uncertainty and the staycation myth

No sooner does the £ plummet than the "staycation" myth raises its hoary old head again. It's as predictable as "crashed jet had history of problems" when some hack has got hold of its routine maintenance records. Suddenly, so goes the lazy thinking, thousands of Brits have decided to stay in the UK rather than face the increased costs created by the slide in sterling since the Brexit vote. There will be some effect, admittedly, but it won't be significant. Why? First because the vast majority of Brits planning summer holidays have already booked - and in many cases paid in full - for their breaks. And second because the lack of guaranteed sunshine here means you may lose most of any currency related savings in ticket prices at rain proof attractions. Any serious increase in numbers holidaying in Britain is more likely to be the result of terrorist attacks that have made Tunisia and Sharm el Sheikh near no go areas and devastated Turkey's tourist industry - which has been dealt a further blow by lsat week's attempted coup. This has made accommodation in popular western Mediterranean resorts much harder to come by. As for the longer term impact of Brexit on holiday decisions, much will depend on political developments between now and the main, post Christmas summer booking season (it's increasingly likely that those of us who ski will find our already pricey trips markedly more expensive next season). An economic downturn could spell serious problems in the travel industry, especially for tour operators who gambled that a Remain vote would but the value of sterling. Further high profile collapses would clearly dent public confidence. One the other hand, signs that a deal is in sight with EU leaders that would result in the UK effectively or actually staying in the EU could encourage traders to buy sterling again, pushing its value up. Its weakness has already prompted the big US airline Delta to reduce planned capacity on winter flights from the UK to the US. Better safe than sorry. ON top all this is uncertainty caused by the US Presidential election. Suppose what would have seemed purest fantasy a couple of year back comes to pass, and Donald Trump beats Hillary Clinton to the White House.What would be his policy on the visa waiver programme? Trump has already spoken of a ban on immigration from countries with problems of home grown terrorism. It doesn't seem to me such a big jump from there to the reintroduction of visas for travellers who are currently exempt. It must add that successive Washington administrations have failed dismally to attach sufficient importance to incoming tourism. I fervently hope whichever side takes power next will recognise the importance of maintaining the visa waver programme. One thing's for sure though, not many Brits are likely to replace a hoped for American holiday with a staycation.

Friday, 8 July 2016

Brexit travel prices update

It appears not to have dawned yet on many prospective summer holiday travellers that the £ has plummeted in the aftermath of Brexit. Tour operators are reporting that bookings have continued to arrive, particularly for long haul trips. But there seems little doubt that in the slightly longer term, things look bleak for consumers and the industry. As I write sterling is 10% weaker against the euro than it was on the eve of the vote and around 13% down against the US dollar. So a couple of weeks touring for two people in Europe, with spending at, say a relatively modest €300 a day, will cost the best part of £400 extra. Package holidaymakers will be less hard hit, as they will have paid much of the cost upfront. Those who have booked all inclusive trips will escape most lightly. But watch out if you made a pre-Brexit hotel booking on a website allowing you to pay when you check out and showing an illustrative per night price in £s. By the time the credit card fee has been added and the fall of sterling taken into account, the final bill could look very different. It's open to question whether or not there will be surcharges on packages. The amount and timing of surcharges are tightly limited by an EU directive passed not law by the UK Government. (Yes, the same EU British voters elected to leave).Tour operators must absorb extra costs - such as those created by currency fluctuations - up to the first 2% of the holiday price. They can't surcharge later than 30 days before you depart. And the maximum they may charge is 10% of the package price. Much will depend on the extent to which operators bought in advance the currency needed today hotel companies and other suppliers abroad. Industry insiders say it's certain that some were caught out, gambling that a remain vote would prompt a rise in sterling's value against the euro another currencies. As for this who haven't decided where to go yet, the advent of online bookings has at least given operators more flexibility to adjust prices than in the days of the hard copy brochure. The more expensive the accommodation you choose, the more the price is likely to rise. If the hotel element represents, say, 60% of the price of a £700 holiday in Euroland, that price could rise by £56. But even that calculation hangs on whether the operators decides to sacrifice some of its profit margin to keep business flowing. On top of all this is the impact on flying costs. The price of aviation fuel, which is paid for in US dollars, has dropped. So, since 2010,have average worldwide fares. As with tour firms, the short term effect will depend on how much - and at what rate - airlines bought forward. The percentage fuel represents as a proportion of airline operating costs varies, depending on the length of routes (it's higher on short flights) and the efficiency of the aircraft they use. So even working out what impact a 7% appreciation of the US$ against sterling will have on overall fares is mighty difficult and calculating the effects individual routes with any certainty impossible. That said, I wouldn't be surprised to see fares from the UK rising by 2%-3%. All this speculation depends, of course, on speculation - the speculation of currency traders as they bet on the way they think the UK economy will move. All I can say on that front is - buckle your seat belts.