Regulation: Licence to kill profits: Bonding rules could put sellers of cheap air tickets out of business

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The Independent Online
THE TRAVEL industry faces troubled times as a result of the Civil Aviation Authority's new guidelines on air-ticket sales.

The changes are designed to protect consumers by forcing any firm that sells discounted scheduled tickets to hold an Air Travel Organisers' Licence - known as Atol. In practice, this could drive many companies out of business.

Worst-hit are the consolidators, who sell wholesale to travel agents and the public. Their profits will be cancelled out by the bonds they are now required to raise; the CAA has warned it will prosecute anyone who fails to comply.

Firms that have traded profitably for at least two years have been asked to provide a bond of 10 per cent of turnover, while for newcomers the rate is 15 per cent.

An established consolidator with a turnover of pounds 50m would therefore need a bond of pounds 5m, and with premiums ranging between 2 and 7 per cent depending on financial status, it could end up costing as much as pounds 490,000 a year.

'Unless a solution can be found, 90 per cent of us are likely to be forced out of business,' said Vimal Khosla, MD of Globepost Travel Services.

'My company has traded profitably for 11 years and we employ more than 30 staff, but in the rush to implement protection against cowboys, the CAA seems to be prepared to throw away a very large chunk of the retail and wholesale travel business.'

His complaint is that despite the CAA's charter, which stated that it would take into account the views of the industry before making any changes to the licensing system, consolidators were not consulted at all.

'The CAA was aware that we were forming the Association of Airline Consolidators, but made no effort to contact us,' said Mr Khosla.

Helen Simpson, of the CAA, said discussions with the consolidators were now taking place. 'We have signalled that we will be flexible about bonding levels and so on, but we believe the present situation is completely unsatisfactory and we cannot let it continue.'

The solution, it seems, rests with the airlines. Under current regulations, if a consolidator can prove it has an agency agreement with each airline it deals with, it will be exempt from having to hold an Atol.

Under the terms of the agreement, the airline is responsible for providing customers with either a flight or refund if the agent goes out of business before the ticket is issued.

However, the CAA's new proposals mean that unless the agent can provide the ticket immediately, or can issue a receipt on an Atol holder's behalf, it will need the licence after all.

It comes as no surprise to learn that airlines are reluctant to enter into full agency agreements. But that may change as they start to realise they could lose important outlets.

'Most airlines have run down their sales departments, and a large chunk of their distribution is handled through consolidators,' said Mr Khosla. 'We hope they will be able to work with us to find a solution.'

But with more than 100 airlines to deal with, there is a lot of work to be done. David Mortimer, chairman of the steering committee for the Association of Air Consolidators, said the problem was compounded by the fact that even with agency agreements in place, consolidators would still need Atols in order to sell to sub-agents.

The only way around the problem is if airlines are prepared to extend their commitment to cover sub-agents too. 'There are currently around 300 consolidators serving more than 8,000 travel agents, and their very existence is being threatened,' he said.

'Clearly we have to come up with a new contract which is acceptable to the airlines. If we can do that, much of the problem will disappear overnight.'

Meanwhile, Colin Heal, chairman of Artac - the alliance of independent travel agents - is trying to get the CAA to approve some form of group cover for sub-agents not covered by agreements between consolidators and airlines.

'Unfortunately, these regulations have come into force at the same time as the Association of British Travel Agents has increased the cost of contributions to the fund which enables it to provide the Abta guarantee,' he said.

'Every sector of the industry agrees that consumer protection must come first. But in addition to being members of Abta, most travel agents also belong to the Independent Association of Travel Agents and the American Society of Travel Agents, all of which are designed to protect the consumer.

'We already operate on tight margins; this could be the straw that breaks the camel's back. With Atol on top, we will not be able to provide what the passenger wants - a cheap ticket.'