Low Cost Holidays collapse: customer rights Q&A

The Big Questions: Low Cost Holidays has gone into administration, leaving travellers uncertain if their trips will go ahead. Simon Calder outlines the options

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The Independent Travel

Low Cost Holidays' collapse has left 140,000 customers with current or future bookings uncertain if their trips will proceed as planned. Snap shot: It looks ugly. If you are among those who have collectively paid more than £50m to this Spanish online travel agent, the chances are that your flights are safe. But regrettably there is a great deal of uncertainty about everything else, and you may have to pay again for hotels and ancillaries.

What was Low Cost Holidays?

An online travel agent (OTA) based on the Spanish island of Mallorca. It sold flights, accommodation, transfers and other travel elements to a largely British clientele. 

Because customers were dealing with a foreign OTA, they have none of the rights that someone buying a proper package holiday in the UK would have. The terms and conditions of a typical OTA specify that the customer’s contract is with the supplier and not with the agent. And if any element of the trip goes awry, the customer is on their own.

What happened to the company?

It went bust on 15 July. A statement on the website says “the directors wish to profusely apologise for the inconvenience and distress that this will cause to customers”. They blame “the recent and ongoing turbulent financial environment” for the collapse. Up until that date, Low Cost Holidays was still taking in money, but evidently not enough to pay its liabilities.

What happens next?

To predict that, it helps to understand how the business was conducted. Travel is a highly “cash positive” industry: prospective holidaymakers pay large sums weeks or months before they travel. A typical pattern in the failure of travel firms is for earnings from new bookings to be used to pay off past liabilities, until the money runs out.

When Low Cost Holidays took money from the customer, flight tickets were generally paid for immediately. That is because of the business model used by budget airlines, where prices change frequently and increase close to departure: the only way to lock into promised prices is to pay at the time of booking.

For all other elements of a trip, though, Low Cost Holidays typically paid after the trip had been completed. So hotels, transfer firms and car-rental operators are unlikely to have received the money paid by the customer.

How much is at stake?

I estimate that the 140,000 customers affected by the collapse collectively have spent upwards of £50m on their holidays. Perhaps half of this has been passed on to the suppliers, almost all of it to airlines. The remaining £25m-plus is owed to a range of creditors, including hotels for past, present and future bookings.

Shouldn’t holidaymakers’ money be ring-fenced? 

Some travel companies pay customers’ cash into a trust account and do not access it until the trip is completed. But many do not, and Low Cost Holidays was one of them. 

I’m on holiday with the company. What are my rights?

Regrettably, probably nothing like the protection you would get from a proper package holiday. Let’s start with the good news: it is very likely that your homeward flight is secure, because the fact that you got to your destination indicates the airline has been paid. For those who have yet to travel, the same applies. 

But for other elements of a trip, it gets complicated and potentially expensive. Your accommodation provider has probably not been paid for your stay and will ask you to pay again before you leave. Likewise, any ancillaries such as transfers, will require payment before they agree to take you. 

While you have a contract with each of these firms, the fact that they see no prospect of getting any money from Low Cost Holidays nullifies the arrangements you thought you had. If that sounds harsh, just remember that these companies will be very hard hit by the collapse, and are desperate to limit the damage.

Even if the flights are safe, I can’t afford to pay again for accommodation. So can I just reclaim all the money I’ve paid already, including flights?

Unfortunately not. Because you agreed to individual contracts with each of the suppliers - airline, hotel, etc - your flights are subject to the airline’s terms. They are likely to be onerous in terms of getting a refund. You might end up getting only the tax element back, which will be a small proportion of what you originally paid. So even if you end up camping, it would be better to take those flights.

Assuming I can afford to pay again, who can I claim that money back from? 

That is proving difficult to clarify, because of the Spanish domicile of the company and apparently contradictory assurances. Low Cost Holidays was a Spanish company which did not hold an Air Travel Organiser’s Licence (ATOL).

The statement from the administrators, Smith & Williamson, suggests you may be able to claim the amount back from the Balearics government (as “regulator of the Spanish Travel Agency”); your travel insurer; or your card issuer.

Whoever you intend to claim from, keep receipts for all your expenditure. The administrators also say: “You should also register your claim at lowcosttravelspain@smith.williamson.co.uk

The Balearics government must have plenty of cash?

Yes, but it is not at all clear that the Govern de les illes Balears (caib.es) will meet the obligations of Low Cost Holidays. 

At the time Low Cost Holidays migrated its base from Sussex to Mallorca in 2013, it promised customers that the move would bring “significant benefits” in financial protection. The director, Paul Evans, said: “All bookings made through our website which includes at least a flight and accommodation should be regarded as package holidays in terms of consumer protection; thus increasing and enhancing the protection and security available to our customers.”

But Andrew Haines, chief executive of the Civil Aviation Authority (which oversees the ATOL scheme), said at the time: “If you book a holiday on lowcostholidays.com, you won’t receive ATOL protection. In fact, our legal view is that you may not have any protection at all and even if you do, the protection the site claims to offer is extremely limited.”

The Air Travel Reserve Fund, maintained by the CAA to pay for holiday-firm failures, is extremely rich at present, at over £100m, but it will not be used to refund Low Cost Holidays customers. 

The only possible relevance of an ATOL would be in the rare case that a UK tour operator used the Low Cost Travel Group as a supplier for a package or “flight-plus” arrangement, typically by supplying accommodation. If you are in this position then you will have been given an ATOL/flight-plus certificate. In that case the tour operator is obliged to provide the holiday as booked or offer a full refund. 

What about travel insurance or card cover?

Your travel insurance policy, if you have one, may or may not offer cover for the failure of a holiday firm. But most holidaymakers (including me) don’t read the small print. Or they may opt for a cheap policy and wrongly assume all trips are covered by other consumer protection.

Probably your best chance of recovering some or all of your expenditure rests with the card company. If you paid with a credit card for an item costing £100 or more, then you may be covered by Section 75 of the Consumer Credit Act. The card issuer is jointly liable with the supplier to provide what you paid for. 

If you paid with a debit card, you have no such legal entitlement but many banks will provide a “chargeback” arrangement that has much the same effect. Talk to your card issuer - they will probably already have a policy in place for customers of Low Cost Holidays.

What about ABTA?

As a Spanish travel agent, Low Cost Holi days was not a member of ABTA, the UK travel association

How can I be sure of protection on future holiday bookings?

The best consumer protection is gained by booking a proper package holiday that is protected by the ATOL scheme.