Leading article: Travel firms go bust, but the public needs protection

Share
Related Topics

In just about every economic downturn, a large travel company seems to go bust. In 1974 it was Court Line, the business that pioneered "cheap and cheerful" package holidays to Spain. In the early 1990s, International Leisure Group, which at the time enjoyed a 20 per cent market share of the holiday industry, went to the wall. Yesterday it was XL, the UK's third biggest package holiday group, which called in the receivers.

The fact is that such companies are particularly vulnerable in times of recession. When the public feel the economic strain, as they are at present, holidays tend to be among the first expenditures on which they cut back. And high fuel prices and the freezing up of the global credit markets have made conditions still worse for travel companies of late.

There were specific factors in play here too. XL had expanded rapidly and perhaps recklessly in recent years. It was always likely to be vulnerable if conditions changed.

So there is nothing particularly surprising about what happened yesterday. Indeed, more budget airlines and smaller travel companies could well follow in the months ahead. But that is not to argue that it is not a serious matter. The social effects of a travel company, or an airline, going bust are not like a normal business going to the wall. First, customers are left stranded abroad; second, those at risk of being left out of pocket by a collapse are not other businesses or banks, but ordinary families who have often paid a considerable amount of money.

XL's implosion has left some 85,000 customers marooned in various countries and some 200,000 people who booked through the company have been left in a state of limbo, waiting to see if they will get their money back.

The pressing question for the Government is whether the insurance scheme governing the sector can adequately protect those customers who booked with good faith in the soundness of the company. And it has to be said that the present compensation scheme governing the holiday sector – the Air Travel Organisers' Licensing scheme – looks rather flimsy.

Those who bought XL holiday packages are fully covered and will be flown home by another provider free of charge at the end of their vacation. But those who bought XL flight tickets only will have to pay again for their return flight. There are other compensation discrepancies too. Those who booked their tickets on credit card are automatically protected but those who did so with debit cards are not. All this seems to fly in the face of natural justice – it is hard to argue that customers should have known about these discrepancies before they booked. These are anomalies that the Government should put pressure on the industry to end.

Yet it is also worth bearing in mind that protecting consumers and ensuring market efficiency is a delicate balance. As we have seen, if the insurance regulation of a sector is too light, customers end up being financially penalised when a business fails.

But if a commercial insurance scheme is too onerous and expensive, it risks impeding the functioning of the market, shutting out nimble and innovative new players. Customers end up with less choice and worse value.

It will be the last thing on the mind of those who are surveying the ruins of their holiday plans this morning, but it is still worth pointing out that a vigorous free market in the vacation industry works much better than one regulated into sclerosis.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Tradewind Recruitment: English Teacher

Negotiable: Tradewind Recruitment: This post arises as a result of the need to...

Tradewind Recruitment: Class Teacher Required ASAP In Uminster

£120 - £150 per annum: Tradewind Recruitment: I am recruiting on instruction o...

Ashdown Group: Head of Finance - Financial Director - London - £70,000

£70000 per annum: Ashdown Group: Head of Finance - Financial Controller - Fina...

Ashdown Group: Marketing Executive - Wimbledon, SW London

£24000 - £28000 per annum + benefits: Ashdown Group: Marketing Executive - Wim...

Day In a Page

Read Next
 

I’m not sure I fancy any meal that’s been cooked up by a computer

John Walsh
Labour leader Ed Miliband delivers a speech on his party's plans for the NHS, in Sale, on Tuesday  

Why is Miliband fixating on the NHS when he’d be better off focussing on the wealth gap?

Andreas Whittam Smith
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

Homeless Veterans appeal

Homeless in Wales can find inspiration from Daniel’s story
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Pot of gold: tasting the world’s most expensive tea

Pot of gold

Tasting the world’s most expensive tea
10 best wildlife-watching experiences: From hen harriers to porpoises

From hen harriers to porpoises: 10 best wildlife-watching experiences

While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

'I don’t want just to hold tackle bags, I want to be out there'

Nick Easter targeting World Cup place after England recall
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written