In the last two weeks the failures of airlines Zoom and Futura and travel companies Pure Flights and Brilliant Weekends has merely highlighted that the credit crunch, cost of fuel and adverse currency movements are biting hard in all sectors of the travel industry. We are “only” in early September. Expect more as the month of September unfolds, particularly with the forthcoming September 2008 ATOL renewals.
An underlying problem with many failures is the knock on effect that it can have on other travel companies. The conundrum most companies face relates to the stability of their suppliers. Any company supplying to the trade has a desire to secure their position by means of up front deposits and payments usually pre-departure. The company that makes such payments leaves themselves exposed to the financial stability of their supplier. Therefore stable and viable companies who have managed to ride out the difficult trading conditions can find themselves dragged into the morass due to supplier failure while holding advance monies.
I am frequently asked by clients how they can protect themselves in such circumstances. This is an extremely difficult question to answer. If they are not able to abide by their supplier’s terms then they are unlikely to get the components they need in order to trade. The alternatives are to try to insure this risk or to set up an escrow account by mutual agreement with the supplier where the advance funds can be deposited and released when the contract has been concluded. Regrettably in an industry where advance monies have now become part of normal expectation and cashflow such arrangements are very difficult to agree upon and implement. I have been speaking with insurance companies and insurance brokers with regards to adaptable insurance product in relation to principal supplier failure. It is difficult to find all encompassing cover, as insurers are well aware of the financial instability of certain travel companies. In such circumstances insurers will seek to exclude named suppliers under such arrangements.
Quite rightly great consideration is given by the industry to consumer protection. However, in my opinion little thought is given to protection of the travel companies themselves in relation to supplier failure which in turn has a knock on effect to the consumer. Bluntly, in the current economic climate what travel companies would want to prepay an airline or similar any substantial sum of money? This creates a vicious circle, with frankly no easy or immediate solution. The simple advice is, do not take for granted the financial stability of any supplier given current economic conditions.
