Travel businesses and the Department for Business, Energy and Industrial Strategy (BEIS) face a tough dilemma as the industry falls on its knees within weeks of the coronavirus pandemic unfolding.
It now seems remarkable that just six weeks ago passengers were finally permitted to disembark the Diamond Princess and that European countries had announced only one coronavirus death to date.
Current refund rules for the travel industry
Under the Package Travel Regulations (PTRs), businesses are required to refund customers within 14 days of cancelled bookings. This protection is, of course, one of the main draws of attracting customers to book their holidays with ATOL travel companies.
If businesses are now, for their very survival, forced to require customers to accept credit notes or vouchers, will years of loyalty and confidence in the regulated industry be lost in an instant? On the other hand, will customers, in forcing refunds, feel comfortable knowing they have played some part in seeing their holiday provider fail? The industry recognises both the legal and moral dilemmas they face with what would be an unprecedented move.
Industry demands new temporary refund measures
ABTA had asked for the 14-day refund window to be extended to four months and to permit government protected refund credit notes to replace cash refunds temporarily (to bring the UK more aligned to EU temporary changes already made). Despite ABTA making a renewed appeal to ministers on Monday 30 March, which warned that a lack of action will put businesses on the brink, no pronouncement has been made by BEIS as of 2 April.
It appears that BEIS are concerned by both the political and legal aspects along with public perception. There is a risk however, as the effects of the measures to fight the pandemic increase that this strategy will not go far enough.
With no ruling, businesses will need to tread carefully through what is, frankly, a mess. Commercial decisions are having to be made quickly, the PTRs, as they stand, must be complied with and directors must be mindful of their fiduciary duties in light of the recent Government announcements. Without any action, it is increasingly likely that customers would seek refunds under section 75 of the Consumer Credit Act. This again is a route that could be catastrophic for travel companies with resulting chargebacks.
The impact of airline refund measures
On the supply chain front, travel businesses cannot quite believe the position airlines have taken. It is understood that the European Commission is considering updating guidance on airline refunds for cancelled flights.
In this event they would temporarily modify the requirement of Regulation (EC) No 261/2004 on air passenger rights to reimburse consumers within seven days of cancellation and to permit the issue of credit notes or vouchers. If this occurs, it is likely to cause further irreversible damage to tour operators and travel agents.
Cash is king when it comes to survival
Whilst the industry anxiously waits for a BEIS decision, businesses must take every action they can to protect their cash position – the key to survival in the short term. All businesses should have by now considered their ability to make use of the Coronavirus Job Retention Scheme, the Coronavirus Business Interruption Loan Scheme and other relief and support available for businesses.
Looking forward with as much optimism as possible, one certainty is that consumer appetite to travel and take holidays will return - but the world in which the industry operates is likely to look very different. Business and leisure travel may never quite look the same again. It’s very unfortunate, but almost certain, that there will be less competition in the marketplace. For those businesses that survive, there is an opportunity to thrive when the world returns to some resemblance of normality.
For more information, please get in touch with Tim Robinson.