In this latest installment from ‘Ground Control’ – CATO’s quarterly, digital mag for the travel industry – Aaron Zoanetti, travel law expert from Pointon Partners explains where you stand when a third-party you do business with suddenly goes into liquidation.
The past few months have certainly tested our industry both in Australia and internationally.
Locally we saw Bentours, Tempo, One Ocean Expeditions and Excite Holidays enter liquidation and directly impact our market. Globally, we saw behemoth Thomas Cook experience the same outcome.
You may think you’re an agent, but may inadvertently be acting as a principal. Either way, how are you exposed and liable to the end customer?
The question for Australian re-sellers is, when do you become personally exposed for forward bookings made for clients?
This exposure could easily run into six-figures for a small volume of bookings where you are selling higher-value products.
In simple terms:
- Where you are selling the product as agent for the operator under the operator’s booking conditions and receiving commission, the client’s contract will be directly with the operator, and you as retailer are not responsible to refund the client for the forward booking.
- Where you are reselling the product as principal under your own booking conditions and charging a margin, then the client’s contract is directly with you, and as principal seller of the product you become responsible to refund the client for the forward booking.
However, the way travel is sold and also the manner in which the client pays can lead to grey areas. For example:
- If you are selling purely as a retail agent, but the client pays with a credit card, then the client may seek a charge-back, even though you have already on-paid the operator.
- So, even though you aren’t legally ‘exposed’ to the client, financially you are.
- If you are ‘packaging’ the failed-operator’s product with other services and selling at an inclusive price, then you may have shifted from ‘agent’ to ‘principal seller’ and therefore be financially exposed.
So, how can you minimise the risk?
- Be clear about the way you are selling the product with your customer – if you are selling purely as a retail agent, state this to the customer and make sure your booking conditions reflect this.
- If you are selling as principal seller, check whether you can negotiate with the operator to pay for services post travel.
- AFTA’s Chargeback Scheme can help to reduce chargeback exposure from forward delivery risk.
Travel intermediaries not already engaged with ACS are encouraged to investigate and consider participation to help to plug the exposure gap.
As always, make sure you have robust legal documentation in place, at both the supply and distribution sides.
Finally, if an operator does collapse, as much as you may feel a moral obligation to the client, don’t automatically assume you are legally responsible.
Seek advice, and if the outcome of that advice is that you are not legally responsible to the client, then you will at least be coming from a sound position to negotiate a solution with the client that protects your reputation whilst minimising financial exposure.
This article was published in the December edition of Ground Control magazine. It was updated to include the reference to Excite Holidays.
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