Comment: Will the trade pay a high price for Lowcost’s failure?

Comment: Will the trade pay a high price for Lowcost’s failure?

The knock-on costs of the travel company’s collapse will go into six figures for some businesses, says travel lawyer Sarah Lacy, director of Serenity Trusts

We’ve all learnt lessons from the failure of Lowcost Travel Group: it doesn’t stop with the consumers who wished they had packed Atol certificates along with their budgie smugglers.

It’s always painful to see a travel company fail, but this time the travel trade have felt a more significant impact than usual and that is partly attributable to the fact that the company lacked Atol protection.

Where an Atol licenced company fails, both industry and consumer alike have a pre-defined, tried and tested route to follow to assert their protection.

The CAA steps in and takes responsibility, either paying suppliers or refunding consumers. The sequence of events is largely predictable and certain for all parties in the supply chain. But this failure entered unchartered waters for both the UK trade and public.

According to its booking conditions, the B2C arm of the Lowcost group acted as an agent for all its suppliers even though it took on voluntary responsibility for financially protecting ‘packages’.

The technical, contractual effect of that under English law is to make the suppliers of the arrangements sold bound to honour those bookings once the consumer paid Lowcost in full irrespective of whether or not those suppliers had been paid by Lowcost.

But that message has not been delivered by the administrators appointed by the company and the lay man would be unable to understand the implications of Lowcost’s agency status, particularly as their booking conditions were removed from their website as soon as the failure was announced.

Even if they had been more aware of their rights, what layman would want to take on a Spanish hotelier either through the Spanish Courts or otherwise?

As it is, rather than have the expertise and governmental clout of the CAA behind them, inexperienced and uninformed consumers have been directed to renegotiate or re-book their ground arrangements.

Consequently, the reaction of the market, and particularly of the overseas accommodation creditors has been to raise prices and dig in with demands for payment, something that probably wouldn’t have happened if the CAA had brought more certainty to the proceedings by administrating the failure.

Set this against the pre-existing turbulent environment: the weak pound in light of reduced confidence following the Brexit vote and terrorism fears squeezing destination availability, particularly in the West Mediterranean resorts.

All of this means it is not only Lowcost’s consumers facing challenges trying to protect their summer holidays, but also the group’s trade customers who used Lowcost bed stock to make up their own packages and Flight Plus arrangements.

Some companies are set to see an impact into six-figure sums arising out of their attempts to rebook clients’ holiday arrangements at inflated prices – not to mention the compensation payable if they don’t manage to do so, and the lost revenues from cancellations of add-ons rendered useless.

The fact that high season is now upon us does nothing to help.

So it isn’t just consumers that should be ‘packing peace of mind’, it’s the travel trade too.

Atol is designed to provide protection for the consumer, but the travel industry should take heed of which companies are and are not embracing English law when selling to UK consumers.

As with any sector, travel is a defined market in which forces of supply and demand interact to create an industry-wide wave of discontent when a large player fails financially.

And as the past week’s events have shown, that impact is more significant when financial protection is not in place at the correct level.


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