Carriers’ policies are hampering package holiday refunds, says Trailfinders chief executive Toby Kelly

There is nothing more perishable and fragile as an air ticket.

The issue of airline refunds has risen to prominence during the pandemic and has damaged trust in our industry.

The topic, which affects all those who package holidays, came up in Travel Weekly’s Future of Travel Week discussions.

Unless a travel organiser has cash reserves, how can they refund a consumer within 14 days (as per consumer law) if the airline takes 14 weeks to refund the them?

Those with trust accounts have done better than most at refunding in a timely manner, but most with trust accounts use clients’ money to pay the airlines.

We need to question why airlines are paid months in advance of travel, when the majority of their actual operating costs are post take off.

The answer that ‘it has always been that way’ is always a poor one. Airlines’ salaries are paid in arrears, as are fuel, taxes (which they pass on) and presumably leases.

Airlines are part of the historic problem in travel that many companies have come to rely on customers’ money, pre-travel, as working capital rather than being properly capitalised.

Weaning the travel industry off pipeline money won’t happen overnight, but it starts with the whole travel industry and regulators accepting clients’ money, pre-travel, is not working capital.

Iata’s Airline Risk Monitoring document of August 4 this year shows an understanding that this money, pre-travel, entrusted to airlines, has to be protected. Of course, this should be true for all airline bookings (direct and indirect) and all travel bookings, but Iata’s Billing and Settlement Plan (BSP) is the right place to start.

Iata’s BSP already has the infrastructure to time payments to airlines. Eventually, an airline might receive half when the outbound flight departs, and the other half when the return flight does.

This also gives a solution to funding repatriation when an airline fails. For now, airlines might get paid three months before travel and reduce that over time – accepting a transition as the travel industry is weaned off mis-using client funds. A similar transition approach will work with Atol licences.

Encouragingly, Iata already appears convinced that something has to change from both a moral and commercial perspective. Far better that they set the path than individual governments force varying legislation on them.

Like sought-after tickets to Wembley or Wimbledon, a flight is governed by capacity and worthless after the event. The pricing and distribution invite creative and grey marketing, but always with a commitment to pay up front so as to avoid an empty seat. A big difference is a Cup Final ticket can be resold at the gate.

When Trailfinders started up, in 1970, fares were rigorously controlled by Iata, with the argument that selling too cheaply threatened an airline’s ability to properly maintain aircraft. That premise, and the cartels it promoted, went out with competition laws.

The need to pay up front has remained, but the safeguarding of those pipeline monies has never been addressed. Indeed, Iata – as recently as 2016 – brought payment forward from monthly to fortnightly, so further entrusting airlines with money to deliver a flight and its attendant costs months into the future. A double credit as they pay many elements in arrears themselves.

As a matter of course, airlines use these massive advance payments as working capital. This distorts their balance sheets, as demonstrated by the widespread reluctance, or ability, to refund for services no longer contracted.

Undercapitalisation is the intrinsic feature of business failures, and airlines are inevitably central to travel collapses. Trailfinders has seen 146 airline collapses so far in our time. Enough is enough.

The Monarch Airlines failure sparked the Airline Insolvency Review Board, whose findings missed the point, and the limp and misguided bill has, years later, still not found its way through Parliament.

The present epiphany is not to credit airlines until check-in (Trailfinders has coined this as ‘POP’ – Payment on Pushback). This was hidden in full view, as revelations so often are.

Payment can be made exactly as now to safeguard the carriers, but the pipeline cash could reside in trust with Iata until the flight boards. Existing technology will facilitate this with scant reprogramming.

Airlines will be the only party to object, but the protection of air travellers’ and taxpayers’ money must prevail to right this aberration.

Covid-19 has just thrown this one-sided responsibility for safeguarding pipeline funds into very sharp relief.