Cancellations, Credits and Refunds.

Is your travel agent ripping you off?

Cancellations sees airports deserted for months

May 7, 2020

There has been a lot of conjecture and media coverage lately in regards to travel restrictions and the entitlement of consumers to receive cash refunds as distinguished from travel credits or credit vouchers. In addition, the issue of consumers being charged cancellation fees for holidays they had no option but to not go on, has rightly caused a great deal of consternation, particularly for affected members of the general public. So how do we know if a travel agent is ripping off their customers, or they are acting both in line with, and in the spirit of Australian consumer law?

In my experience many people generally aren’t aware of the exact nature of the role that a travel agent assumes in a travel booking transaction, the exact flow of finances relating to that transaction, or indeed how travel agents do in fact make their money, i.e. how they get paid.  So to clarify this can help us understand some of the other issues that have arisen.  

Travel agents act as agents for travel suppliers. Except on the very rare occasion that an agent is actually operating a tour themselves, when you make payment on a booking for a travel product these funds are transferred to the supplier and not held by the travel agent themselves. And due to the immediacy of imposed deadlines, this is done in a very short turnaround time meaning that the agents don’t hold customer money for any length of time. Therefore, when you cancel a booking, it is the supplier who holds the funds and the supplier who has laid out the terms and conditions of the transaction, not the agent, and thus the supplier determines whether you receive a credit or a refund depending on those terms and conditions of purchase.

Travel agents make their revenue by suppliers paying them a commission to act on their behalf. The commission is a payment that encourages agents to promote and sell their products, to streamline the payment process, to answer general questions about their products, and fielding consumer enquiries, meaning the travel supplier can increase their brand presence and awareness in the travel marketplace as well as reduce their own expenses on customer service teams and other overheads.  This enables travel agents to sell travel products at equivalent prices, or less if they wish, to the suppliers and not have to mark them up further or charge excessive booking fees to cover their costs.

Travel agents make their revenue either when payments are made for a booking or when the customer takes the travel, paid back to them by the supplier.  They do not receive revenue from suppliers for cancellations, issuing credit vouchers and/or making other amendments.  Travel agents, like everyone else, deserve to be paid for the work that they do especially in situations like this which are complex and time consuming.

The coronavirus (COVID-19) has brought about many significant issues around the world and with Australian government restrictions imposed on the population and for travel, travel agents are experiencing an unprecedented volume of enquiries to change or cancel travel plans. The pandemic has presented a very difficult set of circumstances for both travel agents and their customers. Both parties may have had considerable financial impact and in the case of agents this is repeated many times over with each of their customers’ bookings.

In relation to cancellation fees there needs to be a distinguishment drawn between a commission recall by the travel supplier and a cancellation fee. A commission recall means the travel supplier recalls the original commission paid to the agent at the time of booking/payment, which could have been received several months before the cancellation takes place, and thus of course spent on business operating expenses such as rent and wages.  In this case the refund that the agent receives back will be minus this commission amount and so it right that amount is protected, and not refunded to the customer as it is fair and reasonable that travel agents are paid for the work they undertake and in order to operate their business.

A cancellation fee on the other hand is a discretionary fee set by an agency for the work being done to cancel or re-arrange bookings. There is no set amount as to what this should be, but will generally be regarded as commensurate with the amount of time spent on extra work involved with the cancellation process. In some circumstances travel agents will charge a fee for the work being done to cancel or re-arrange bookings, and it is this type of cancellation fee that has drawn the attention of the media recently, particularly highlighting Flight Centre customers being charged seemingly high cancellation fees which invoked threats of a class action against them.

So with this distinction in mind, what does the law say. Are cancellation/service fees allowed?

The short answer is yes.  The ACCC states, ‘The ACCC has advised that if your travel is cancelled due to government restrictions, this changes your rights under the consumer guarantees. This may also include any ‘force majeure’ clause which may limit liability or detail what is to occur in such circumstances. This allows ‘reasonable expenses’ to be deducted.

They also state, ‘The ACCC is alert to any instances of unfair or unconscionable conduct on the part of businesses in dealing with consumers during the current crisis. If your travel is cancelled the ACCC expects that you will receive a refund or other remedy, such as a credit note or voucher, in most circumstances’ and pointedly they also add, ‘The ACCC encourages all businesses to treat consumers fairly in these exceptional circumstances.’

So it is this last point that should be considered strongest as the ACCC insinuates – treating consumers fairly in the spirit of Australian consumer law. Whilst it is fair that supplier commissions are kept, in the current environment where many people are struggling financially, possibly lost their jobs and almost certainly lost significant sums of superannuation or other revenue, due consideration should be given to the amount of extra cancellation fees being charged.  A little is OK, and significant time and effort is being put in, but anything excessive could be deemed exploitative.  When fees are expressed and insisted on a per person basis, for a significant amount, this would suggest that these discretionary amounts could be called into question, even if they were part of the original agency booking terms and conditions.

As we keep hearing ‘we are all in this together’ so it’s time this is enacted rather than be merely a throw-away hashtag. Are agents are acting both in line with, and in the spirit of Australian consumer law?  The answer is hopefully both.

 

Paul Moran, Surf Coast Travel and Cruise.

Parts of this article must be credited to The ACCC website, for more details visit https://www.accc.gov.au/consumers/consumer-rights-guarantees/covid-19-coronavirus-information-for-consumers.  And the Australian Federation of Travel Agents, https://www.atas.com.au/covid19-update