The Daily Telegraph - Saturday - Travel
Why your money should be ring-fenced until your holiday is over
There are alternatives that could ease the conundrum of advance payments and delayed refunds, says Nick Trend
As the pandemic rumbles on, many millions of pounds are still owed to travellers or held in the form of vouchers or credit notes. If the refunds crisis has exposed one thing about travel, it is the fundamental problem of having to pay in advance. If anything goes wrong – as it has done so spectacularly in the last 12 months – the consumer is left out of pocket and very often struggles to recover the money they have lost.
So why can’t we just pay for our holidays once we have had them? That would solve all the consumer’s problems at a stroke. Holiday didn’t happen? No payment due. Holiday not satisfactory? You are in a much stronger bargaining position when it comes to deducting compensation.
It sounds like an attractive model, but it would, of course, make things extremely difficult for the travel industry, and therefore significantly increase the cost of your holiday. You can understand why an airline – or a railway or ferry company – wouldn’t want to collect fares from passengers after the trip was over. In most cases, it would be a bureaucratic nightmare.
If there is one thing that helps keep the cost of travel down, it is the ability of airlines and operators to plan in advance. To do that, they need to be sure that their customers are truly committed to their bookings and that there won’t be any problem with pay
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In fact, it is so much in their interest for them to get their hands on our money early, that the number of areas where we are expected to make advance payment has been growing, usually in return for preferential rates. Want to get the best hotel or car hire deal? Very often now we have to commit in full when we book. (Even if we don’t pay in advance, we nearly always have to secure the bookings with a credit card, and unless the cancellation policy states otherwise, we are legally liable for the cost if we cancel – and we can’t stop the amount being deducted from the card.)
The length of time before travel that we are expected to settle our bills is also increasing. I remember a few years ago when the final balancing payment for a booking (usually 90 per cent of the cost) had to be made eight weeks before departure. Now 12 weeks in advance is common, including for bookings with TUI, the UK’s biggest tour operator.
We aren’t always left completely without protection. Many of the holidays we book are underwritten by financial bonds, notably the Atol, or other arrangements. And, although the protection system, especially when scheduled airlines collapse, is certainly not without its flaws, credit card companies are usually liable for money lost because of a company failure.
But there is an alternative system – one which gives travel companies the certainty they need, but also protects customers’ money. It’s the arrangement whereby money is paid up front, but held in a trust account, which can’t be accessed until the trip is over. It is effectively ring-fenced so that if a refund is needed – whether because of a cancellation crisis such as the one we had last year, or because a company goes out of business – it can be paid by the trustees without any issues.
I’m certainly not the first person to suggest the idea. Some enlightened figures in the industry, including Mike Gooley of Trailfinders, have also been lobbying for change. Many operators – especially the smaller ones – already rely on trust accounts. They should be more widely used.