Sunday 23 October 2016

Failure of Lowcostholidays points up the flaws, and the positive side, of regulation in a sector that is never without risk

The collapse of Lowcostholidays, which disrupted the travel plans of up to 15,000 Irish holidaymakers, has shown up big gaps in travel-trade regulation, writes Dan White

Published 24/07/2016 | 02:30

When emails went out advertising a ‘60pc off’ sale in July, travel agents were not the only ones puzzled by Lowcostholidays’ need to indulge in such heavy discounting in the middle of the peak holiday season (Stock picture)
When emails went out advertising a ‘60pc off’ sale in July, travel agents were not the only ones puzzled by Lowcostholidays’ need to indulge in such heavy discounting in the middle of the peak holiday season (Stock picture)

For those who watch these matters closely, it had been clear for quite a long time that all was not well at Lowcostholidays.

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The first sign of trouble ahead came as far back as November 2013, when it switched its main base of operations from Gatwick Airport in the UK to Majorca in the Spanish Balearic Islands.

The move drew stinging criticism at the time from both the UK's aviation regulator, the Civil Aviation Authority (CAA), and its travel-compensation scheme, ATOL.

The CAA said that Lowcostholidays had provided customers who had booked holidays with insufficient notice and unclear information about the switch and advised them "to consider their options".

ATOL went even further.

"By giving the regulator such short notice of these changes and failing to allow their customers reasonable time to consider their situation, Lowcostholidays' behaviour is unacceptable," wrote ATOL boss Andy Cohen.

More recently, a further sign of problems at Lowcostholidays were the at least four emails it sent to travel agents advertising its 60pc-off holiday sale in the week before it collapsed - including one at 8am on Friday, July 15, the day the administrators were called in.

With North Africa and most of the eastern Mediterranean effectively out of the sun-holiday market, most travel agents were puzzled by Lowcostholidays' need to indulge in such heavy discounting in the middle of the peak holiday season.

We can't say that we weren't warned.

By moving to the Balearics, Lowcostholidays was able to extricate itself from the UK's regulatory regime in favour of its laxer Spanish equivalent. Its UK customers are now paying the price. They can expect to receive average compensation of just £7.50 each.

Read More: The 60-second guide to... getting your Lowcostholidays refund

Founded in 2004, Lowcostholidays moved into the Irish market in 2012. For once, the Irish regulatory authorities seem to have done a much better job than their UK counterparts. Unlike Britain's CAA, Ireland's Commission for Aviation Regulation (CAR) refused to allow the company to move its Irish customers to Majorca in 2013 - something for which they should be extremely grateful.

The Lowcostholidays collapse has ruined the holiday plans of 140,000 customers, including up to 15,000 in Ireland.

The Irish travel-trade regulations date back to the Bray Travel collapse, which left thousands of Irish holidaymakers stranded throughout the Mediterranean, in 1980. Since 1982, all tour operators and travel agents selling holidays into the Irish market must be bonded. The CAR has managed the Irish bonding system since 2001.

The CAR's bonding requirements are quite substantial. Every year, tour operators must provide the CAR with a bond equal to 10pc of their projected licensable turnover, while travel agents must provide a bond equal of 4pc of licensable turnover. In practice, this has proved more than adequate to repatriate Irish holidaymakers when their travel company has gone bust.

The CAR has handled 46 collapses since 2001. The majority of these collapses, 28 in all, took place in the period from 2008 to 2010. In all cases the bonds were sufficient to meet customer claims in full.

What this means is that any Irish customer who booked flights and accommodation and/or flights only with Lowcostholidays will get his or her money back. However, anyone who booked accommodation-only is in a much more difficult situation.

Unlike flights - which are bonded by the CAR - accommodation-only isn't.

This means that the Irish Lowcostholidays customers who purchased accommodation-only deals are stuck up the proverbial creek without a paddle and will likely find themselves having to pay for their hotel a second time, with no hope of recompense, when they arrive at their holiday destination.

The Lowcostholidays debacle has exposed a lacuna in Irish travel regulation. Way back in the 1980s, when the current system was first set up, the vast bulk of us, over 90pc, booked a package holiday and flew to our sun destination on a chartered airline. Thirty years later, things are very different.

The chartered airlines have virtually disappeared with non-scheduled flights, including take -offs and landings by private aircraft, representing only 3.4pc of the almost 224,000 flights through Irish airports last year.

The traditional package holiday has also virtually disappeared. Even when they do use a tour operator or travel agent, holidaymakers will pick and choose the bits that they want rather than just meekly accept whatever is on offer. A la carte rather than table d'hote.

Increasingly, holidaymakers are bypassing the travel trade altogether and booking their flights and accommodation directly, so-called DIY packages. Faced with a revolution in how we buy our holidays the regulatory regime has struggled to keep up.

Trying to get precise figures on the size of the Irish travel market is extremely difficult. The CAR holds bonds from tour operators with a combined value of €18m and bonds worth a further €42m from travel agents. This means that the segment of the market covered by the bonding system has a value of up to €1.23bn before any possib le double-counting is deducted.

But, of course, a very big chunk of the market isn't covered by the bonding system. Anyone going the DIY route and booking their own flights and accommodation directly is on their own if things go wrong. So how many of us choose to go DIY when booking holidays?

Paul Hackett, co-founder of online travel agent ClickandGo, estimates that Irish people take between 1.5 million and 1.8 million sun holidays, city breaks, trips to the US and cruises every year. He believes that at least 50pc of this business, possibly as much as two-thirds, is booked directly by the holidaymakers rather than through a travel agent or tour operator.

In practice, with 80pc of the flights out of this country being on either Ryanair or Aer Lingus, most DIY holidaymakers are at little risk of being stranded abroad with no way of getting home - although it could be a different story if one has booked one's flight with a smaller airline.

While it would be difficult going on impossible to introduce a bonding scheme that covered holidaymakers booking overseas hotel accommodation, it would be a relatively straightfoward matter to extend the bonding requirement to airlines flying out of Ireland. This would ensure that DIY travellers would not be left stranded abroad by any future airline collapse.

The airlines might not like to admit it - but in an era where DIY holidays are growing in number, the failure to extend bonding to the airlines is difficult to comprehend. By way of explanation, travel-industry sources point out that airline collapses tend to be well-flagged in advance.

So, what should you do if you have booked a holiday with Lowcostholidays?

If you have booked either a flight and accommodation and/or flight-only with Lowcostholidays, then you should download a claim form from the CAR's website,

You should then complete the claim form and submit it to the CAR as soon as possible. Customers will be refunded the cost of flights and accommodation and/or flights-only which they booked through Lowcostholidays.

The CAR has already received more than 700 written claims. Its staff have handled more than 400 telephone queries while customer-service firm Abtran has handled a further 540 queries on its behalf.

The Lowcostholidays collapse shows that, even in an era of DIY packaging, tour operators and travel agents still have their uses. They are bonded, DIY isn't.

"But then I would say that," says ClickandGo's Paul Hackett.

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