A new hope...
- 18 Dec 2020
- David Moon
As the industry moves on to the next phase of the coronavirus pandemic, we look at some of the key areas in which our industry has changed and will need to evolve.
To be in a crisis for nine months is hard work and sadly there have been some casualties along the way. The news of three potential vaccines (with one being officially regulated at the time of writing) is, without doubt, a huge light at the end of what has been the longest professional tunnel I have ever encountered.
However, I want to look at the medium to long-term challenges which travel agents, in particular, are going to face over the next 12 to 18 months as we begin the recovery phase from the coronavirus (on the back of the vaccine news I think it is legit to use the recovery phase phrase now)!
The way I see it, there will be two key challenges facing agents. The first challenge is instilling confidence in their customer base to book with them again. In this area I have no doubt that members will be up to the task having worked tirelessly throughout the pandemic to serve your customers, process refunds and also taking the brunt of customer frustrations.
The second challenge could be more difficult to overcome. Not because members are not up to the task but simply because so much lays outside of their control. Much of what I am expecting to unravel over the next 12 to 18 months, is based on experience from the credit crunch back in 2008 to 2010. Of course, the credit crunch (just like the ash cloud, 9/11 and Thomas Cook failure) feels like a walk in the park compared to a pandemic. Now if you suffer from insomnia, this just might help. If you don’t then it may keep you awake at night.
So, this second challenge comes in three parts: Bonding, Insurance, and merchant facilities. There, I’ve said it. Three words you don’t want to see in the same sentence but please bear with me if you have made it this far.
- Regulatory Licencing, Bonding & Insurance
What we witnessed during the credit crunch was a cautiousness from bond providers to provide bonds. When we compare the credit crunch to the pandemic, we are on a different level. We have already seen the bonding market collapse as claims come in due to failures. The debtors are not wanting to take on any future undue risks and are cherry-picking the business they are prepared to underwrite.
The regulatory bodies face trying to assess the viability of businesses that have just gone through a monumental shock. How pragmatic will they be going forward in assessing bond values and their preparedness to grant licences.
The reverberations of the pandemic will sit on the balance sheets of most travel businesses for years to come and whilst we have gone through one set of renewals during the pandemic, the next couple of years are likely to be more challenging as the full extent of the financial impact on balance sheets is laid bare.
Regulators will, and have been, asking for far more detailed financial information when looking at renewals. You need to be prepared to present your financials in a realistic and meaningful way. Be prepared for what is being asked, have your fingers on the numbers and prepare forecasts wherever possible.
These things take time, so be sure to give yourself plenty of time in 2021 to think about your renewal and be prepared. Much like the bonding market, the insurance market for products like supplier failure insurance and travel disruption cover has been severely hit. With now seemingly one major player in the market the consequential knock-on effect could be significant.
Businesses may be forced into taking additional risks in order to keep trading. The problem we have is there is so much uncertainty and that uncertainty is likely to last for some time yet.
- Merchant Providers
During and post the credit crunch (and arguably ever since) the merchant providers became increasingly wary of providing services to travel, often seeing it as too risky. At the time we had members being put in very difficult situations with services being threatened with 30 days’ notice unless a bond was made to cover any perceived shortfall.
Post-credit crunch and pre-2020, the market had settled somewhat. Sadly, this year, we have already had some difficult conversations with members about services being withdrawn and businesses are likely to be subject to continued risk monitoring.
But is the threat to withdraw services justified. Maybe, maybe not. The travel industry, in my opinion, has allowed itself to be put into a position whereby the remedial reaction to a financial failure is to obtain a refund and for the customer to apply for a chargeback. That was exactly the message for Shearings’ customers when it failed.
Why then, if the industry is self-regulating, should we not have a sufficiently robust process to allow for customers to receive a refund in the event of a failure without having to use the merchant providers as a backstop. It just doesn’t make sense for the short, medium or long term. How many of us were shocked by Thomas Cook’s demise? Saddened, absolutely. Shocked? No, not for a minute. How are these situations allowed to drag on for so long?
- Supplier Pressure
As businesses take time to review, risk will be an important factor they will look to mitigate. From a supplier’s perspective, we have already seen signs that some are looking to tighten their risk profile. Our commercial team are being contacted regularly by suppliers asking how our members are protected against pipeline monies or refunds due back to customers. As the contracting party, the supplier is required to make up any shortfalls in the event of an agency failure. Some suppliers are even insisting on refunding the customer themselves directly.
- In summary
Businesses now more than ever, need to take stock of where they are at.
- What are your plans for the future?
- Where do your risks lie?
- More importantly, how are you going to underpin your business operationally and regulatorily?
The industry really must stop and give the future more thought. The current phase is about building back better, the sentiment of which I completely agree with. Whether we like it or not the coronavirus has given us a reset opportunity. A chance for businesses to put their own house in order and mitigate risks wherever possible.
The businesses which survive the pandemic, have an amazing opportunity.
David Moon is Head of Business Development at Advantage.
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