SHOT VIEW: New measures on travel companies to protect customers

November 16, 2020

Trust accounts to protect travelers' money.

The current regulation allows travel companies to spend customer prepayments before the trip takes place. From the point of view of travel companies, this system is an advantage: they can obtain a large loan without interest. With the spread of Covid-19 this system proved to be a problem. When airlines cancelled global travel, customers demanded refunds of payments. Many struggled to get their money back and often had to settle for coupons.

To regain travellers' confidence, the system recently introduced by the British travel brand Thomas Cook could represent a solution. At the time of the relaunched as an online travel agent after bankruptcy in 2019, the company needed a way to convince customers that it was a more reliable keeper of their money. The solution was to ensure that a large cash portion that customers pay before the trip was retained, by keeping them in a trust account until customers return.

This measure could become much more common over time. This is reminiscent of what regulators imposed on banks after the financial crisis. They forced British banks to separate their basic retail banking services from riskier investment banking. One day the authorities may need to introduce a similar system so that travel groups protect customer money. Creating a trust account does not guarantee that quick refunds in case of mass travel cancellations like this year. But by preventing companies from spending the money until customers have travelled, the money should be safe.

On the one hand, this solution would protect customers more, on the other hand it would increase the cash requirements of travel companies. Most of them, already hit hard by the pandemic, would suffer further damage. Governments have not yet openly expressed their intentions in this regard. Certainly, new measures are needed to protect travellers. However, these new measures would certainly weigh on travel companies. The impact could spread to all companies involved in the travel industry, depriving hotels and other suppliers already in difficulty, weighing on their profitability, limiting their liquidity and increasing costs, thus creating further pressure on an industry that could be even more in trouble in the future.