Review of consumer protection measures in the
travel and travel related services market in Australia
including the role of the Travel Compensation Fund
Submission by
Australian Federation of Travel Agents
April 2010
Contact
Mr Jayson Westbury
Chief Executive Officer, AFTA
309 Pitt Street
Sydney NSW 2000
T: 02 9287 9900
E: [email protected]
Without a travel agent,
you are on your own
AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Page 2
AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Who is AFTA?
The Australian Federation of Travel Agents Ltd (AFTA) was founded in 1957 to:
„
establish professional standards for travel agents;
„
stimulate, encourage and promote travel;
„
bring together those acting as intermediaries in the distribution of travel services; and
„
build strong working relationships with suppliers and consumers of travel related services.
AFTA represents approximately 70% of Australia’s travel intermediaries that control more than
90% of travel intermediary turnover. It also has a substantial base of associate members,
representing non-intermediary sectors of the travel related services industry. Members are
bound by AFTA’s Code of Ethics.
AFTA represents the interests of its members on many local and international bodies, including
peak bodies of other national intermediary associations.
AFTA also contributes significantly to the Australian domestic tourism industry by a strong
involvement in the National Tourism Alliance, along with many other working parties and
committees.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
TABLE OF CONTENTS
Chapter
Page
Who is AFTA
3
List of Graphics
6
List of Abbreviations
7
Executive Summary
9
1
Overview of the travel services market in Australia
11
2
Outline of the current regulatory scheme
17
3
Need for consumer protection in the travel and
travel-related services market
27
4
The need for reform
31
5
Options for reform
41
6
AFTA reform proposals
47
7
Summary of responses to Issues Paper questions
61
Bibliography
67
Attachments
68-69
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
List of Graphics
Page
Graphic 1
Basic travel services supply chain
12
Graphic 2
Summary of TCF claims paid and recoupments
21
Graphic 3
Credit card payment in most circumstances goes
direct to airline
The TCF protects less than half of Australian air
travellers
The TCF is an inefficient way to process claims
26
Graphic 4
Graphic 5
Graphic 6
Graphic 7
Graphic 8
Graphic 9
Graphic 10
Attachment 1
Attachment 2
The TCF represents excessive regulation of a stable
industry
Guarantees held by TCF and TCF net assets, 2004-2008
34
36
37
38
Timeframe for AFTA proposal for reform of consumer
protection
AFTA proposed short-term model for consumer
protection
AFTA proposed long-term model for consumer
protection
AFTA Policy Option Reform Map – general view
48
AFTA Policy Option Reform Map – AFTA’s reform
proposals mapped
69
50
57
68
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
List of Abbreviations
ABS
Australian Bureau of Statistics
AFR
Annual Financial Review
AFTA
Australian Federation of Travel Agents
ATOL
Air Travel Organisers’ Licence Scheme
CIE
Centre for International Economics
COAG
Council of Australian Governments
FOS
Financial Ombudsman Service
IATA
International Air Transport Association
MCCA
Ministerial Council for Consumer Affairs
NLS
National Licensing System for Occupations
NTLB
National Travel Industry Licensing Board (proposed)
NTLS
National Travel Industry Licensing System (proposed)
OBPR
Office of Best Practice Regulation
RBA
Reserve Bank of Australia
TAANZ
Travel Agents’ Association of New Zealand
TCF
Travel Compensation Fund
TPA
Trade Practices Act
TQCA
Tourism Quality Council of Australia
TSP
Travel Services Provider
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Executive Summary
This review is
appropriate as
regulatory reform is
long overdue
AFTA welcomes this review of consumer protection measures in the travel and travelrelated services market as it presents an overdue opportunity to reform the outdated
regulatory regime and to implement a new regime that is appropriate for a modern
travel industry.
AFTA members, and travel intermediaries generally, play a major role in the Australian
economy by professionally and efficiently facilitating arrangements for business and
leisure travellers. They provide an integral link between the travelling public and the
diverse range of travel suppliers.
The travel services industry makes a significant economic contribution to the
Australian economy. In 2007-08, travel agents and tour operators accounted for over
$2.5 billion in tourism consumption (excluding payments to suppliers and wholesalers),
representing 5% of tourism characteristic products in the economy. Nearly 23,000
Australians are employed by travel agents and tour operators (ABS 2009a).
The travel and travel-related services sector is a large and dynamic industry. However,
it has suffered for many years from a regulatory system which is outdated and fails to
acknowledge the modern realities of the operating environment. The current regime
was implemented in 1986 and has not been fundamentally reformed in that 24 years.
Reform is long overdue.
Supplier innovation,
financial innovation and
structural change
means that the current
regulatory scheme is
inappropriate, inefficient
and inequitable
Innovations in the travel services market combined with a high level of financial and
structural change have radically altered the industry’s environment.
AFTA recommends
significant reform of the
regulatory regime with a
staged move to selfregulation, following a
period of co-regulation
In this submission, AFTA recommends significant reform for the regulatory regime to
accommodate the modern industry into the future. AFTA’s long-term reform proposal
represents a shift from the current high level of government intervention, to an
appropriately lower level of regulation centred on self-regulation. In recognition of this
large shift, AFTA has recommended a short-term ‘interim’ reform stage, whereby there
is a transitional, co-regulatory approach to industry regulation. AFTA believes that the
nature of the industry and the conclusions of previous reviews strongly support a move
in this direction.
The TCF is not an
appropriate feature of
the regulatory regime in
the short or long-term
A key part of AFTA’s reform proposal in both the short and long-term involves the
removal of the Travel Compensation Fund (TCF). While AFTA acknowledges that the
TCF served a purpose in the past, it is no longer an efficient, equitable and sustainable
mechanism to address consumer protection. Its dramatically reduced application,
high compliance cost and inefficiency dictate that it be removed and replaced with
a more equitable mode of compensation through private travel insurance.
In approaching its assessment as to what is the appropriate model of regulation, AFTA
has been guided by the following principle and objective:
To achieve a fair market environment for the consumer and travel services
provider where the consumer is provided the same guarantee of service level
and opportunity for protection from loss irrespective of the sales channel used
to purchase travel services.
In this submission, AFTA has outlined a series of principles for the short and long-term
models which frame the structure of AFTA’s reform. Some aspects of the structure will
require more development to flesh out detail of the proposals. We look forward to
working with Government, industry participants and other stakeholders to fully develop
a modern regime that is appropriate for the travel services industry today and into the
future.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
1 Overview of the travel services market in Australia
1.1
Travel agents play a
unique and integral value
added role in the travel
services sector
The contribution of travel intermediaries and the travel and
travel-related services market
Important role of travel intermediaries
Each year Australians make over 72 million overnight domestic trips and more
than 5.6 million international trips (ABS 2009a, p 23).
Travel intermediaries play a crucial and integral role in facilitating this travel,
and thereby make a valuable economic and social contribution to Australia.
Travel plays an important part in the life of many Australians. For some, it can
have the same personal and emotional value as the purchase of a major
durable item such as a motor vehicle or an item of furniture.
Travel intermediaries provide a valuable service to both leisure and business
travelers through:
•
•
•
•
•
Provision of travel advice by skilled and experienced professionals;
Making arrangements for personal or business travel tailored to the
customer’s need, including for transport, accommodation, packaged
tours and many other facets of a fulfilling travel experience;
Provision of valuable ‘after sales service’ as a professional who can
address questions and problems as a consumer undertakes his/her travel
experience;
Facilitation of payments to suppliers; and
Facilitating the purchase of appropriate travel insurance.
Travel agents also play an important role in destination and product
marketing, through shop-front or online marketing and word-of-mouth
promotion in-store. This is a role that benefits both the consumer (through
provision of a ‘value add’ that they could not otherwise receive) and the
supplier (by gaining extra exposure for his product).
Travel agents make a
significant contribution
to Australia’s economic
activity and employ over
20,000 people
Contribution of travel intermediaries to the Australian economy
In conjunction with tour operators, in 2007-08, travel intermediaries provided
$2.5 billion in travel goods and services to consumers (“tourism consumption”),
including provision of booking services and sales of travel insurance (but not
including payment for tickets etc, which are passed on to the supplier or
wholesaler) (ABS 2009a, p 16).
In total, the services provided by travel agents and tour operators account for
5% of “tourism characteristic products”, and 3% of the total consumption by
travelers.
In 2008, 4,844 travel agents operated in Australia, consisting of 3,182 head
offices and 1,662 branches (TCF 2009, p13).
Of the nearly half a million people employed in, or as a consequence of, the
tourism sector, 23,000 or approximately 5% are employed by travel agents
and tour operators. (ABS 2009a, p 23).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
1.2
Travel services are
provided to consumers
through a complex
multinational distribution
system
The structure and role of travel intermediaries in the travel and
travel related services market
Travel services are supplied to the consumer via a complex distribution system
comprising many different and layered entities, which may be domestic or
overseas. These distribution channels are supported by a similarly complex
web of processes and systems.
Graphic 1 below demonstrates this complex system and illustrates how
consumers may purchase goods and services directly from a supplier, or may
purchase through an intermediary that acts as an agent for the supplier.
Graphic 1:
Basic travel services supply chain
A further layer of complexity is added to the distribution system when entities
undertake one or more of the roles of supplier and intermediary both in
Australia or overseas. For example, an airline may sell directly to a consumer
or may act as an intermediary, packaging an airfare with accommodation,
other transport arrangements (e.g. hotel transfers) and experience-related
arrangements (e.g. show/attraction tickets or meals).
The supply chain may also include more than the two steps illustrated in the
graphic. For example, if the airline package described above was sold
through a travel agent it would result in a second intermediary stage.
Suppliers
Suppliers, as the term implies, are those entities which actually provide a travel
service to the consumer - such as airlines, cruise companies, bus and rail
operators and accommodation providers. For the purposes of this submission,
suppliers are interpreted as providers of travel services.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Airlines are the major
suppliers of travel
services. Suppliers
generally are not subject
to the current regulatory
regime for travel agents
Airlines
Airlines are the major suppliers of travel services. Most carriers are members of
the International Air Transport Association (IATA).
IATA serves many roles, including acting as a clearing house for transactions
between its members, and through intermediaries, with consumers. IATA also
operates an accreditation system for intermediaries which amongst other
things provides that members will honor air travel against tickets issued by
other accredited members.
Other suppliers
The make up of the rest of the supplier sector could best be described as
diverse. Other suppliers include cruise, rail and car rental companies,
accommodation providers, and other ground operators such as tourist
attractions.
Another dimension to these suppliers is their scale of operation. An
accommodation provider could be a small country bed and breakfast
operator, through to a major, internationally affiliated 5-star hotel.
A common theme of relevance in this submission is that many suppliers are
not required to be licensed as “travel agents” and be members of the Travel
Compensation Fund (TCF), like the bulk of intermediaries are. This results in
regulatory inequity, with most intermediaries facing the burden of regulation,
while suppliers, who often compete with intermediaries, do not.
Intermediaries are a
diverse range of
businesses and number
approximately 5000
nationally
Intermediaries
Intermediaries are all those entities in the supply chain for travel services that
contract with a consumer to facilitate a service but do not provide the end
service. Intermediaries include:
•
•
•
•
retail and corporate travel agents;
consolidators;
tour wholesalers; and
inbound tour operators.
The major activity undertaken by intermediaries in income terms is the
procurement and provision of international travel arrangements.
Australia has a relatively large intermediary sector, with between 4,500 and
5,000 licensed intermediary locations. Over half of licensed intermediaries are
retail travel agents, and the bulk of these are involved in retail leisure business
(TCF 2009, p 15). In 2008, nearly 70% of these businesses had turnover of less
than $5 million, while approximately 26% had turnover less than $1 million.
In this submission, AFTA includes intermediaries in the category of “travelrelated services”, along with other providers such as insurance companies
More information on the travel services distribution system and the role of the
different intermediaries in the sector can be found in the AFTA paper Better
Regulating Travel Related Services (AFTA 2005) (available upon request).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
1.3
Changes to the
purchasing patterns by
travellers have
dramatically altered the
travel and travel-related
services environment in
the past two decades
Historical changes in the travel and travel related services
market
Impacts of technology use by consumer
The emergence of the internet and other digital technologies have bridged
the gap between suppliers and consumers, previously singularly, or primarily,
facilitated by travel intermediaries.
Between 1998 to 2009, household access to the internet at home has more
than quadrupled from 16% to 72%, while access to computers has increased
from 44% to 78% (ABS 2009b, p 1).
Internet use has established opportunities for suppliers to market their products
directly to consumers. This has often been promoted via internet- only
marketing campaigns, some of which are loss-leader promotions (such as
ultra low-cost airfares) that are not available through traditional distribution
channels.
Evolution of payment technologies
Familiarity with online experiences has contributed to the wide-spread
acceptance of internet purchasing. The ABS estimates that 64% of all
Australians 15 years or over who accessed the internet in 2008-09 used the
internet to purchase goods or services (ABS 2009b, p 30).
Another factor is the acceptance of internet purchasing as the development
of faster online payment mechanisms using credit cards and more recently
scheme debit cards are becoming more prevalent and accepted.
Growth in electronic payments has also impacted on the terms and
conditions of trade for some intermediaries. In the case of payments by credit
card, facilities now exist whereby payments by the consumer through an
intermediary can be passed directly to a third party principal supplier (eg
airline) or other intermediary (eg ticket consolidator).
These innovations in payment mechanisms have had a huge impact on the
way the travel intermediary market functions – and the relevance of the
regulatory system. A prime example is the credit card transaction mentioned
above – the passage of a transaction straight to the principal means that
funds are not ‘at risk’ with the intermediary – removing the necessity for the
Travel Compensation Fund (TCF) protection guarantee in respect of the travel
agent.
Competitive pressures
In the quest to improve yields, suppliers are increasingly taking products direct
to the market, a practice which is being willingly accepted by consumers.
Competitive pressures and the demand for personal service will ensure that
intermediaries remain in the market, but the pressure on yield and the
acceptance of direct supplier-consumer transactions will continue to alter the
structure, size and role of the intermediary sector.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
The travel intermediary
sector has consolidated
into fewer, larger and
more franchised
operators
Changes in the composition of the travel intermediary market
Modern technology and other short and long-term factors have lead to
changes to the composition of the travel intermediary market.
Most evident has been the consolidation of the industry. Generally, numbers
of single brand/premise businesses have declined while the number of
franchise and company owned stores has increased.
This trend is in part caused by lower commission paid to intermediaries as
direct sales on the internet encourages suppliers to justify lower commissions
to intermediaries.
Other factors that have led to the concentration of business in larger and
franchised operations have included the cost of technology investments
necessary to set up and maintain a sophisticated online presence, and the
onerous capital requirements imposed by the TCF, IATA and some
consolidators.
The internet has also introduced additional competition in the Australian
market from unlicensed intermediaries, both off-shore and domestic providers
who are not required to be licensed as travel agents due to limitations with
the definition of a travel agency business.
Conclusion
Further changes to the travel intermediary market are inevitable as
technology improves. Greater on-line service and service quality is constantly
being made available to the consumer, and financial markets and products
continue innovate and evolve, while more sophisticated online service
offerings are developed.
The industry must position itself to take advantage of the future opportunities
these changes will offer, and not be held back by an outdated regulatory
system.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
2 Outline of the current regulatory scheme
2.1
Co-operative scheme for the uniform regulation of travel agents
There are two key
components to the
Co-operative Scheme
for Travel Agents:
The current regulatory scheme for travel agents was initiated in 1986 by four
states, New South Wales, Victoria, Western Australia and South Australia (‘the
original participants’).
1. Licensing, and
While NSW had a statutory body in place from 1974 to administer a licensing
and compensation scheme 1 , it was not until the early 1980s that calls were
made for a national regulatory scheme.
2. Travel Compensation
Fund
In response to calls for a national system, the original participants signed a
‘Participation Agreement’ to establish a ‘Co-operative Scheme’ for the
uniform regulation of travel agents.
The agreement, signed in September 1986, provided for two key components
to the Co-operative scheme 2 :
•
The introduction of state legislation to mandate licensing, with the
following minimum requirements:
⇒ Licensing of every person carrying on a business as a travel agent;
⇒ That all licensees meet certain probity requirements;
⇒ That all licensees be members of a ‘Travel Compensation Fund’;
⇒ That a licensee’s licence be suspended if its participation in the fund is
terminated;
⇒ That principals and managers of licensed agents have certain
prescribed qualifications and experience; and
⇒ Disciplinary measures if licensing conditions were breached.
•
Establishment of a fund, to be known as the ‘Travel Compensation Fund’,
for the purpose of compensating travellers suffering loss in respect of
travel arrangements made by a travel agent.
The reality of the Co-operative Scheme is that state based licensing and TCF
membership of/for travel agents are mutually dependent – meaning
compulsory membership of the TCF to conduct business as a travel agent.
Today, all states and territories, except the Northern Territory, are participants
in the Co-operative Scheme with Travel Agents Acts in place in each state
and the ACT.
2.2
Licensing
Any person who “carries on business as a travel agent” must be licensed 3 to
do so. Accordingly, licensing requirements are dictated by the functional
activities of a person 4 .
1
The Travel Agents Registration Board established under the Travel Agents Act (NSW) 1974.
See the Schedule to The Participation Agreement
3
Travel Agents Act 1986 (NSW), s. 6
4
For ease of reference, note that any references to a Travel Agents Act will be references to the Travel Agents Act 1986
(NSW).
2
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
A person carries on business as a travel agent if the person:
•
•
Sells tickets for travel on a conveyance to another person; or
Sells rights of passage to, and accommodation, at a place 5 .
This test applies to activities whether or not they are incidental to any other
business that the person carries on.
Airlines and
accommodation
booking agencies are
outside the scope of the
travel agent regulatory
scheme
Limited definition
The definition is limited as it includes only ticket sales for travel on a
conveyance (eg plane, train, bus) or if tickets are sold which include passage
on a conveyance and accommodation. This limited coverage therefore
excludes operations such as accommodation booking agencies (on line or
otherwise).
Furthermore, if the person owns the conveyance, they are deemed not to be
carrying on a business as a travel agent 6 .
AFTA notes that this exclusion results in airlines, the major provider of travel
services in Australia, not being within the scope of the national regulatory
scheme.
Outdated legislative
definitions results in
poor outcomes for
consumers and
business
Licensing regime weakened and problems magnified
These two limitations on the definition of travel agent severely undermine the
operation of the regime. This weakness has been magnified by the increasing
growth of on-line operators and the ability of travellers to purchase airline
tickets direct from airlines over the internet.
These weaknesses expose the following regulatory flaws:
1. Uncertain protection for consumers: Consumers will not always gain the
protection of the TCF and of dealing with regulated participants, depending
upon how they purchased; and
2. Lack of fair competition: Licensed agents are at a competitive
disadvantage because they suffer the compliance costs of the regulatory
regime that others who fall outside it do not.
These are poor outcomes for both consumers and business. This will be further
explored in Chapter 5 of this Submission.
Licensing requirements
The various state Travel Agent Acts prescribe the requirements for licensing. A
summary of the main tests are as follows:
Applicant criteria 7
•
•
5
6
7
An applicant must be aged 18 years and over;
An applicant must not have previously been disqualified from holding a
licence in the applicant state or in any other state; and
Travel Agents Act 1986 (NSW), s. 4(1)
Travel Agents Act 1986 (NSW), s. 4(3)
Travel Agents Act 1986 (NSW), s. 10(2)
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
•
An applicant, or a person proposed to be employed as a supervisor, is a
fit and proper person and likely to carry on business honestly and fairly.
Prescribed qualifications 8
A licensee must ensure that at each place of business for which the license is
granted, there is a supervisor who has prescribed qualifications. In NSW, the
qualifications include a certain unit of competency undertaken with a
registered training organisation and one years experience in the past 5 selling
international travel tickets or in supervising a licensed premise in another
state 9 .
Membership of TCF 10
As outlined above, to hold a licence, an agent must at all times be a
member of the TCF.
Accordingly, ongoing membership of the TCF is mandatory to operate as a
travel agent. Disqualification from the TCF will result in inability to carry on
business as a travel agent.
2.3
Travel agents must be
members of the TCF to
operate as a travel
agent
Travel Compensation Fund
Licensing and TCF membership interdependent
The Participation Agreement requires that to be a licensed travel agent, the
agent must be a participant in the TCF. This requirement is incorporated in
the relevant State Acts 11 .
TCF structure and governance
The TCF was established by a Deed of Trust by the original participants in 1986.
The TCF is managed by a Board of Trustees. The Board is constituted of:
•
•
•
•
A chairperson;
Two trustees with knowledge of the interests of consumers;
Three trustees with knowledge of the travel industry; and
Three trustees representing the Ministerial Council.
The Trust Deed gives the Trustees a deal of discretion in management of the
Trust, but the operations are ultimately governed by the Deed of Trust, State
legislation and the Ministerial Council for Consumer Affairs (MCCA).
Purpose of TCF
The TCF serves two roles:
•
Compensation: To provide compensation to certain people who deal
with travel agents; and
8
Travel Agents Act 1986 (NSW), s. 36
Travel Agents Regulations 2006 (NSW), reg 12
10
Travel Agents Act 1986 (NSW), s. 11
11
Eg Travel Agents Act 1986 (NSW), s. 11(2)
9
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
•
Compensation
payments by the TCF
are relatively
insignificant compared
to the value of the entire
industry …
… and is a costly way to
compensate consumers
Prudential oversight: To ensure that only travel agents with adequate
financial resources are participants of the TCF (and thereby able to
operate as travel agents) 12 .
TCF compensation role
From a consumer’s perspective, the main role fulfilled by the TCF is that of
compensation for consumers who suffer loss arising from the “failure to
account” by a travel agent 13 . That is, monies received from the customer
have not been passed on by the agent to the supplier of the travel services.
Compensation can only be paid if the loss is not protected by an insurance
policy.
The Board also has discretion to pay compensation in respect of losses
incurred through intermediaries who are not members for the TCF 14 . We note
that does sometimes occur.
In the last 5 years, analysis has demonstrated that on average:
•
•
800 claims per year are paid out; and
Paid claims on average amount to $2.1 million per year (PWC 2010, p 14).
AFTA concludes that this is a relatively small number of claims of relatively
insignificant amount when compared to the number of domestic and
international trips by Australians and the estimated value of the travel services
sector of $28 billion (ABS 2009a).
AFTA concludes that the TCF is a costly and inefficient mechanism to perform
a compensation role that involves a relatively small amount of compensation.
Further discussion on this point is outlined in Chapter 4 of this submission.
Compensation recoupment by TCF
The TCF will often recoup compensation payments through action against the
travel agent, its auditor or administrator.
The TCF has demonstrated ongoing success at recovering significant
proportions of claims paid, often recouping more than half the value of
claims paid out in a year, albeit often at a significant legal cost.
Recoupment can occur through various mechanisms, including:
•
•
Legal action against the travel agent, its administrators or auditors; and
Calls on guarantees provided by the agent.
Recent claim and recoupment history
Graphic 2 summarises claims paid out by the TCF and recoupments made
(sourced from TCF Annual Reports).
12
13
14
Travel Compensation Fund, Deed of Trust, Cl. 3
Ibid, Cl. 15.1
Ibid, Cl. 15.2
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Graphic 2: Summary of TCF claims paid and recoupments
2008
Claims paid
2,049,019
Recoupments
1,077,028
Net for year
971,991
Source: TCF Annual Reports
2007
4,060,490
2,112,049
1,948,441
2006
920,921
332,438
588,483
2005
483,130
475,490
7,640
2004
1,829,549
394,860
1,434,689
AFTA observes the following:
•
•
The gross value of claims paid is not, on average, of high value given the
total expenditure on travel in the economy (estimated by the ABS at over
$28b – ABS 2009); and
Recoupment of monies can represent a significant percentage of the
gross value of claims paid out.
TCF Funding
Typically, over 50% of annual revenues of the TCF are drawn from the travel
agent participants through contribution and renewal fees. Accordingly, TCF
members bear the majority of the funding burden of the TCF.
Interest is typically the next biggest contributor to revenue after member fees
(24% of total revenue in 2008).
Other sources of revenue include:
•
•
•
Recoveries from participants and auditors;
Recoveries from legal fees; and
Recoveries from guarantees.
TCF operating cost
The cost of running the TCF in 2008, net of claims paid, was $2,824,425 (TCF
2009, p 25). The main cost components were:
•
•
•
•
Salary costs (46%);
Legal costs (20%);
Consultancy costs (9%); and
Rent (7%).
AFTA concludes that this is a costly and inefficient manner to administer gross
claims of $2-$3 million, and net claims of much less than this. This will be
explored further in Chapter 5 of this submission.
TCF prudential
oversight is
concentrated on the
financial security of
agents, and imposes the
requirement of a bank
guarantee on nearly 1
out of 5 participants
TCF Prudential Oversight Role
The second key role undertaken by the TCF is to ensure that travel agents
have adequate financial resources.
Clause 9 of the TCF Trust Deed, and guidelines developed under that Clause,
outline the requirements that must be satisfied to demonstrate participant
eligibility. While there are a number of criteria relating to agent experience,
business acumen, and experience, the key criteria is financial security.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Financial Criteria
The TCF has developed guidelines to determine financial viability (TCF 2006).
The initial requirement is that participants must maintain a minimum level of
equity dependent upon their annual turnover (TCF 2006, p 2).
In addition to the minimum capital requirements, the TCF conducts a review
of a participant’s annual financial statements to determine adherence to
certain financial ratios. The guidelines operate on a scoring system, with
points allocated according to three tests:
•
•
•
Maintenance of a Trust Account;
Ratio of working capital to average monthly overheads; and
Ratio of net tangible assets to turnover.
To assess an agent’s compliance with the guidelines, the TCF requires each
member to lodge audited financial statements and an Annual Financial
Review (AFR).
Bank or approved insurance guarantees
Participants who do not meet the TCF financial criteria outlined above are
able to remedy their deficiency by providing a bank or insurance guarantee
equal to 150% of client deposits (TCF 2006, p 5).
At 31 December 2008, the TCF held securities lodged by 855 participants
totalling $102,399,913 (TCF 2009, p25). This means that 18% of all participating
travel agents were forced to provide guarantees.
2.4
Australian travellers are
afforded generic
protection against
unscrupulous operators
in Federal and State
trade practices
legislation
Generic consumer protection – Commonwealth and State Fair
Trading provisions
Australian consumers of travel services are afforded generic consumer
protection applicable to all industries under the Commonwealth’s Trade
Practices Act and the state based Fair Trading Acts.
The Commonwealth and State Territory Governments provide generic
consumer protection under consumer protection provisions embedded in the
Trade Practices Act 1974 (Cth) and the various state/territory Fair Trading
Acts.
Trade Practices Act 1974 (TPA)
Part V of the TPA contains a general prohibition and a range of more specific
prohibitions against certain unscrupulous behaviour.
Key prohibitions include:
•
•
•
Prohibition on false or misleading representations as to future matters
(Section 51A);
General prohibition on misleading or deceptive conduct (Section 52);
Prohibitions on false or misleading representations as to goods or services,
including matters such as price, their performance characteristics, uses or
benefits, place of origin, or the need someone may have for them
(section 53);
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
•
•
Prohibition on ‘bait’ advertising (Section 56) and accepting payment
without intending to supply (section 58);
Prohibition on use of physical force, coercion or undue harassment for the
supply of goods or services (section 60).
Part IVA of the TPA provides protection against unconscionable conduct. This
part of the TPA outlines (sections 51AA and 51AB), amongst other things, a
series of tests to be considered in determining if a contravention has
occurred. An example includes whether a consumer could understand
documents relating to a transaction.
Fair Trading Acts
The Fair Trading Acts in the States and Territories broadly mirror the consumer
protection provisions of the TPA. As the TPA is limited by Australia’s
constitution and therefore generally applies to corporations and enterprises
trading across state borders, the state acts extend the operation of the
consumer protection provisions to all businesses in Australia (PWC 2010, p 20).
Examples of conduct prohibited by these Acts include:
•
•
•
•
•
•
2.5
Travel insurance is
widely available in
Australia, is cost
competitive and extends
to cover supplier
insolvency
Misleading or deceptive conduct;
Unconscionable conduct;
False or misleading representations;
Harassment and coercion;
Bait advertising; and
Accepting payment without intending or being able to supply (PWC 2010,
p 21).
Travel Insurance
Coverage of travel insurance
Travel insurance is a product which covers policyholders (travellers) for
‘insurable events’ that occur before or during travel. These events can
include trip cancellation/interruption, medical expenses and baggage loss.
The Australian Government, through the Department of Foreign Affairs and
Trade’s ‘Smartraveller’ website, strongly advises all Australians travelling
overseas to take out travel insurance. The website makes the sharp
observation:
“If you can’t afford travel insurance, you can’t afford to travel”.
There is a wide variety of travel insurance product on offer, extending from
basic to comprehensive cover. Basic cover tends to include limited
coverage on medical expenses, cancellation costs and lost luggage. More
comprehensive policies provide higher or unlimited cover for these items, as
well as offering coverage for travel services provider insolvency.
Travel services provider insurance
As indicated above, comprehensive insurance policies offer travel services
provider insolvency insurance.
It is important to note that this aspect of the policy covers providers who are
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
suppliers of services (eg airlines, hotels, bus and rail companies) and not
intermediaries (agents). We believe this is because the TCF compensation
facility is available.
It is difficult to determine the marginal or incremental cost of travel services
provider insolvency cover because this component is bundled with a range
of other components of a policy. An examination of one company’s
products indicated that a policy that offers insolvency protection could cost
between 10% and 60% more than one which does not provide this cover.
Availability of travel insurance
Travel insurance is readily accessible in Australia. Most travel agents can
facilitate access to travel insurances. As well as being offered by many
general insurance companies (such as QBE and AAMI), there are also a
number of specialist operators (such as Covermore). In addition, there are
many web-based search/comparison engines that can generate quotes and
comparisons on alternative polices.
Travel insurance coverage is also often extended through credit card
programs and other travel companies. In addition, annual policies can also
be taken out for frequent travellers.
Comprehensive travel
insurances including
supplier insolvency
cover is taken out by
the majority of
international travellers
Take up of travel insurance
There is general consensus that travel insurance is taken out by the majority of
overseas travellers. The Issues Paper indicates that between 60%-70% of
overseas travellers take out travel insurance (PWC 2010, p 17).
Inquiries made of one of AFTA’s larger members indicates that 95% of
international travellers take out policies that offer travel services provider
insolvency cover. Accordingly, 58% of international travellers have travel
services insolvency cover (ie 60% of international travellers taking out
insurance x 95% of policies having insolvency cover).
These statistics demonstrate a high voluntary willingness to take out a
comprehensive level of travel insurance protection for high value travel. This
extent of take up has been achieved without a high level of targeted
marketing.
2.5
Most travel services are
paid for by credit or
debit cards
Credit/Debit card chargeback
Use of credit and debit cards
Credit cards have over recent decades increased their prevalence as a
means of payment. Benefits offered in terms of deferred payment, and
convenient and secure access to funds has seen increased use of credit
cards.
The convenience and security factor also have led to increasing popularity of
debit cards which can work off of a credit card provider like Visa or
Mastercard, but access funds from a cash account rather than a deferred
payment mechanism. The Reserve Bank of Australia (RBA) is reporting an
increasing growth trend in debit card usage in terms of total non-cash
payments (RBA 2009a).
A recent RBA report shows that use of credit and debit cards continues to
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
grow in both number and value (RBA 2009b). In an analysis of non-cash retail
payments for 2008-09, credit card transactions grew by 3.8% in number and
4.8% in value, while debit cards showed growth of 5.8% and 2.8% respectively
(RBA 2009b, p7). Credit/debit card usage combined accounted for 47% of
total non-cash transactions and 51% in terms of value (RBA 2009b, p 7). The
RBA indicated that there is not time-series data on usage of cash, and hence
no analysis of cash versus non-cash usage (other than the survey mentioned
above).
Survey and anecdotal evidence suggests a high level of usage of credit
cards in the travel industry. The RBA estimates that credit cards account for
42% of payments in the sector, with debit cards accounting for a further 20%
(RBA 2009a, p 13). Accordingly, by far the majority of travel services
transactions in Australia are conducted by credit/debit cards.
RBA modelling of credit card usage
In 2007, the RBA took results from actual credit card usage and modelled the
likelihood of a certain payment method for different transaction
circumstances (RBA 2009a).
The study found that the type of merchant had a significant effect on the
probability of credit card use. The results showed that a consumer has a 70%
likelihood of using a credit card when dealing with a holiday/travel merchant.
This was easily the highest probability of usage by merchant type, with the
next highest being health and medical merchants at just over 50% (RBA
2009a, p 31).
These results reinforce the importance and significance of credit card usages
in the travel sector and why credit card usage remains an important element
in industry dynamics.
The credit card
chargeback facility
provides an easily
accessible safety net for
consumers in the event
of agent and supplier
insolvency
Chargeback facility
A common security feature of credit and debit cards is access to
chargeback.
Chargeback refers to a circumstance by which consumers can request their
financial institution to reverse a transaction back to the seller where the
goods/services are not supplied, are defective or unauthorised.
The existence of chargeback therefore reduces the risk to consumers of loss
due to travel agent insolvency, and provides an extra layer of protection on
top of the TCF and travel insurance. With payment for travel services
estimated to be as high 62%, there is a very high level of protection to
travellers offered through the chargeback facility.
For travellers who make payment on a credit card, chargeback can be their
‘first port of call’ for reimbursement in the event of failure to provide a service.
The TCF states that it will usually not pay a claim for a credit card payment
unless the claimant can show that a chargeback application was made and
declined.
Travel agent use of airline merchant facility
The existence and use of chargeback is more significant given the common
practice in the travel industry where airline tickets are sold by travel agents on
the airline’s credit card merchant facility and not the travel agent’s. This
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
effectively takes the travel agent out of the transaction and therefore the
question of passing on of monies is irrelevant. Should the agent become
insolvent is irrelevant to the traveller in terms of the ability to take the flight
booked.
The extent of this practice is estimated by some intermediaries at up to 65% of
all tickets sold in Australia. The significance of this practice in a consumer
protection context is that there is a much reduced risk exposure to the
traveller should the travel agent fail.
Graphic 3 below illustrates the operation of chargeback and highlights how
the travel agent is not a party to a transaction with most airline ticket sales
where the agent uses the airline’s merchant facility.
Graphic 3: Credit card payment in most circumstances goes direct to airline
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
3 Need for consumer protection in the travel and
travel-related services market
3.1
The need for consumer
protection in the travel
services market arises
due to market failure
The boundaries of consumer protection in travel and travelrelated services
Why consumer protection?
Microeconomic theory assumes that voluntary exchanges in unrestricted,
competitive markets will lead to efficient and fair outcomes (CIE 2000, p 26).
But for certain transactions, this theory does not hold and there is said to be
“market failure”.
This chapter of the submission examines the issue of market failure in travel
agent-consumer interactions and why there is call for specific consumer
protection measures in the industry.
General consumer protection
Consumer protection measures, both regulatory and non-regulatory, are
intended to promote better outcomes for consumers by:
•
•
•
Protecting from unfair or unjust conduct or unsafe/defective goods;
Providing assistance when loss is suffered; and
Assisting in making better purchasing decisions (PWC 2010, p 4).
Consumer protection measures can include regulatory (eg Government
legislation) and non-government measures, including self-regulatory and coregulatory regimes (eg codes of conduct, accreditation schemes).
Consumer protection can include generic and industry-specific measures.
Generic consumer protection measures include consumer protection
provisions in the Commonwealth Trade Practices Act 1974 and the respective
state Fair Trading Acts. These are detailed further in Chapter 2 above.
In the travel intermediary sector, industry-specific regulation has developed
to cater to two particular aspects of a consumer’s dealings with the industry.
These two aspects are referred to by AFTA as the two dimensions of consumer
protection in the travel intermediary industry.
AFTA examines the
scope of consumer
protection in travel
services against two
dimensions –
- licensing; and
- consumer
compensation
“Two dimensions” of consumer protection in the travel intermediary industry
Protection of consumers is a broad concept. In the context of travel and
travel-related services it can be refined to securing and protecting rights to:
•
•
An acceptable quality of service at a fair price; and
Avoiding economic loss, given the nature of the industry in the way that it
operates on prepayments (AFTA 2005, p 18).
As a result, travel agent specific consumer protection has developed to
prescribe and enforce what AFTA refers to as the “two dimensions of
consumer protection”:
•
Licensing: which seeks to guarantee probity and adequate service; and
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
•
3.2
Consumer prepayments
and the market failure
arising due to
information asymmetry
leads to the particular
need for consumer
protection
Compensation: existence of the TCF to protect consumers from financial
loss as a result of travel agent failure.
The need for consumer protection measures
Addressing “market failure”
As mentioned above, consumer protection measures are often a response to
correct market failure, in this instance a re-weighting of risk in favour of
consumers.
The traditional style of interaction between a travel agent and a consumer is
that of “pay now, consume later”. That is, travel agents take receipt of funds
for a service to be provided, normally by another entity (the supplier), later.
Consumers lose the security of their prepayments once they have been
passed to the agent and later the supplier.
It has been suggested (CIE 2000, p 27) that there is an information asymmetry
between consumers and agents. That is, it may not be possible for consumers
to know about the financial viability of an agent and the quality of their
advice. Accordingly, consumers have no real way of assessing the financial
risk of their decision to deal with a particular agent.
Likewise, for the agent, it may not be possible for it to know the full details of
the financial viability of suppliers (eg airlines, tour companies) and their
capacity to deliver.
The argument that this information asymmetry exists proposes that there be
regulation to address the imbalance between the parties to the transaction.
International practice
The existence of industry specific regulation of travel intermediaries and other
travel providers around the world suggests a widely accepted case for
industry specific regulation to protect consumers.
The European Union (EU) is a good case study. In 1990, the EU Council issued
a Directive (90/314/EEC) on package travel, package holidays and package
tours (the Directive). Amongst other things, the Directive contains a provision
(Article 7) on the security to be provided by organisers to cover repayment of
the price and repatriation of consumers in the event of the organiser’s
insolvency. EU member states have responded in varying ways to the
Directive, with the majority implementing licensing and guarantee schemes
to protect consumers. It should be noted however, that the EU currently has
the Directive under review, in particular Article 7.
In the United Kingdom, the Civil Aviation Authority operates the Air Travel
Organisers’ Licence Scheme (ATOL). ATOL is a financial protection
mechanism which provides protection for customers who book ATOLprotected holidays/flights with operators who hold an ATOL. As with the EU,
the UK also currently has its scheme under review following significant pressure
placed on the Scheme’s funds with the collapse of several large tour
companies.
In New Zealand, the Travel Agents’ Association of New Zealand (TAANZ)
operates a voluntary bonding scheme that provides consumers protection
against agent default, albeit with limited funds (NZ$2m).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
While there appears to be some question over the manner of consumer
protection regulation, particularly in light of reviews in the EU, UK and here in
Australia, there does appear to be a consistent recognition of the need for
industry-specific consumer protection regulation in the travel services industry.
Conclusion
AFTA concludes that given the nature of the industry (where prepayments are
made by consumers), the existence of information asymmetry between
consumers, intermediaries and suppliers, and a general acceptance of the
need for consumer protection regulation in other countries, that there is a
need for consumer protection measures in the travel/travel-related services
market.
The more important issue, which is addressed in this paper and by the MCCA
Review, is what level and form of protection measures should be
implemented. In particular, given the industry dynamics and mode of
interaction between consumers, intermediaries and suppliers, what is the
appropriate type of protection measures.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
4 The need for reform
4.1
There is an
overwhelming need to
reform the existing
regulatory system …
Overwhelming need for reform
While the current regulatory scheme has served its purpose in the past, AFTA
believes that there is an urgent and overwhelming need to reform consumer
protection measures in the travel services market, in particular in relation to
the TCF.
In this chapter, we outline the reasons why there is a need for reform.
AFTA concludes that the current regulatory scheme is:
•
•
•
•
•
Outdated - it has not evolved or been amended to reflect current day
realities;
Narrow – it does not apply equally to all providers in the industry and
hence generates an ‘uneven playing field’;
Inefficient – it is costly for the government, industry and consumer alike
and does not constitute a proportional regulatory response to the
consumer rights and losses being protected;
Excessive – it constitutes a high level of regulation for a relatively stable
industry; and
Impractical – a compensation fund could not practically be capitalised to
cover exposure of a large collapse (eg Ansett and Traveland).
Governments would be reluctant to act as “lender of last resort” to cover
a shortfall of capital.
These issues are explored further in the sections that follow.
4.2
Innovation in the market
and the changing nature
of the industry means
that the regulatory
system is no longer
appropriate
The current scheme is outdated
The current regulatory scheme was established in 1986 in an environment
much different to that which exists today. Despite recommendations for
significant reform made in 2000 (CIE 2000), little change has been made to
the system in over 20 years.
Contemporary environment is much different
Chapters 1 and 2 of this submission outlined the current day dynamics and
operation of the travel services industry. The current industry is vastly different
to that which existed in 1986 when the present regulatory scheme was
implemented.
Key features of today’s operating environment that are incompatible or
inconsistent with the regulatory scheme are outlined below.
Consumer-Supplier dealings
Consumers are increasingly booking travel direct with suppliers. These
dealings are easily facilitated by modern booking mechanisms such as online
bookings over the internet. As these methods improve and more consumers
become more reliant on them, this spurs further growth in on-line product
offerings to attract the consumer.
A recent study highlighted that the trend to online bookings will continue and
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
will increasingly become the dominant form (Ibis 2009).
Industry composition
The make up of the travel agent industry has changed considerably in the last
20 years. Key changes have included:
•
•
•
Vertical integration of different operators in the supply chain;
Consolidation and corporatisation of operators through growth in
corporate and/or franchised retailers; and
Globalisation of systems and operators.
These changes have led to a change in the make up of the industry, with
fewer independent outlets and more uniform standards through agents.
Evolution in payment technologies
New payment methods (eg EFTPOS, credit and debit cards) allow consumers
to more easily transact directly with suppliers, facilitating the growth in direct
supplier bookings mentioned above.
Financial evolution also changes the way that agents interact with their
suppliers and financial institutions. For example, today’s credit card
transaction systems permit agents to conduct sales using a supplier’s (eg
airlines’) merchant facility. This means that a consumer’s funds by-passes the
agent and is thus not at risk with the agent. This makes the TCF consumer
compensation mechanism redundant.
Lack of reform following
previous reviews has
meant that the system
has failed to catch up
with current day
practices
Reviews have not yielded reform
AFTA is aware of two reviews of the regulatory regime in its 24 year life.
AFTA concludes that both these reviews have yielded insignificant reform
given the significant level of industry change that has taken place in that
same time period.
CIE Review, 2000
The national scheme was subject to a major review under National
Competition Policy in 2000. This review, conducted by the Centre for
International Economics (CIE 2000), made recommendations for significant
change in the approach to regulation in both the short and long-term. In the
long-term, the CIE called for the complete removal of the TCF and
prescriptive licensing. In the short-term, it recommended opening up the TCF
to competition and a reduction in licensing requirements.
Despite this thorough review, the CIE recommendations were rejected by
MCCA as, in their view, the review did not properly take into consideration the
public benefit and there was concern that no private sector operators would
step in to provide competition to the TCF.
AFTA notes that despite similarities in its views to the CIE, it is significant that the
reform proposed by AFTA is different to that recommended by CIE.
Furthermore, industry evolution has continued at a rapid pace and the
existence of other consumer protection measures (such as charge back and
travel insurance), should allay the concerns MCCA expressed in 2000
regarding consumer interests.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Joint Working Group review, 2004
Following the collapse of Ansett Airlines in 2001, a Joint Working Group of
industry, consumer representatives and TCF Trustees was formed to examine
the capital adequacy of the TCF, including alternative funding options.
The report (TCF 2004) made recommendations in respect of:
•
•
•
Reducing the risk of agency failure;
Achieving and maintaining adequate capital reserves; and
Limiting the TCF’s exposure to claims.
Some recommendations for capital adequacy and other administrative
aspects were implemented, but there was no consideration given to the
overall relevance, effectiveness and applicability of the regime, and
alternative regulatory and non-regulatory options.
Furthermore, an AFTA proposal for a more broadly based compensation
scheme encompassing end-supplier insolvency funded by a levy contributed
by consumers was not considered.
AFTA concludes that despite recommendations for reform of the manner of
funding the TCF made by both of the above reviews, there has been no
substantive reform in this area as a result of the reviews.
4.3
Limited coverage by the
TCF results in
inconsistent access to
compensation for
consumers depending
upon their mode of
booking
The current scheme is narrow
The current scheme has an increasingly narrow application to travel
providers, and therefore consumers. This has arisen due to the way the
industry and consumer-supplier interaction has developed (see above) and
the failure of legislation to be amended and updated.
Suppliers and some intermediaries not covered
For regulatory purposes, the definition of “travel agent” is limited and hence
the scope of protection is limited.
The definition of “travel agent” specifically excludes operators who own their
own “conveyance” (eg airplane, cruise ship). Accordingly, airlines and cruise
ship operators are not covered by the current regulatory scheme.
The advent of on-line accommodation booking agencies has spurned
another line of trade that is not covered by existing regulation. This is because
accommodation only services are not within the scope of the definition of
“travel agent”.
As consumers move to use on-line booking methods and as suppliers have
increasingly moved to directly transact with consumers, there is an
increasingly wider scope of operations that are outside the current regime.
This less than comprehensive coverage of operators generates an inequitable
operating environment for licensed operators. Suppliers and intermediaries
who are excluded from the regulatory regime do not face the compliance
costs of regulated intermediaries.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Majority of air travellers not covered by TCF
An examination by AFTA of passenger profiles of Australian air travellers
revealed that less than half of travellers (domestic and international)
purchased in a manner that would be covered by the TCF. It was found that
55% of travellers were NOT covered by the TCF. See Graphic 4 below:
Graphic 4: The TCF protects less than half of Australian air travellers
This study re-enforces the narrow application of the current regulatory
scheme.
Limited and unclear period of TCF protection
A reality that is not well understood by the travelling public is the fact that
consumers’ funds are only protected for the period they rest with the
intermediary. Once the agent has remitted funds to the supplier, a consumer
no longer has recourse to the TCF should either the agent or supplier fail.
Consumers therefore only have a limited “window of protection”.
Furthermore, because funds move increasingly quickly between agents and
suppliers (particularly for airline ticket payments through IATA’s Billing
Settlement Program – BSP), the “window of protection” is ever reducing. Also,
as the movement of funds is not transparent to the consumer, even a well
informed traveller is not aware of at what point in time his/her TCF protection
ceases.
4.4
Inefficiency is manifest
in the current system
through:
- duplication
- expensive claim
administration
The current scheme is inefficient
Duplication of regulation
The current regulatory scheme is implemented through state based
legislation.
Accordingly, operators who conduct business in multiple states/territories face
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
the inflated compliance costs of interacting with multiple regulators. In
practice, this means dealing with multiple agencies for the same matter and
paying multiple licence fees. Different interpretations on legislation by
different regulators also generates cost and inefficiency.
Duplication is not just a cost to business. The Productivity Commission and the
Council of Australian Governments (COAG) have both recognised the cost
associated with duplicated state regulation and are taking steps to address
this through COAG’s National Partnership Agreement to Deliver a Seamless
National Economy.
TCF payment inefficiency
Comparing the value of TCF compensation payments to the cost of
administering the TCF illustrates the acute inefficiency of the TCF system.
An analysis of claims made in 2008 reveals:
•
•
•
•
Number of claims paid - 662
Gross value of claims - $2,049,019 (before recoveries).
Total expenditure by the TCF (net of claims) - $2,824,245
Expenditure attributable to administration of claims - $889,197 15
Analysis
These figures demonstrate:
•
The total costs of administering the TCF exceed the value of claims paid.
•
The average claim value ($3,095) exceeds the average total cost to
process a claim ($4,266).
•
The average directly attributable cost ($1,343) is equal to 44% of the
average claim value ($3,065).
These results for the 2008 year are demonstrated in Graphic 5.
A further point to note is that the gross claim value will always reduce as a
result of recoveries made from failed agents and from guarantees. For
example, in 2008, the TCF recovered $1,077,028. These recoveries effectively
halve the gross claim expense, and further emphasise the relative inefficiency
of the compensation approach.
We note that it is difficult to arrive at an average cost to assess and pay a
claim. There are a variety of methods to calculate this. However, we believe
the two estimates provided above are instructive in providing a range of the
likely cost of paying a claim.
We acknowledge that claim value will vary from year to year but that TCF
expenditure (ie overheads) should remain fairly constant ($2.8m in 2008).
Hence, in years when the value of claims is higher (as it was in 2008) then the
negative disparity ($775,226) will not be as great. However, in years when the
15
This has been estimated from the 2008 Revenue and Expenditure Statement of the TCF by taking costs directly attributable
to claims assessing and adding a proportion of all other overheads (apportioned on the basis of salaries of claims staff divided
by total salary costs).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
claim value is lower (as it was in 2005 and 2006 when claims were under $1m),
then the negative disparity will be much greater (assuming constant
overhead costs). On this point, AFTA notes that in the last 10 years, the value
of claims has only exceeded $2.8m on 2 occasions (2007 and 2002). In any
event, even when the value of claims paid exceeds overhead costs, the
relative inefficiency between the value to consumers and the costs of
administration is clearly apparent.
Graphic 5: The TCF is an inefficient way to process claims
4.5
Current regulation is not
a proportional response
to the issue being
addressed
The current scheme is excessive regulation
One of the eight principles of best practice regulation identified by COAG is
that government action should be effective and proportional to the issue
being addressed (our emphasis) (COAG 2007, p 4).
AFTA concludes that given the relatively low level of failure of intermediaries in
the industry and low level of compensation payments made by the TCF
relative to the total value of travel services in the economy, the TCF is not a
proportional regulatory response to the problem being addressed, and
represents excessive regulation.
Proportional regulation
COAG has agreed that all governments will ensure that regulatory processes
are consistent with eight principles. Principle 8 provides that government
action should be effective and proportional to the issue being addressed
(COAG 2007).
Proportionality refers to ensuring that government action does not
‘overreach’. Government action should be commensurate with the
magnitude of a problem, its impacts, or the level of risk (COAG 2007, p 6).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Travel intermediary failures
Statistics on travel intermediary failures over the last six years demonstrate the
stable and low level of business failure.
Graphic 6 below demonstrates that in the period 2003 to 2008, travel agent
failure numbers have ranged between 10 and 40. The number of agents
remained stable at between 4,500 to 4,900 (TCF 2008). Thus the failure rate is
less than 1%, ranging from 0.2% to 0.8%.
AFTA concludes that the travel agent industry is excessively regulated, a level
that most businesses are not subject to, when the level of agent failure is
relatively low.
Graphic 6: The TCF represents excessive regulation of a stable industry
Cost of guarantees
As outlined earlier in this submission, travel intermediaries who are not able to
meet the financial ratio tests prescribed by the TCF are required to provide
the TCF a bank guarantee equal to 150% of maximum client deposits held at
any time throughout the previous financial year.
An analysis of the annual reports of TCF for the past 5 years reveals the level of
aggregate security held by the TCF, the level of recoveries from guarantees,
and recoveries as a percentage of the security held. This is outlined in
Graphic 7. The Graphic also summarises the net asset position of the TCF for
each year. This demonstrates that the net asset position is a significantly
different figure from the level of guarantees held and allows a comparison of
true net worth against contingent guarantees.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Graphic 7; Guarantees held by TCF and TCF net assets, 2004-2008
Year
2008
2007
Guarantees 102,399,913 91,944,244
held by TCF
Recoveries
486,233
1,836,677
As % of
0.47
2.0
guarantees
TCF Net
24,505,300 21,366,098
Assets*
Source: TCF Annual Reports
2006
84,049,072
2005
65,128,220
2004
76,285,922
217,481
0.25
318,895
0.49
127,978
0.17
19,639,881
14,848.067
12,373,704
* TCF Net Assets refers to Fund Total Assets minus Total Liabilities.
The table above demonstrates the following:
•
•
•
The aggregate value of guarantees is significant.
The cost of providing such guarantees is high for those participants
required to furnish them (see below).
With the exception of 2007, the level of recovery against the guarantees is
very low, being less than $500,000, or 0.5% of the total value of guarantees
held.
Financial cost of guarantees
While funding costs to take out a bank guarantee will vary depending upon
each applicant’s own circumstances, an indicative cost of taking out a bank
guarantee is 2.5% of the value of the guarantee, plus in some instances a
charge over another tangible asset.
On this assumed indicative cost, the aggregate cost to industry of the 2008
level of guarantees is over $2,500,000. This cost, which would expected to be
incorporated into a businesses charges, exceeds the annual gross value of
TCF claims paid out in 8 of the last 10 years (commencing in 1999).
This level of financial cost, which would be augmented by the opportunity
cost of the charge held over any other business asset, is disproportionate to
the level of potential benefit to consumers.
This analysis further re-enforces the view that the cost of complying with TCF
requirements is high, and out of proportion with the typical level of
compensation paid annually by the TCF (which has not exceeded $4.1 million
in the past 5 years).
4.6
There is a practical
impossibility to
capitalise a fund to
cover against all
potential losses
The current scheme is impractical
Inability to fully capitalise a large fund
Previous reviews of the TCF (TCF 2004) have indicated that a fund
capitalisation of between $40 million to $60 million is required to insure against
the then risk concentration of the TCF. The TCF concluded that this level of
capitalisation would be “unrealistic and an unjustifiable imposition on
industry” (TCF 2004, p 6). AFTA agrees.
The experience of the Ansett-Traveland collapse illustrates the point that the
TCF will continue to be undercapitalised to meet losses generated by a large
scale collapse. In that case, Federal and State Governments were called
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
upon to “top-up” the TCF’s capital to meet the large exposure. TCF claims
paid in 2002 (the year after the Ansett-Traveland collapse) totalled over $11
million.
This level of exposure would be increased should the regulatory regime be
extended to cover suppliers as well as intermediaries – as is recommended in
this submission.
Experience shows that
the ultimate risk can
reside with Government
Practical and political risk exposure for Government
The practical and political experience of the Ansett-Traveland collapse in
2001 demonstrates the practical and political pressure that is brought to bear
on Governments to underwrite any deficiency in the TCF’s funds as a result of
a large scale collapse.
As a result, the compensation aspect of the current regime represents a
considerable financial risk to Government and taxpayers.
AFTA concludes that this is an unreasonable and unnecessary financial risk for
Government. We believe it is inappropriate that the Government essentially
acts as an underwriter of last resort to traveller risks.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
5 Options for reform
5.1
The two dimensions of consumer protection
The CIE review of the National Scheme for the Regulation of Travel Agents
identified that travel agent industry specific consumer protection mechanisms
are present in two aspects (CIE , p 24):
•
•
Guarantee of service quality (through competent travel agents); and
Protection against financial loss arising from the failure of agents to
account for monies deposited with them.
AFTA has adopted this analysis as a foundation to developing policy reform
options and refers to these two regulatory aspects as the two dimensions of
consumer protection.
AFTA has developed a graphical tool to represent the two dimensions of
consumer protection which allows mapping of alternative reform options –
see Attachment 1.
5.2
AFTA has developed a
unique tool to map
reform options
AFTA Policy Option Reform Map
Framework for assessing reform options
To assist the analysis and development of reform options, AFTA has
developed a unique Policy Option Reform Map (the Reform Map) which
provides a framework for mapping possible reform options (see Attachment
1).
The policy responses to the two dimensions which are mapped on the Reform
Map are:
•
•
Guarantee of service quality = Licensing
Protection against consumer loss = Consumer Compensation.
The Reform Map applies the two dimensions of consumer protection outlined
above, by specifying alternative options for both dimensions.
Description of reform map
The policy responses for both dimensions of service quality and protection
against consumer loss are specified on the Y and X axes of the Reform Map
respectively. Varying policy response options for each dimension are then
labelled on each axis, in a descending order of regulation (Licensing - Y axis)
and in a descending order of competition on the X axis (Consumer
Compensation).
The Reform Map also has the following features:
1. Delineation of Guarantee Fund vs Travel Insurance: A grey vertical line
separates Guarantee Fund options from Travel Insurance options. The Travel
Insurance segment of the graph is shaded in light gray. All options to the left
of the vertical line are Guarantee Fund options (contributed to by industry,
consumers or both) while, all options to the right are Travel Insurance options,
funded by the consumer only.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
2. “Who Pays” indicator: Under the X axis there is a shaded bar that indicates
who finances the consumer compensation mechanism, the industry or the
consumer. In relation to the Industry/Consumer Co-fund option, it is jointly
funded.
3. Plotting of reform options: Various reform options are then plotted in the
graph according to their specifications on Licensing and Consumer
Compensation dimensions. The current scheme can be seen in the top left of
the graph (which involves Licensing and a compulsory membership of an
Industry Fund). The other end of the regulatory spectrum, full deregulation
involving no licensing and no mandated insurance cover, is plotted in the
lower right of the graph.
Other options which have been plotted include:
•
•
The short-term reform option recommended by the CIE in 2000.
The long-term reform option recommended by the CIE in 2000.
AFTA recommended options
A second version of the Reform Map (Attachment 2) graphs AFTA’s
recommended options.
•
•
AFTA short-term reform option - Co-regulation + Private Travel Insurance
for consumer; and
AFTA long-term reform option - Registration only + Private Travel insurance
for consumer.
Detailed discussion regarding AFTA’s recommended options and why there is
a short and a long-term option is contained in Chapter 6.
5.3
Not all “travel service
providers” are currently
subject to regulation
which leads to market
inequity and distortions
Who is subject to regulation?
Current regulation
As outlined in Chapter 2, State/Territory legislation requires “a person carrying
on a business as a travel agent” to be licensed. The legislation then defines
who is a person carrying on a business as a travel agent by reference to the
functions/activities they carry out.
AFTA proposal – application to “travel service providers”
AFTA’s proposal as to who should be regulated under a reformed model
would see a broadening of those subject to regulation. This is discussed in
detail in Chapter 6.
For present purposes, in addition to intermediaries who are currently covered,
AFTA would seek to extend coverage to principals (suppliers ie airlines, cruise,
rail and bus companies), and not restrict it to businesses which sell tickets for
passage on a “conveyance” (whether or not it combines with
accommodation as well). Accordingly, accommodation booking agencies
(on-line or otherwise) would participate in the new regulatory scheme.
For present purposes in the discussion that follows, AFTA will describe the
expanded group subject to regulation as “travel service providers”.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
5.4
There is an expansive
spectrum of licensing
options available
Licensing (the ‘Y axis’)
Licensing spectrum
As outlined above, the Y axis on the Reform Map lists licensing options in
descending order of extent of regulation from the top to the bottom of the
axis.
The licensing spectrum can extend from positive (prescriptive) Government
licensing, encompassed in legislation, through to no licensing requirement.
The intermediate options have been identified by reference to alternative
regulation options outlined in the Office of Best Practice Regulation’s Best
Practice Regulation Handbook, August 2007 (OBPR 2007).
Appendix A of the Best Practice Regulation Handbook outlines the following
spectrum of regulation (OBPR, p 96):
•
•
•
•
Explicit government regulation;
Co-regulation;
Quasi-regulation; and
Self-regulation.
For conciseness in the Policy Reform Map with the Licensing dimension, AFTA
has collapsed Quasi-regulation into Co-regulation.
Explicit government regulation
Explicit government regulation, or “black letter law” refers to regulation that is
clearly specified in legislation. The current regulatory system for consumer
protection in the travel agent industry falls into this category.
This form of regulation has the following unique features:
•
•
•
It changes behaviour – by detailing how entities should act;
It relies on monitoring – to detect non-compliance; and
It imposes sanctions – to deter non-compliance (OBPR 2007, p 104).
Explicit regulation is often said to have more certainty and greater
effectiveness because of the threat of sanction. However, it suffers from the
following drawbacks:
•
•
•
•
Inflexible: It may not deal with diverse situations or changes over time,
meaning that it can become outdated and counter-productive;
Slow to respond: There are often time lags inherent in amending
legislation to update the regulatory system;
Lack of accountability: Government costs of administration are often not
subject to as much scrutiny as other regulatory approaches that utilise the
resources of industry;
Compliance costs: Compliance costs are often high as the law often
does not reflect commercial practices.
AFTA submits that the current regulatory system suffers from all the downsides
of explicit regulation identified above.
This form of regulation is usually used where there is a high-risk problem (for
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
example with health or safety), universal application is required, there is
evidence of systemic problems in an industry and existing industry bodies lack
the ability or resources to enforce regulatory compliance.
Co-regulation
Co-regulation refers to a situation where industry develops and administers its
own regulation, but government provides legislative backing to allow
enforcement (OBPR 2007, p 100).
There are various ways in which government can support co-regulation
including delegating enforcement power to industry, enforcing undertakings
for compliance, having provision to apply a code of practice if industry fails
to implement one, and prescribing codes as voluntary or mandatory.
Quasi-regulation
Quasi-regulation exists where governments put pressure on business to
comply with rules that may not be legally binding (OBPR 2007, p 98). In these
instances, governments use a range of rules to influence business to comply,
but do not resort to legislation.
Some examples of quasi-regulation include government endorsed codes of
conduct or industry-government agreements, or like co-regulation,
threatening binding regulation in the event of non-compliance.
Quasi-regulation is said to benefit from flexibility and responsiveness that
explicit regulation does not. It can also more easily adopt innovative and
unique solutions.
Quasi-regulation is often considered for situations where self-regulation will not
work, but there is a need for a unique solution that can be provided by a
strong industry association.
Self-regulation
Self-regulation is characterised by industry formulating its own rules and being
responsible for their enforcement. The Federal Government requires that selfregulation be one of the first options considered in regulatory reviews (OBPR,
p 97).
Obligations for industry members are usually prescribed in a code of conduct.
These rules can be amended and updated easily as industry changes
dictate. As rules are made by the industry, they are more likely to be
observed.
Drawbacks to self regulation include lack of oversight to ensure community
interests are protected. Rules are also open to conferring advantage or
excluding entry.
Self-regulation is often considered where there is no strong public interest
concern, the problem is a low-risk event, and the problem can be fixed by
the market (OBPR 2007, p 105).
AFTA recommends (see Chapter 6) a co-regulatory and self-regulatory
approach for industry regulation in the short-term and long-term respectively.
AFTA believes that the drawbacks of explicit regulation outlined above do
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
overwhelmingly apply to the current regime (see Chapter 5) and needs to be
replaced with a more appropriate regulatory response.
The proposed National
Occupational Licensing
Scheme provides a
useful reference point
for this review
The proposed National Occupational Licensing Scheme
On 3 July 2008, the Council of Australian Governments (COAG) agreed to
introduce a national licensing system (NLS) for specified occupations. The
decision to progress the NLS acknowledged that Australia’s overlapping and
inconsistent regulations impede productivity growth.
An Intergovernmental Agreement (IGA) for the NLS was signed by COAG
members on 30 April 2009. The IGA contemplates that the NLS will be
operational for the first wave of occupations on 1 July 2012.
The objectives of the NLS are outlined in Clause 4 of the IGA and include,
amongst other things:
•
•
•
Ensure licences allow businesses to operate in all jurisdictions;
Ensure that licensing arrangements are effective and proportional to that
required for consumer protection, worker health and safety, while ensuring
economic efficiency; and
Promote national consistency in licensing structure and policies, regulation
and disciplinary procedures.
The NLS agreement proposes a national delegated agency model where a
national licensing body is established to develop policy and administer the
system, but may delegate licensing services to the jurisdictional regulators.
The arguments underpinning the NLS apply equally to the need to have a
uniform licensing or registration system for travel service providers. Multiple
and inconsistent licensing regimes and requirements are a burden on
businesses and individuals who operate across multiple jurisdictions. The
infrastructure established to implement the NLS may be able to be utilised to
implement the Licensing component of AFTA’s reform proposal (see
Chapter 6).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
6 AFTA reform proposals
6.1
By reference to the two
dimensions of
regulation, AFTA has
developed a short and a
long term reform
proposal
Introduction
In this chapter, AFTA sets out its proposals for reform of the consumer
protection regime in the travel services market.
AFTA has developed its reform proposals against the following parameters:
•
•
•
A Short-Term and a Long-Term reform proposal;
An interim ‘safety net’ arrangement; and
The framework of the ‘two dimensions’ of regulation outlined in Chapter 5.
AFTA’s Guiding Principle for Reform
In developing its proposals for reform and in formulating both the short-term
and long-term proposals, AFTA has been driven by an overarching guiding
principle:
To achieve a fair market environment for the consumer and travel
services provider where the consumer is provided the same guarantee
of service level and opportunity for protection from loss irrespective of
the sales channel used to purchase travel services.
To assist in understanding the AFTA proposals, Attachment 2 is a revised policy
reform map that plots the AFTA short and long-term reform proposals.
6.2
The new regime will
apply to “travel services
providers” – a term to
be defined
Scope of application
Travel services providers
AFTA proposes that the new regulation apply to a broad spectrum of industry
participants who will be described as “travel services providers”.
The term “travel services provider” (TSPs) will be defined in the new uniform
legislation. Principles which will instruct the development of the definition
include:
•
•
•
•
TSPs to include both suppliers (ie airlines, cruise, bus and train operators,
tour providers) and intermediaries (agents, wholesalers, consolidators).
TSPs will include businesses who organise travel as part of their service
offering, such as conference organisers and event managers.
TSPs will include on-line providers, as well as operators who work face-toface with consumers.
Accommodation providers (not booking agents) will be excluded from the
definition as they already have a range of industry based regulatory
schemes.
There will be an expanded degree of coverage compared to the existing
regime to improve equity in the industry and to discourage distorted conduct
(eg. pushing operations offshore or online).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
6.3
Substantive reform can
be achieved over a
period of time, say 5
years, in two steps …
Short-term and long-term proposals
Short-term proposal an interim step in reform
AFTA has recommended both a short-term and long-term proposal as it
believes that there is the need for an interim step (the short-term proposal) to
achieving the ideal (long-term) regime. As an indication, AFTA believes that
the short-term model could be implemented for a period of 5 years. Adoption
of the long-term model should be preceded by a further review after 4 years
of the short-term model in operation. This timeframe of key events is outlined in
Graphic 8 below.
Graphic 8: Timeframe for AFTA proposal for reform of consumer protection
As outlined below, AFTA’s long-term proposal represents significant reform and
is a significant departure from the current regime. In terms of the Policy Reform
Map outlined in Chapter 5, the long-term proposal is located on the right of
the map, while the current regime is located at the top left. The extent of
movement is graphically depicted by this extent of movement along the map
(see Attachment 2).
To ease any consumer concern regarding the introduction of the new regime
(which involves removal of the TCF), AFTA recommends that an interim ‘safety
net’ mechanism be put in place for 5 years. The safety net mechanism
(explained further below), will involve preservation of TCF funds for use in
“exceptional circumstances” to compensate travellers who face hardship and
have no other recourse.
While the short-term proposal is an interim step towards AFTA’s preferred
model of regulation, it represents a significant improvement in the regulatory
regime as it achieves the following:
•
Uniformity: Introduces a uniform licensing requirements across all states
and territories;
•
Operator integrity: Maintains industry standards, and therefore consumer
confidence and protection, through the introduction of an industry
accreditation body;
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
•
Equity: Introduces an equitable application of regulation to include the
majority of travel service providers;
•
Efficiency: Removes the inefficient and costly TCF; and
•
Protection from loss: Maintains consumer protection for loss from
insolvency through extending supplier insolvency insurance currently
available through commercial travel insurance to include intermediary
insolvency. The recommendation to offer this on an optional basis provides
the consumer with choice as to whether he/she wants to opt in or out of
cover.
Short-term vs Long-term proposal – common features
While there are a number of differences between the short and long-term
proposals, both have the following common components:
•
Uniform regulation across state/territory jurisdictions;
•
A minimum specified level of operator integrity;
•
Equitable regulation of all travel services providers; and
•
A more efficient approach to consumer compensation through removal of
the TCF and replacement with intermediary insolvency protection
insurance.
6.4
AFTA Short-Term Proposal
AFTA’s short term
proposal comprises
three key components:
Summary
1. New uniform
legislation;
1. Repeal the existing state/territory Travel Agents Acts.
2. New licensing/
accreditation rules; and
2. Introduce new uniform legislation that would establish the framework for a
new licensing and accreditation regime for a broader range of travel services
providers.
3. Travel insurance will
substitute for the TCF to
address the need for
consumer
compensation
The AFTA short-term reform proposal involves the following:
3. Introduce a new industry accreditation scheme that would link with the
licensing system.
4. Disband the TCF.
5. Encourage the expansion of existing travel insurance cover for supplier
insolvency to cover intermediaries.
The AFTA short-term proposal is graphically depicted in Graphic 9 as
comprising three key components.
#1: Uniform licensing legislation.
#2: Travel services provider accreditation.
#3: Travel insurance which incorporates supplier/intermediary insolvency
cover.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Graphic 9: AFTA proposed short-term model for consumer protection
New uniform licensing
legislation will remove
inefficiency arising from
duplication
Part #1 - Uniform licensing legislation
Remove existing state based legislation
AFTA recommends the removal of existing state and territory Travel Agents
Acts and their replacement with a new uniform Act.
While the State and Territory Travel Agent Acts are broadly similar, the
existence of 8 different Acts does create an unnecessary duplication and
compliance cost for travel intermediaries that operate across state borders.
The new uniform legislation could be achieved in one of two ways:
•
•
New Commonwealth Act: Subject to constitutional requirements; the
Commonwealth could introduce a new Act to apply nationally (this is
AFTA’s preferred approach); or
Host jurisdiction for new State Acts: One state/territory could be nominated
to legislate a new Act to implement the new licensing/accreditation
system. All other state/territories would adopt that Act and any changes
that are made to it over time.
The COAG proposal to implement a uniform licensing system for specified
occupations (the NLS) recognises the efficiency losses that flow from
duplicated and inconsistent licensing regimes across jurisdictions.
AFTA recommends that the new regulatory regime for travel services providers
adopt a similar structure proposed by COAG for the NLS. That is:
•
National licensing body: A new national licensing body is established to
develop policy and administer the new licensing system. This body would
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
also establish and administer the proposed associated accreditation
system for TSPs (see #2 below) and co-ordinate a national register of TSPs.
•
Licensing services: Jurisdictional regulators, such as the State Fair Trading
Offices, could act as agents for the new licensing/accreditation body to
facilitate licensing and compliance services in state locations.
New legislation
To extend the consumer protection measures contained in the existing state
legislation, the new national uniform legislation would include, amongst other
things, existing licensing requirements such as (all section references are to the
Travel Agents Act 1986 (NSW)):
•
•
•
•
•
•
Applicant eligibility tests such as minimum age, probity and conduct tests
(section 10);
Disciplinary measures for non-compliance (Division 3);
Discouragement of unjust conduct (section 28);
Requirement to display licences (section 33);
Requirements as to advertising (section 33);and
Requirement to maintain records and produce them for inspection
(sections 41 and 45).
In addition, the new legislation would include a provision that required TSPs be
accredited by the new licensing body.
In drafting the new legislation, regard should be had to existing conduct
provisions in the Trade Practices Act and the state-based Fair Trading Acts to
ensure that there is no unnecessary duplication between these Acts and the
new uniform licensing legislation.
The new national system would be overseen and administered by a new
licensing body created under the Act. For the purposes of this submission,
AFTA proposes use of the name National Travel Industry Licensing Scheme (or
NTLS) to be administered by the National Travel Industry Licensing Board
(NTLB). The NTLB would be responsible for both licensing and accreditation,
with accreditation (see #2 below) being a pre-requisite to be granted a
licence.
TSP accreditation will
strengthen the licensing
protection and act as a
precursor to the selfregulatory model
proposed for the longterm
Part #2 – Travel services provider accreditation
AFTA recommends the introduction of a travel services provider accreditation
system to link with and re-enforce the licensing system to provide an additional
mechanism to guarantee service standards for consumers.
AFTA recognises that the existence of service provider accreditation systems
gives consumers more confidence in dealing with accredited suppliers, in that
there is a set minimum service level standards backed by some ‘policing’ and
control mechanism to ensure minimum standards are maintained.
AFTA also acknowledges that the prudential supervisory role of the TCF has
also provided the industry and the consumer a level of protection by focussing
members on the need to properly manage the financial aspects of their
business, notwithstanding that AFTA has serious concerns regarding the actual
financial tests and ratios that the TCF applies.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
The NTLB outlined in Part #1 above would have responsibility for developing
and administering the accreditation system.
Accreditation of providers would be a pre-requisite to obtaining a travel
services provider licence under Part #1 above.
Purpose of accreditation system
The accreditation system would serve two key purposes.
•
•
Service standards: The NTLB would prescribe minimum service standards to
be adhered to by all members (to be referred to as the TSP Code of
Practice).
Prudential oversight: The NTLB would undertake a prudential oversight role
similar to that undertaken by TCF presently.
Service Standards
Specification of minimum standards for a business is a common feature of
many industries. The standards may be specified in codes of practice, codes
of conduct or ethics statements.
The Office of Best Practice Regulation (OBPR) acknowledges these systems as
effective regulatory mechanisms within the self-regulatory and co-regulatory
styles of regulation (OBPR 2007). In fact, OBPR requires self regulation to be
one of the first options considered in review of regulation (OBPR 2007, p 97).
OBPR acknowledges that a potential problem with self-regulation is obtaining
industry compliance and coverage (OBPR 2007, p98). As the scope of
coverage proposed by AFTA for the new system is quite broad, AFTA
recommends a co-regulatory approach which involves legislative backing for
the TSP Code of Practice. This will be achieved by linking licensing to a TSP
achieving accreditation and undertaking to abide by the Code of Practice.
AFTA has not sought to prescribe the content of the TSP Code of Practice in
this submission. It will be necessary to consult with the industry and
professionals experienced in drafting such codes to develop an appropriate
Code. A research review should be undertaken to see what similar Codes
exist and what may work well for the travel services industry. Many industry
bodies in the travel industry, for example AFTA and the Australian Tourism
Export Council (ATEC), prescribe a code of ethics. These could be reference
points for code development. Possible areas that could be addressed in the
Code of Practice include:
•
•
•
•
Competency/Professionalism – qualification and/or experience
requirements;
Independence – avoiding conflicts of interest and ensuring impartiality of
advice;
Disclosure – provide full details of terms of conditions of service; and
Confidentiality – undertakings to treat all dealings and transactions
confidentially.
To further enhance the power of the accreditation system as a tool to provide
consumer protection, the NTLB could consider applying for a licence from the
Federal Government’s proposed Tourism Quality Council of Australia (TQCA).
Under proposals from the Federal Tourism Minister, industry bodies can apply to
TQCA for licences to operate an accredited quality program.
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Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
The accreditation
system will capture the
positive aspects of the
prudential oversight
role of the TCF without
the burdensome costs
and impracticalities
Prudential oversight
The TSP Code of Practice outlined above would also prescribe financial and
prudential rules for licensed/accredited TSPs.
The NTLB would be charged with overseeing and monitoring minimum
financial standards for licensed/accredited TSPs.
Incorporating a prudential oversight role into the accreditation system
maintains the benefits conferred by this function, presently undertaken by the
TCF, for the ultimate protection of consumers.
Again, AFTA does not prescribe in this submission the detail of the prudential
rules as this will require detailed work and consultation. However, AFTA has
strong views on the general nature of these rules and how they would be
applied and complied with to ensure minimum compliance cost. Key features
would include:
•
•
•
•
‘Tiering system’: Application of a tiering system whereby different
compliance and reporting requirements would be specified by TSP
turnover. A broad risk rating system could be developed for each tier that
would then dictate the prudential rules applicable for each tier. Possible
turnover categories could be:
⇒ Category 1 - <$5 million;
⇒ Category 2 - $5 million - $25 million;
⇒ Category 3 - $25 million to $100 million;
⇒ Category 4 - > $100 million.
Use existing systems/concepts: The prudential rules should to the
maximum extent possible rely on pre-existing systems and concepts. For
example, for large entities subject to existing external reporting
requirements, rules for preparing their financial statements should be
applied.
No bonds/guarantees: As the AFTA model does not encompass a
Guarantee Fund to underwrite consumer compensation (refer Part #3
below), there is no requirement to provide bonds or guarantees.
Minimise compliance costs: Compliance and reporting costs should be
kept to a minimum by using where available existing reporting mechanisms
– for example external financial reports prescribed for other purposes.
The National Travel Industry Licensing Board
The structure and governance arrangements for the NTLB will need to be
determined. Reference could be had to similar oversight boards for guidance.
For present purposes, AFTA makes the following recommendations regarding
the NTLB given its purpose and function within AFTA’s proposal:
•
•
Established by statute: The NTLB would be established by statute (refer Part
#1 above). This way the NTLB have the status and enforcement power of a
co-regulatory regime.
Appointment of Board Members: Board members would be appointed by
the Federal Minister for Consumer Affairs on the advice of MCCA. The
statute should prescribe Board Director representation from industry as well
as Government.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
•
New travel insurance
products will address
the consumer
compensation aspect of
consumer protection
Industry input to governance: The Board should be bound to take advice
from an Industry Advisory Panel that would advise the Board on
governance and prudential standards to ensure that the rules set under
the accreditation system are commercially practical and realistic.
Part #3:
Travel insurance which incorporates supplier/intermediary
insolvency cover.
The third essential component to AFTA’s short-term reform proposal concerns
the consumer compensation dimension of regulation.
AFTA recommends that the TCF be removed as the mode of consumer
compensation and be replaced with a consumer choice to take out travel
insurance that includes supplier and intermediary insolvency protection.
Enhancement required to existing travel insurance policies
As outlined in Chapter 2 above, travel insurance providers already offer
insurance products that includes protection for travellers in the event of a
supplier’s insolvency (eg airline, hotel, etc). We understand that a reason why
travel insurers do not extend this to intermediary insolvency is because the TCF
provides this. In AFTA’s view, it should only be an incremental step to expand
policies to cover intermediary insolvency.
To fulfil AFTA’s recommendation, travel insurers would be encouraged to
extend existing policies to cover intermediary as well as supplier insolvency.
The low level of failure in the industry should encourage insurers to include this
cover in their policies. AFTA is keen to work with insurance companies to assist
them assess and develop these products.
Expanding the coverage of travel insurance – role for NTLS
As outlined in Chapter 2 above, one sampling of a large AFTA member shows
that close to 60% of international travellers take out travel insurance that
includes supplier insolvency cover. AFTA believe it is reasonable to assume
that there would be a similar level of subscription to product that includes
intermediary failure protection, particularly if insurers offer this cover as part of
existing comprehensive policies that already provide supplier insolvency
protection.
To expand the extent of coverage of comprehensive travel insurance, AFTA
recommends that a requirement for NTLB accreditation be an undertaking by
members to compulsorily offer travel insurance to all customers (although in
practice, there may need to be some minimum purchase amount – say
$1000). While travel agents would be one source for provision of travel
insurance, we note (see Chapter 2) that travel insurance is widely available
from a number of different channels.
Expanding the coverage of travel insurance could also be promoted through
such things as:
•
•
Education campaigns: Education and information campaigns by the NTLB,
AFTA and the Insurance Council of Australia regarding the availability and
benefits of travel insurance; and
Government promotion: Promotion of travel insurance by Government
agencies such as the Department of Foreign Affairs and Trade (through the
‘Smartraveller’ website) and Tourism Australia.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
The heightened exposure for travel insurance would hopefully push up
demand for insurance and increase product availability and competition in
the market.
Financial Ombudsman Service
The Financial Ombudsman Service (FOS) would retain the authority to fairly
and independently resolve disputes between consumers and insurers under
insurance contracts.
The FOS currently has jurisdiction to act in disputes involving travel insurance.
AFTA argues that the presence of the FOS provides extra comfort and
protection for consumers in a move to a broader level of travel insurance
coverage.
An interim safety net
arrangement will be
implemented to address
cases of extreme
hardship
Implementation of interim ‘safety net’ arrangement
To assist with the transition to the new model, in particular in relation to the
removal of the TCF, AFTA recommends implementation of an interim ‘safety
net’ arrangement to protect consumers in exceptional circumstances.
Preservation of TCF funds for 5 year period
AFTA recognises that many travellers are accustomed to the existence and
security offered by the TCF and that its removal may cause some concern. To
ease this concern in the short term, AFTA proposes that the funds in the TCF as
at the date of introduction of the new regulatory regime be preserved for a
period of 5 years and be used to compensate travellers in exceptional
circumstances.
“Exceptional circumstances” would need to be defined, but would include
exceptional or desperate circumstances where travel insurance is not held, or
if the insurer defaulted on payment. AFTA would work with the TCF and the
new NTLB to arrive at what would constitute “exceptional circumstances”.
AFTA recommends that upon commencement of the new regime (which
would include winding up of the TCF), that existing surplus TCF funds be
transferred to a nominee who would administer the funds for the defined
purposes stated above for a period of 5 years. Any surpluses left at the
conclusion of 5 years could be appropriately divided between participating
state/territory governments. The travel industry would be prepared to form an
appropriate nominee entity for this purpose should this recommendation be
accepted.
6. Equity for all operators
Application of the regulatory regime to all TSPs will remove discrimination that
currently exists between providers who are bound by the current regime (most
intermediaries) and those who are not (some intermediaries and most
suppliers).
AFTA’s short-term
proposal generates
benefits for consumers
and industry
Benefits of the AFTA Short-term Proposal
AFTA highlights the following benefits that are likely to accrue from the Shortterm proposal.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Consumers
1. Maintenance of service standards
The maintenance of a licensing requirement, enhanced by an accreditation
system, will ensure service standards across TSPs will be maintained and
improved. A government backed accreditation scheme provides a high level
of security for service standards.
2. Consumer awareness and choice
Consumers are free to choose if they wish to take out comprehensive
insurance cover. The mandatory requirement for TSPs to offer insurance (under
NTLS licensing/accreditation requirements) ensures that consumers are made
aware of their options.
3. Reduced cost structures
Removal of TCF bonding arrangements and compliance will reduce cost
structures for the travel agent industry, relieving the pressure to increase
service fees to consumers.
4. Interim safety net arrangement
Consumers would have the comfort of a transitional arrangement whereby
TCF funds would be preserved for a 5 year period to compensate travellers in
exceptional circumstances.
Travel Service Providers
5. Compliance efficiency – removal of duplication
Adoption of uniform licensing rules across Australia will generate compliance
savings for TSPs who operate in multiple states.
6.5
AFTA’s long-term
proposal embraces
concepts of the shortterm model while
moving to an efficient,
self-regulatory
approach
AFTA Long-term Proposal
Summary
The AFTA long-term reform proposal involves the following (described in terms
of how it would differ from the current regime, not the Short-Term Proposal):
1. Repeal the existing state/territory Travel Agents Acts (as for the Short-term
Proposal).
2. Amend the new uniform legislation to establish a framework for a new
registration system for a broader range of travel service providers.
3. Disband the TCF (as for the Short-term Proposal).
4. Encourage the expansion of existing travel insurance cover for supplier
insolvency to cover intermediaries (as for Short-term Proposal).
The AFTA Long-term proposal is mapped on the Policy Reform Map (see
Attachment 2).
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Graphic 10 below outlines the AFTA long-term recommendation.
Graphic 10: AFTA proposed long-term model for consumer protection
Long-term Proposal and Short-term Proposal compared
The distinguishing features of the Long-Term Proposal over the Short-Term
Proposal are as follows:
1. Registration vs Licensing
The Long-term Proposal involves a registration system, as opposed to a
licensing system.
The registration system proposed under the long-term Proposal involves
registration of basic business entity details with a national registration body. In
addition, a ‘fit and proper’ person test could be added and provisions in the
new legislation regarding unjust conduct and sanctions could be maintained.
A registration system was recommended by CIE in its 2000 review of the
regulatory regime for travel agents (CIE 2000, p 116). CIE concluded that
registration provides a mechanism for tracing agents to better ensure
compliance with legal requirements and is a less costly regulatory system (CIE
2000, p 73). It went on to recommend that if there was no compulsory
insurance provider, then a registration system for monitoring trace back and
sanctions would be sufficient (CIE 2000, p 116).
The benefits of an
industry accreditation
system are likely to be
carried forward into the
long-term model
It is likely that having gone to the effort and expense of developing an industry
accreditation system through the NTLS, some form of industry code of practice
would continue in the long term, even in the absence of an endorsed
accreditation system. Accordingly, it could be expected that a self-regulatory
model would develop under AFTA’s Long-term Proposal.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
The OBPR points out that there is less of a need for strong regulation where a
problem can be fixed by the market itself (OBPR 2007, p 105). In terms of the
consumer compensation dimension of regulation, AFTA argues that privately
provided travel insurance provides this solution. Furthermore, in respect of the
licensing dimension, AFTA submits that strong competition between providers
would drive high standards and force out sub-standard providers.
It should also be remembered that generic consumer protection measures
embedded in the Trade Practices Act and the State Fair Trading Acts still
remain in place to protect consumers from unfair business practices.
2. Formal removal of prudential oversight
Removal of the formal accreditation system integral to the Short-term Proposal
implies the removal of the prudential oversight role.
AFTA recommends that before transition to the Long-Term Model, the need to
continue with prudential oversight be evaluated. Market competition and
voluntary adoption of industry based codes should generate sufficient
incentive for TSPs to manage their businesses in a financially prudent manner.
Furthermore, industry associations may see themselves as being able to fulfil a
quasi-prudential oversight role should the industry see this as beneficial.
Long-Term Model not a ‘no regulation’ model
As the industry may seek to implement voluntary codes and oversight
mechanisms (ie a self-regulation approach), it is not be appropriate to label
the AFTA Long-Term Proposal as a ‘no regulation’ or total deregulatory
approach – rather it could be labelled a ‘no mandatory regulation’ model.
For example, industry associations like AFTA may seek to develop their own
codes of practice to mirror some the requirements of the NTLS accreditation
system. Insurance companies may see benefit in approaching industry
associations to take on a prudential reporting role to assist them measure risk
and set premiums for travel insurance. This could lead to a voluntary
prudential oversight system. The need and incentive for these can be gauged
by the benefit that is observed during the period of the Short-Term Proposal.
AFTA’s long-term model
is consistent with the
robust conclusions of
the last major review of
travel agent regulation
Consistency of AFTA Long-Term Proposal with CIE long-term
recommendation
In any event, AFTA notes that removal of the prudential oversight function was
implicit in the CIE long-term recommendation in 2000 (CIE 2000, p 120). CIE
concluded that there was an inability to demonstrate that the TCF
arrangements (which include the prudential oversight role) produce net
benefits. Accordingly, it recommended that a ‘voluntary’ or ‘no legislated
requirements’ model be adopted in the long-term.
In presenting a case for the ‘no industry specific regulation model’, CIE argued
(CIE 2000, p 108):
•
•
•
Travel agencies would face the same market environment with no agents
being able to gain an advantage from regulation (as some do at the
moment – eg suppliers and some web-based providers).
Travel agencies would face the same market environment as other tourism
businesses not subject to industry specific regulation.
Financial costs of regulation for travel agents would be removed.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Ultimately, the existence of travel insurance would provide a final ‘safety net’
for those consumers who are unfortunate enough to suffer due to the failure of
an intermediary.
Benefits of the AFTA Long-Term Proposal
Benefits of the AFTA Long-Term Proposal would include all of the benefits
accruing from the Short-Term Proposal (noted above) plus the following:
1. Reduced compliance costs
Less compliance cost for TSPs would be involved in the Long-Term Proposal as
TSPs would not be required to formally report to a prudential oversight body.
Reduced overheads would reduce pressure on TSPs to increase prices to
consumers.
2. Efficiency
Competition policy theory supposes that less intervention in markets yields
more efficient economic outcomes. The removal of one further element of
regulation assists in achieving less intervention. This is consistent with CIE’s
conclusion that a no mandatory regulation model is the preferred long-term
solution.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
7 Summary of responses to Issues Paper questions
AFTA’s responses to the questions raised in the PWC Issues Paper are
contained throughout the contents of this submission in explicit or implicit
terms.
However, for ease of reference and for clarity, AFTA provides a short summary
of its responses to the Issues Paper questions below, together with a reference
to sections in the submission where more detail can be found.
Overarching themes
Issue 1: Has the scope of industry-specific regulation in the travel industry
appropriately addressed the major consumer protection issues in the
industry?
NO. The scope of application of the current regulatory scheme has
progressively reduced over the last 24 years. The outdated definition of
“travel agent” and resulting narrow membership of the TCF means that the
level of protection was never broad enough and furthermore has reduced
over time. The nature and extent of industry innovation and development
has left the regulatory regime inequitable and inefficient. This is acutely
demonstrated by the only major travel services operator collapse in the last
10 years – that of Ansett. This collapse required significant intervention by the
Federal and State Governments in order to provide consumer confidence
and compensation, and highlights the inadequacy of the current regime. SEE
further detail in Chapters 1-4.
Issue 2: Is the definition of ‘travel agent’ for the purposes of licensing
appropriate?
NO. The current definition of travel agent is narrow and outdated. For
licensing purposes, it should be expanded to encompass a wider spectrum of
“travel services providers” both now and into the future. SEE further
explanation in Chapter 2 and Chapter 6.
Issue 3: What major changes have occurred in the travel industry since the
introduction of the National Scheme and/or reviews of the consumer
protection in the industry? What impact have they had on the
appropriateness of the scheme?
There have been major changes in the travel industry since the introduction
of the National Scheme. These changes have accelerated and
compounded in recent years since the last review of the Scheme. The extent
of changes in the mode of supplier-consumer interaction, payment systems
and industry make up have radically altered the industry such that the current
regulatory scheme is incompatible with the realities of the industry. SEE further
explanation in Chapters 1 and 4.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Competency requirements
Issue 4: How effective has the current licensing regime been in promoting
good standards and behaviour in the industry?
AFTA believes that the service standards and behaviour in the industry are at
a more than acceptable level.
AFTA believes that the licensing regime has not been the primary driver in
promoting good standards and behaviour. The industry has been the main
driver of this via competition and good business practices. With the
broadening and consolidation of the industry under franchise and corporate
brands, quality standards and behaviours have been administered and
monitored via this mechanism far more than that of the licensing regime. The
AFTA Code of Ethics and membership has been a key contributor to ensuring
higher standards within the industry. While the licensing regime has at times
been used to eject bad traders, it has been only as a result of the company in
question not meeting the standards of the TCF, rather than the requirement of
state based licensing.
Issue 5: To what extent does having to be licensed in each state impose
additional costs on businesses operating in multiple jurisdictions?
There is a substantial cost to business in multiple licensing systems across states
and territories. While rules across states maybe similar, it still necessitates
understanding the rules and interacting with multiple licensing agencies.
Different states may also administer their rules differently, creating uncertainty
and confusion. With the ever changing distribution model and greater use of
the internet, state borders in the sale of travel have become ever more
irrelevant. Multiple state licensing creates confusion for these types of
operators and for licence holders who wish to have staff based in multiple
states or for companies that have travel agencies in more than one state.
Issue 6: Are the experience/qualification requirements for travel agents
appropriate?
NO. AFTA believes that it is unnecessary to legislate these requirements. This
aspect of industry oversight can be handled by market competition and selfregulation as is the case in many other industries.
Insolvency Protection
Issue 7: To what extent is there overlap between the regulatory requirements
of the licensing framework and those for participation in the TCF? To what
extent does this overlap place undue costs on business?
There is extensive overlap between the licensing system and the TCF as
operators have to deal with multiple authorities. At least 2 authorities (State
licensing office and the TCF) have to be dealt with, and up to 9 should a
business operate in all states and territories. While AFTA acknowledges that
the two agencies administer two different components of the regime,
efficiencies could be gained and overlap reduced if the two aspects were
dealt with by the one agency – as AFTA is recommending.
It is difficult to assess what the overlap would generate in incremental cost to
business, however we believe it is credible to assert that the current regime is
unduly burdensome and costly – see Chapter 4 for further explanation.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Issue 8: Are the financial adequacy tests applied by the TCF appropriate in
light of the ongoing occurrence of travel agent failure? What can be done to
improve the effectiveness of these financial adequacy requirements?
NO. In the first instance, AFTA submits that the level of travel agent failure is
not high (less than 1% per annum) and therefore it is not appropriate to apply
significant regulatory oversight to a stable industry. Secondly, AFTA believes
that there is a more efficient way to apply a prudential oversight role – see
Chapters 4 and 6 for further explanation.
Issue 9: Is the cost burden on business in complying with TCF requirements
appropriate and proportional?
NO. AFTA maintains that the TCF regime is an excessive and inefficient impost
on industry. Given the relatively stable nature of the travel agent industry and
the changes in industry structure and practices over the years (ie less
instances of monies at risk and monies at risk for a lesser time period for
example); AFTA believes that the TCF is a disproportionate, costly and
inappropriate approach to industry regulation. See Chapter 4 for further
explanation.
Issue 10: Is the current rate of failure amongst travel agents acceptable?
Obviously, any level of failure by any business that leaves customers or
suppliers exposed is not acceptable. However, as noted above, AFTA
observes that the rate of failure by travel agents is low and less than 1% of
total industry numbers. We understand that this is in line with general
economy wide benchmarks. See Chapter 4 for more information.
Issue 11: What benefits do consumers gain from the TCF in addition to
compensation in the case of failure (eg confidence, advocacy)?
AFTA believes that there is minimal added benefit that consumers obtain from
the TCF over and above the compensation measures. The only time a
consumer is fully aware of the benefits of the TCF is when a claim is made.
AFTA accepts that consumers may gain intangible benefits such as piece of
mind that they have a method of recouping costs if an agent fails, however
broadly we believe this only occurs at the time of requiring compensation.
We believe that there is high degree of misunderstanding of when a right for
compensation arises from the TCF and that the general awareness of the TCF
amongst consumers is low. (The only external advocate for the TCF is the
travel agent who displays the TCF sticker in their window which attracts very
little if any attention). When other mechanisms such as chargeback and
travel insurance are also factored in, we suspect that there is confusion
regarding what benefit exists for consumers.
Issue 12: Is the TCF’s funding structure appropriate?
Given AFTA’s reform recommendations include disbanding the TCF; we
believe that it is not appropriate to respond directly to this question.
There have been some suggestions that the TCF should move to a risk based
funding model. The approach taken to risk in the latest recommendation
AFTA believes is flawed. The approach has not addressed real risk of failure,
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
rather it has focussed on the need to maintain funding. Membership
contribution/fee proposals have reflected size of operator, rather than
necessarily the inherent risk of the operator.
Issue 13: To what extent can reliance be placed on credit cards’ chargeback
mechanism to provide ongoing consumer protection?
Given the extent of usage of credit and debit cards to purchase travel
services (which can access the chargeback facility), we believe that a large
proportion of risk exposure for consumers is managed through the
chargeback mechanism. Furthermore, because credit card sales of airline
tickets are often transacted on the airline’s merchant facility by the travel
agent, this removes the consumer’s exposure in relation to agent failure. See
Chapter 2 for further information.
Issue 14: Are there reduced instances of travel agents holding customers’
cash (for example, on deposit or in trust)? Has this materially altered the risk
exposure to consumers from travel agents’ insolvency?
AFTA has not conducted any analysis of trends in holding of cash. However,
we make the general comment in relation to airline tickets that with a 14 day
settlement period under the IATA Billing Settlement Program (BSP) that there is
a very limited period of time which agents hold funds. In addition, there is the
general trend of consumers not to use cash for travel services and to use
credit and debit cards (the RBA says this occurs in 62% of cases). Hence, this
reduces the consumer’s exposure given the existence of the chargeback
mechanism. See Chapter 2 for further information.
Issue 15: Is it likely that the private sector can provide effective and
affordable travel agent insolvency insurance for travellers? What are the risks
of leaving such insurance to the private sector?
Given the tendency of the competitive market to offer products which
consumers demand and the pre-existence of supplier insolvency insurance in
comprehensive travel insurance products, AFTA believes that there is a
likelihood that insurance companies would step in to provide this product. In
addition, the low risk of failure in the industry and our suggestion that an
industry body provide prudential oversight we believe should provide
encouragement to the insurance industry to come forward with this product.
There is a risk if the insurance dimension is not subject to some form of
oversight or regulation that direct selling insurance providers and budget
policies could enter the market resulting in the consumer paying for
inadequate or inferior cover. SEE Chapter 6 for further information.
Conduct requirements
Issue 16: Do the provisions of the Trade Practices Act and state-based Fair
Trading Acts provide sufficient consumer protection in relation to the supply of
travel and travel-related services? If not, in what way are the Trade Practices
Act and state-based Fair Trading Acts inadequate?
The existing TPA and State-based Fair Trading Acts provide an adequate level
of generic protection to consumers in the travel services market. Ongoing
reform and harmonisation of this legislation (eg Australian Consumer Law) has
provided an opportunity to strengthen and harmonise existing areas that may
have been lacking.
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AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
While these Acts provide a general level of protection, they are not specific
or adequate enough to address the two dimensions of regulation that AFTA
has outlined in this submission. AFTA believes that there is the need for
supplementary regulation, whether that be through co-regulation or selfregulation, to address the consumer protection issues that exist in the travel
services market. See Chapters 2 and 6 for further information.
Issue 17: Are the self-regulation measures outlined in the Aviation White
Paper likely to provide adequate consumer protection in the aviation
industry? Should these measures be extended to travel agents?
The self-regulation measures recommended by the Aviation White Paper
should strengthen consumer rights and protection in relation to airline ticket
purchases. Encouraging airlines to be clear in their dealings with customers
and complaints, and providing enforcement mechanisms through an
ombudsman, will heighten the level of protection available to consumers and
provide a clear understanding of rights and obligations. In relation to the
Ombudsman proposal, care should be taken to ensure there is no duplication
or overlap with functions carried out by the Fair Trading Offices. AFTA would
be happy to consider extending these provisions to the travel agent sector
and has highlighted the role of an industry code of practice in both its shortterm and long-term reform proposals in Chapter 6.
Issue 18: What conduct requirements are necessary to adequately protect
consumers?
AFTA recommends that, in the short term, travel services provider conduct be
regulated under a co-regulatory scheme through a combined
licensing/accreditation system (underscored by a Code of Practice). In the
long term, we anticipate that these provisions would be incorporated into a
self-regulatory code of practice for the industry. See Chapter 6 for further
explanation.
Issue 19: To what extent do the conduct requirements of the various licensing
schemes duplicate the provisions of the Trade Practices Act and Fair Trading
Acts? Does this duplication improve compliance?
AFTA believes there is some degree of duplication between the generic
consumer protection provisions of the TPA and the Fair Trading Acts, notably
in the area of unfair or unjust conduct. AFTA recommends that in drafting the
new uniform legislation recommended in this submission that regard be had
to existing generic protection provisions to ensure there is no unnecessary
duplication. See Chapter 6 for more information.
Issue 20: What role do industry association codes of ethics play in ensuring
good conduct by travel agent businesses? Are they sufficient to ensure good
conduct?
The existence of self-regulatory regimes that encompass industry codes of
practice demonstrate that these mechanisms do have a role in enforcing
behavioural standards. AFTA’s proposals, both short and long-term, integrate
a role for industry codes of practice. In the short-term proposal, AFTA
recommends that the industry accreditation system, to be linked to the
licensing system, will be underscored by an industry code of practice. In the
long-term, AFTA envisages that an industry code of practice will continue to
operate under the proposed self-regulatory regime. See Chapter 6 for further
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AFTA submission to Ministerial Council on Consumer Affairs
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including the role of the Travel Compensation Fund
explanation.
Possible reform options
Issue 21: What are the appropriate means for ensuring adequate consumer
protection in each of the three categories (competency, insolvency
protection, conduct)?
AFTA believes that a co-regulatory approach in the short term to address
competency and conduct, supplemented by travel insurance to address
consumer protection, is the appropriate response to drive a new regulatory
regime for consumer protection in the travel services market. In the longer
term, AFTA recommends a move to a self-regulatory approach,
supplemented by travel insurance. See Chapter 6 for a full explanation of
AFTA’s recommendations.
Issue 22: What are the key issues associated with the implementation of any
regulatory reform in this industry? Are there any barriers to reform? If so, what
are they?
The key issues associated implementation of regulatory reform are:
•
•
•
To gain agreement from all States/Territories regarding a recommended
approach. This can be addressed through MCCA and SCOCA, following
stakeholder consultation from this review.
To reassure consumers regarding the nature of the reform and give them
adequate time to understand and prepare for change. Likewise, industry
will need adequate time to prepare for any compliance changes.
To develop new agreed standards of industry conduct and to ensure they
are realistic and practical at the same time as giving the required degree
of consumer protection.
Barriers to reform could include:
•
•
•
Consumer, industry or political resistance to reform. AFTA’s
recommendation for an interim ‘safety net’ arrangement should assist
mitigate any consumer and political concerns regarding the move to
AFTA’s short term reform proposal.
Difficulty in reaching agreement regarding new licensing and
accreditation standards.
Complications obtaining support from the insurance market for the
provision of intermediary insolvency protection should an appropriate
regulatory system not be developed as the insurance industry builds its
capability in this market.
Regulators will need to develop a risk mitigation plan to assist them address
the barriers or impediments o reform. AFTA could assist with development of
this plan.
Page 66
AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
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consumer payment behaviour
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March 2009
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Page 67
AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Attachment 1: Consumer Protection in the Travel and Travel-Related Services Industry
Policy Option Reform Map – general view
Page 68
AFTA submission to Ministerial Council on Consumer Affairs
Review of consumer protection measures in the travel and travel-related services market
including the role of the Travel Compensation Fund
Attachment 2: Consumer Protection in the Travel and Travel-Related Services Industry
Policy Option Reform Map – AFTA’s reform proposals mapped
Page 69
“Without a travel agent,
you are on your own”
The Australian Federation of Travel Agents
Level 3/309 Pitt Street Sydney NSW 2000
Telephone: 02 9287 9900 Facsimile: 02 9264 1085
Website: www.afta.com.au