The Ramifications of Reform

coverOct14By  Louise Wallace

This year’s massive industry reforms championed by AFTA chief executive Jayson Westbury have revolutionised regulation in the Australian travel sector.

Compulsory licensing and the Travel Compensation Fund (TCF), in place for almost three decades, have been swept away to be replaced by a new era including the voluntary AFTA Travel Accreditation Scheme (ATAS) on 1 July. Agents no longer need a licence to trade and ATAS now stands in place as an industry-led mark of quality and professionalism.

However as history shows, revolutions don’t come easy. The transition was a long time coming, with the changes aiming to level the playing field for Australian businesses and cut red tape – but some warned of side effects including a loss of consumer confidence, as well as a potential influx of new competitors.

Four months into the new regime, the catastrophic effects predicted by some naysayers have not materialised. However some argue that the reforms have lowered the bar and potentially opened the floodgates for fraudulent behaviour.

Consolidation services provider CVFR Travel Group managing director Ram Chhabra is among them, arguing that lowering entry barriers has caused a “huge influx” of new entrants keen to put their foot in the door. But rather than rubbing his hands together at the new business, he says the changes have led to an emergence of newcomers who step into the industry and pull out after a few weeks once they realise it’s hard work.

“With no form of licensing or cost to start a travel agency, there’s no system in place to stop any old Joe from becoming an agent,” he says.

“The chances of fraud are now very high… there’s nothing stopping fly-by-nighters from entering the industry and taking off with people’s money.”

The trend is also causing a headache for staff who are being “inundated” with questions from new entrants who don’t have a clue about how the industry works. “We’ve basically become a help line… They are clogging up the system, wasting time and slowing down the process for everyone else,” Chhabra says.

CVFR has responded by amending its systems and imposing restrictions which require new entrants to pre-pay for tickets rather than receiving credit up front as in the past. CVFR hasn’t actioned many applications because of the “large number” of new entrants, but if they can front up the cash, they’ve got the green light to sell.

CVFR isn’t alone, with Orient Express Travel Group also reporting an “upswing in inquiries” across its Independent Travel Group and Select Travel Group brands since 1 July. Speaking with travelBulletin, chief executive Tom Manwaring said he’s fielded inquiries from video and fish and chip shop owners hoping to make some cash on the side.

But like CVFR, he says the quality is a far cry from the TCF- or IATA-approved agents of the past. “These people are genuinely interested in giving it a go, but they are clueless about the travel industry. They just look at the volume that agents turn over and are blinded by the lights, thinking they will take home all of the money,” he says.

Describing the current state of play as a “transition” for the industry, Manwaring says OETG has become a gatekeeper for people who want credit facilities. “We have become more vigilant with our benchmarks and we only do business with ATAS members who are also backed by a GDS. The last thing anyone wants is an explosion of unqualified retailers, so we’re doing our bit,” he says.

Air Tickets general manager Russell Carstensen also reports being “inundated” with accounts from new agents, but expects the trend to slow once they realise it’s hard to break into the profession. Speaking with travelBulletin, he described the prospect of fraud as a “genuine concern”, conceding that the industry has a role to play in creating barriers for entry: “As long as GDSs don’t hand out access to everybody and consolidators play the game properly, there will be sufficient restriction of access to content to stand as an appropriate barrier of entry.”

Anticipating how deregulation will play out is a challenge only four months into the game, but AFTA chief executive Jayson Westbury is confident the transition will blow over and not much will change for consolidators. Certainly, this has been the case for Consolidated Travel, with the company reporting “no change in new entrant movement at all”. The same goes for travel companies such as Globus and Carnival which have reported “no increase” in enquiries from new agents since 1 July.

This comes as no surprise to Westbury, who says claims of a proliferation of new agents doesn’t stack up with the figures at hand. With around 50 agencies opening their doors every year – and the same number closing up – he says new entrants will inevitably emerge. And indeed they are, with travel companies such as US-based Gate 1 Travel opening branches in Australia since licensing was removed. But with only 20 new entrants applying for ATAS accreditation since 1 July – of which only six have been approved – Westbury branded claims of an influx of agents as “alarmist and naïve”.

“Sure, we may see a few more agencies open, but I just don’t see any truth behind this idea of a proliferation of new agents. These consolidators should name names and quantify how many agents are approaching them, otherwise I’d say they’re just trying to alarm the industry and steal headlines,” he says.

Westbury admits “anything is possible” in a deregulated environment, but says it’s up to consolidators to implement controls to prevent problem agents from trickling through the system. If they’re concerned that doesn’t go far enough, he says they should lean on ATAS as a mandatory requirement, much like Carnival has done. “That’s the whole idea [of ATAS] – we’re trying to weed out the dodgies and have a conversation with consumers about the benefits of working with ATAS accredited agents,” he says.

When asked about the prospect of fraud in a deregulated environment, Westbury was unconcerned, insisting that the commercial reality of setting up an agency is enough to “deter the dodgies”. “The reality of setting up an agency is a far greater barrier of entry than licensing ever was. If anything, deregulation is a gift to home based networks,” he says.

Westbury hasn’t wavered in his support for deregulation, but the perceived lack of consumer protection in contrast to the TCF has worried some who fear consumers will lose out in the end. TravelManagers chairman Barry Mayo has been outspoken on the topic and warns that deregulation will increase the risk of agency collapse and tarnish the name of travel agencies. “Losses and inconvenience are going to increase with the likelihood that a few rogue travel intermediaries will damage the travel agent industry’s integrity … and result in a loss of consumer confidence” he says.

It’s early days, but there have already been some failures since the TCF was taken out of the equation. Customers were left out of pocket when NSW agency All Travel collapsed in June, when Australian Specialty Tours went down in August — and again when travel scam Bali Indulgence (not, it should be noted, ever part of the TCF or licensing regime) duped customers the same month. And according to TCF chief executive Glen Wells, there will be more to come. “There has been a marked increase in the number of scams since licensing was removed – we’re talking one every few weeks – and there will be others,” he says.

He told travelBulletin it’s hard to gauge the effects of deregulation at this stage, but his claim is that consumers will lose out. “The new system is fine if you pay by credit card, but the reality is that many customers don’t. The TCF provided strong supervision for the industry – sure it wasn’t perfect, but it did provide certainty for customers,” he says. “Without the TCF, consumer protection no longer exists unless agents take out insolvency insurance.”

Sounds achievable in theory, but it appears that for some, the insurance options are pricy. Chimu Adventures director Chad Carey revealed that the annual cost of insurance is around $70,000 for his agency, and while that figure varies depending on the business, he says “several” other wholesalers have reported similar quotes. “We no longer have consumer protection unless we pay for it. It was our greatest selling point over overseas operators, and now we don’t have that,” he says.

“Independent agencies can’t cough up the kind of money insurance providers are asking, and while no one predicted insurance would cost this much, AFTA has their head in the sand if they think ATAS will stand in the TCF’s place.” Instead, he suggests a voluntary scheme like the TCF where companies make a smaller contribution to fund agency collapse would provide the public with “some reassurance”.

Westbury admits that deregulation is an unknown for the industry, but he’s convinced it is the only way forward. “The TCF had to go, let’s face it. Why use a half-baked, semi government, funded by a competitor credit management control system? That’s not fair and it’s just not commercial,” he says. “At the end of the day, the good will succeed. That’s why the accreditation scheme was developed so that those who want to act in a professional way will stand out from the crowd.”

For now, AFTA is turning its focus to consumer education about the  benefits of ATAS accreditation, while millions of dollars are being spent by consumer affairs authorities across the country on the ‘Pack some Peace of Mind’ campaign. “We are investing heavily to educate consumers of the benefits of working with ATAS accredited agents. It will take time, but it’s a process and consumers will catch on,” Westbury said.