Holiday costs to increase over travel agent failure safeguards

The cost of package holidays is likely to increase as a result of plans to provide greater protection to consumers in the event of the collapse of travel firms.

A report commissioned by the Commission for Aviation Regulation has warned that recommended measures to boost funds available to compensate holidaymakers when travel agents and tour operators become insolvent will lead to higher prices for package holidays.

“We expect that costs imposed on travel organisers from each scheme, irrespective of how it is presented to customers, will, by and large, be passed on to their customers,” the report said.

It predicted the proposed changes could see customers switching from package holidays to buying components of a holiday separately.

The commission has recommended a doubling of the existing bond paid by travel firms as well as the reintroduction of an annual levy to boost reserves of the Travellers’ Protection Fund.

When travel firms become insolvent, holidaymakers can claim a refund for the cost of trips not taken or for repatriation costs in the event the collapse occurs while they are abroad, from a scheme overseen by the commission.

The bonds paid when travel firm are first licensed are designed to cover such costs while the fund was established in 1982 to make up any shortfall not funded by bonds.

The annual levy to finance the fund was discontinued in 1987 as it was determined the fund had adequate cash reserves. In recent years, the Travellers’ Protection Fund has become depleted following the collapse of a number of operators with the commisssion paying out more than €5m from the fund.

That figure included over €3.5m for 4,200 claimants after Lowcostholidays.ie went out of business in 2016 when the company’s bond of €79,423 was insufficient to cover claims.

The scheme has paid out €15m to about claimants. Only 62% of claims were covered by bonds. The balance in the Travellers’ Protection Fund is about €1.3m which has raised fears with the regulator that the fund might be unable to meet claims from travellers who had holidays disrupted due to a travel firm’s insolvency.

The commission is now proposing to reintroduce the levy at 0.1% of licensed turnover which it believes will allow the fund to be replenished within 10 years.