Budget tour operator Lowcostholidays went bust on July 15 this year, leaving 140,000 holiday-makers in the lurch, not to mention poorer by thousands of pounds. The sudden collapse of the popular OTA, hours after it was announcing a special summer discount extension online, shows how important it is to read the fine print before booking online holidays.
Private advisory firm Smith & Williamson said in a statement that there were 27,000 customers at resorts when the online travel agent (OTA) went bust and 110,000 who had booked trips but were yet to set off.
Soon after it went bust, the operator told its clients via its website that their flights would be still be valid, but hotels and airport transfers will ask them to settle their bills before leaving. On its website, the company also advises customers to claim for any extra payments that they are asked to make to their travel insurer, credit-card company or the government of the Balearic Islands in Spain, which is where Lowcostholidays is licensed.
Prakash Bang, managing director of roomsXML Solutions Limited, says, 'Lowcostholidays comprised of a €200 million ($220 million) wholesale arm and €500 million ($548 million) OTA/retail arm. This is not the first time in history that a seemingly invincible travel company has gone broke. Just a few months ago, Gateway of Belgium went down under. As also was the fate of Transhotel about two years ago.
The wholesale arm of Lowcostholidays is one of the suppliers for roomsXML – it has a couple of hundred forward reservations and a few live ones in progress, however, travel agents working with roomsXML need not worry, Bang reassures. 'We have 24-hour rotating shifts continuously working to secure all the bookings by paying hotels directly and switching to other suppliers. In most cases, our customers won’t even know, leave alone be asked to pay for their hotels during their holiday.'
'We had an inkling for the last few months that the company was struggling, so we limited the transactions with them by shifting and placing them on a watch list. I spoke with a confidential insider later on, who told me that they owe about €7 million to €8 million ($7.6 million to $8.7 million) each to some of their vendors.'
So where to from here?
'The larger wholesale companies are going to be reviewing all of their contracts with all of their supply chain, starting immediately,' says Bang. 'For aggregators like us, the financial hit is mostly in the several hundred hours of wages reallocating business and communicating with customers that confirmation numbers (but not bookings) have changed. We are the travel agents’ insurance policy.'
Bang forecasts that it will now be very difficult for new players to enter the market in the next 12 months as everyone gets a little more cautious – as if recent political, terrorism and financial events have not been enough of a challenge to the industry.
Consumer confidence in online travel agencies will take a significant hit.
'Undercutting, discounting, price gimmicks, cash-backs and the likes are not going to work. Travel agents should realise that there’s no such thing as a free lunch and that it’s in their interest to opt to work with companies that are profitable… as these companies are likely to be around when times become tough!'