This week Paul Evans (Low Cost Holidays), one of the co-founders of the Association of Travel Agents (ATA) resigned with a simple message: “Sorry, solved the problem by moving to Spain. We are out”.
This location move out of the UK by a major OTA is, ironically, one of the outcomes the ATA had predicted to regulators and has been lobbying to prevent.
The combination of the impending reforms to the European Package Travel Regulations (PDT’s) and ever increasing regulatory costs of operating on the UK, compared to other European member states or so called “off shore” solutions outside of the EU, make such moves virtually inevitable.
Whilst operating based in the UK, Low Cost Holidays (LCH) incurred ATOL charges of £2.50 per pax, which on its approximate 1m passengers, would cost a whopping £2.5m. Compare this to Spanish Tour Operating bonds which start as low as €60k. It will literally save LCH millions by moving to Spain via this lower cost alone.
Add to this the much lighter regulatory touch, where balance sheet inspections and requirements are not as arduous as those imposed by the CAA, and you have reason enough to make the move to Spain, right now as Low Cost have.
However, these costs shrink into insignificance when compared to the cost of TOMS VAT, which could be imposed on every travel agent selling holidays by the revised European PTD.
ABTA has taken the view that even thought the revised PTD’s will impose “Principal” status on UK travel agents selling holidays, that this does not necessarily mean they will become liable to pay TOMS. However, the ATA believes this is highly naïve position.
Why would the major UK tour operators stomach a position where they have to pay TOMS, but other Principals selling dynamic packages do not?
I can guarantee they will be lobbying hard for HMRC to impose TOMS VAT on dynamically packaging agents, and in an environment where the UK Government is desperately seeking increased tax revenues, why would this not occur? The TOMS VAT charge has been estimated as £20 per passenger and therefore in Low Cost’s case alone would equate to £20m extra cost.
Spain has demonstrated how their “Bed Bank” sector has been treated by Spanish tax regulators recognising the “Agent of the Hotel” approach – expecting their locally based hotels to pay IVA (Spanish form of VAT) rather than their agency distribution partners.
When applied to packages sold under a Spanish licence, it in effect dramatically reduces the IVA on any holiday package and makes it highly attractive to be based in Spain. Hence, even though the majority of Low Cost’s passenger volume still originates from the UK, they can deliver at a lower cost by being based in Spain. In a price sensitive market is likely to grow their market share, at the expense of UK based business.
So in one neat and highly legal move, Low Cost have torn a gaping loop-hole on the UK regulatory framework, which the CAA are now running around looking for ways to close.
Andy Cohen of the CAA could not have put out a more strongly worded condemnation of the Low Cost move, but in reality European Law makes the CAA powerless to stop Low Cost continuing to sell holidays in the UK, completely out of the their control.
The UK Industry may like to think that without the ability to show either an ATOL or ABTA logo that Low Cost’s booking levels will drop. Unfortunately, the evidence to support this hope does not exist, as demonstrated by the fact that less than 5% of holiday makers decided to cancel their holidays when notified of the change of bonding by Low Cost.
I can only recommend therefore that the CAA continue with its current sensible approach; of commercial negotiation with the major OTA’s and airline holiday companies to get them to join the ATOL environment on a voluntary basis at a sensible cost. Remove the short term cost advantage and few players will disrupt their business models by moving to Spain unless the saving is substantial.
However, the TOMS VAT threat imposed by the revised European PTD’s as they stand will make the cost advantage of moving so great it may not be resistible.
This is why the ATA will continue to work closely with the CAA to push the continuation of the current Flight Plus regime with both UK and European regulators. This recognises the need for Travel agents to trade as agents and not principals and as such avoids the imposition of TOMS VAT.
If Flight Plus is not retained and principal status is imposed it will create an uneven playing field against the unregulated giants of bookimg.com and low cost carriers sourced by a few Google clicks. If this occurs the commodity holiday sector, currently serviced by OTA’s and UK high street agents, will either be destroyed or forced to move out of the UK reducing both tax and bonding revenues.
Personally, I regard Paul Evans and his Low Cost Holidays group as smart players, who were able to adjust their trading model to save millions, and have done so.
However, abandoning the ATA cause is something I hope to persuade Paul was a premature and short-term decision that he should not have made. If not, some of the other ATA members may end up buying Paul a beer in Palma every Friday night come 2016!