Mark Pestronk
Q: My agency is organizing a large cruise group. We are going to pay the cruise line on a net, noncommissionable basis, and we are going to sell cabins at a markup. If we don't sell enough cabins to make at least a small profit, we want to reserve the right to cancel the whole thing and give people their money back for the cruise. In conjunction with the cruise, we will also sell optional air, hotel and local transfers, all of which have supplier cancellation penalties. So if we sell a nonrefundable ticket and we cancel the cruise, the client would be stuck with a penalty for canceling the air travel. Can we force the client to absorb this penalty even though the cancellation was our decision? Or do we have to reimburse the cancellation penalties when it was our decision to cancel?
A: It is legal to force the client to absorb the loss on the air, provided that the nonrefundable nature of the ticket or other travel arrangement was disclosed at the time it was sold.
Although you are going to sell the air as optional, you could even sell it as a mandatory part of an all-inclusive package at a single price and my advice would still be the same: There is no law against making clients absorb cancellation penalties that are not their fault. You would have to be careful to disclose the potential for these involuntary penalties before the client makes a deposit. Alternatively, if you decided to wait until after you receive the deposit to disclose your terms and conditions, you would have to provide a full refund if the client did not want to proceed. The disclosure should be clear and conspicuous to avoid misunderstandings or accusations of misrepresentation. For example, you could put the following in bold: "Airlines may have their own cancellation penalties for nonrefundable airfares, and you may have to incur a penalty if we have to cancel the cruise for any reason."
Be sure to call your terms and conditions an "agreement" or a "contract," so that the client cannot later claim that he did not realize that the terms were binding on him. Also be sure to record the client's agreement either with a signature or an "I agree" button that records the user's IP address.
The closest that the law comes to restricting the practice of making clients absorb involuntary penalties is a provision of the California Seller of Travel law, which applies to sales to Californians even if your agency is located elsewhere. The statute requires that "if the passenger is not at fault ... all sums paid to the seller of travel for services not provided will be promptly paid to the passenger ... [except] where the seller of travel has remitted the payment to ... a carrier, without obtaining a refund." In that case, "the seller of travel must provide the passenger with a written statement accompanied by bank records establishing the disbursement of the payment."
For credit-card sales, there are no relevant "bank records," so you would probably have to provide a copy of the portion of your ARC report showing sale of the ticket.
Even though you have a legal right to sell this way, you may want to offer travel insurance that would cover such cancellations. However, be sure to examine the policy carefully and make sure that you are fully satisfied that the insurance will really cover the penalties attributable to your own decision to cancel.
Of course, as a gesture of goodwill, you can voluntarily decide to reimburse clients for penalties that they incur as a result of your cancellation. You can reimburse some clients and not others, as there is no legal requirement to treat all clients equally.