Mark Pestronk
Mark Pestronk

Q: I know that you represent leisure agencies, host agencies, travel management companies, online travel agencies, brick-and-mortar agencies, home-based agencies, wholesalers, consolidators, tour operators and other kinds of travel sellers. I know they are all suffering because of Covid-19, but which ones would you say are suffering the most, and what advice can you give them?

A: Most travel sellers have relatively low fixed costs, so they probably can survive with little or no sales through mid-2021, when business should pick up again. Meanwhile, they can conserve cash and possibly borrow more if the government renews the Paycheck Protection Program.

Of all my clients, those that are in the most trouble are the tour operators. They not only have little or no sales, but they also face client demands for refunds of money that they do not have because they have paid their suppliers, which generally refuse to make refunds.

Since most clients pay by credit card, many of them have initiated chargebacks that the operators cannot often defend against. In some of these cases, the client first agreed to a future credit and then changed their mind.

Operators have tried to rely on their change, rescheduling and vague force majeure clauses in their terms and conditions, but the credit card companies have mostly sided with the client and taken the money from the operator's account. If there is no money left, the bank can close the account or cancel the operator's merchant agreement.

To win against a chargeback, operators need to comply with the criteria that I covered in my May 25 Legal Briefs column "How to ensure you win chargeback disputes." In a nutshell, your no-refund (or limited refund) terms must be explicit, and you must show that the client agreed to them. Unfortunately, until Covid-19, the terms and conditions of most operators did not meet these criteria. I hope that, by the time sales start picking up, operators will have revised their terms and conditions to comply.

You cannot legally change your refund policy for existing bookings merely by posting them online, even if your terms stated that you can change them at any time, as you cannot apply the change retroactively. However, you can try to make clients agree to the new terms as a condition of accepting a future credit.

Even where clients have agreed to a future credit, an operator's financial position does not improve all that much, since the operator has agreed to what may amount to a trip paid for by the operator and not the client. Further, some clients will never take that future trip and will want a refund eventually.

Nevertheless, postponing the obligation is certainly better than having to make a refund, so encouraging the client to take a future credit seems to be the best advice, if you might otherwise have to make a refund. Like cruise lines, operators sometimes have to offer a bonus credit of, say, 125% of what the client paid or another bonus of some kind. 

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