As major suppliers collapse, experts suggest survival tactics for advisors

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Photo Credit: Freedomz/Shutterstock

This year has proven to be a tumultuous one for travel sellers, with several suppliers going out of business, leaving many advisors and their clients in a lurch.

Thomas Cook's collapse has likely been the most publicized, but the one that tended to affect more U.S. agents was the demise of New York public relations firm JG Worldwide, parent of Heritage Tours and Revealed America. 

Cox & Kings was the most recent to generate concerns, as Virtuoso on Sept. 20 ended its partnership with the tour operator's business in the U.S. and Dubai because of financial problems with its affiliate in India, Cox & Kings India Ltd. It appears that no advisors or clients in the U.S. have so far been affected by Cox & Kings' problems.

Robert Joselyn, president and CEO of the Joselyn Consulting Group, said it's been a difficult situation for travel advisors to contend with.

"There probably isn't any really good way or [one] thing that agents and agencies can do," Joselyn said, but there are safeguards to help insulate an agency in the case of tour operator insolvency. 

Consortia have monitoring programs that track suppliers, and when enough red flags emerge, they notify members and potentially sever their relationship with that supplier.

That is what happened on Sept. 20, when Virtuoso ended its preferred supplier partnership with Cox & Kings, the Americas and Cox & Kings Tours, Dubai. Albert Herrera, Virtuoso's senior vice president of global product partnerships, said that decision came after members lost confidence in the supplier because of negative reports about its affiliate in India.

Virtuoso encourages advisors to report supplier issues. The consortium then researches and addresses concerns with the supplier and, when appropriate, will put a "remediation plan" in place. If a supplier can't comply with or fulfill that plan, Herrera said, its relationship with Virtuoso is severed.

Travel Leaders Group also has "an established, vigorous monitoring system" for suppliers, said Stephen McGillivray, chief marketing officer. Red flags will lead to talks with the supplier and reevaluations of the relationship.

Signature Travel Network also vets and monitors suppliers, said Phil Cappelli, senior vice president of preferred partnerships. But he conceded that "in today's rapidly changing travel environment, problems can arise quickly."

"In the rare cases when questions of financial stability arise, we work closely with our members and the partner to assess and address the problem," Cappelli said. But, he added, "There are never any guarantees."

Nicole Mazza, chief marketing officer for Travelsavers, said her consortium, too, monitors suppliers for signals that they might be struggling. One of the biggest clues is delays in commission payments, which members often report.

Joselyn said that deciding to cut off a supplier is often a difficult decision for consortia, because they don't want to unnecessarily put members on notice about a supplier and, in turn, contribute to its financial downfall by shifting agents' bookings elsewhere.

"They've got to be careful legally and morally," Joselyn said.

Unknowns, credit cards, insurance

Travel advisor Natalie Lenrow, with ETA Travel in West Conshohocken, Pa., started operating much differently after some of her clients were affected when Revealed America went out of business. Now, if she's using a new supplier, she spends a large amount of time researching and learning about it, trying to suss out any financial problems. 

"I've started second-guessing everything that I have literally done for 20 years," she said. "I think that we all have to be a little more conscious of where we're putting our clients and who we're putting them with. And you've got to get names, and you've got to get confirmation numbers."

It's not uncommon for an agent to book outside a consortium's network of preferred suppliers, Travelsavers' Mazza said, especially for highly specialized products.

In that case, she urges advisors to be cautious and educate themselves on who the supplier's vendors are. Membership in the USTOA is a good sign because the association requires members to post a $1 million security.

Joselyn said that while there are no guarantees with regard to a supplier's financial situation, there are steps agencies should take to protect themselves. They start with having a sound preferred-supplier policy within an agency, selecting suppliers based on income opportunities, the quality of the supplier for the client and the agency's perception of how long it has been in the industry and how stable it has been.

He also encouraged advisors to talk to their peers about what they experience with suppliers because, he said, they are "kind of like the canary in the coal mine."

Peter Lobasso, ASTA's general counsel, said one of the simplest ways advisors can help protect clients is by encouraging them to pay for their trip with a credit card. Then, under the Fair Credit Billing Act (FCBA), they could refuse payment for services not rendered.

"It's advisable to suggest clients not make a deposit using cash or check, as FCBA will not apply in these cases," Lobasso said.

There are other forms of restitution an agent's clients could seek in some cases, such as travel restitution funds for residents of California and Nevada, recourse for cruise passengers from the Federal Maritime Commission and the USTOA's $1 million bond, which members are required to post in case of bankruptcy, insolvency or cessation of operations, Lobasso said.

Another important layer of protection is travel insurance. The Travel Institute recommends agents always offer it to clients alongside an explanation of the risks they face if they do not purchase it.

Many insurance plans cover a supplier's financial default. Those that do often have some requirements, according to Stan Sandberg, co-founder of TravelInsurance.com. Such requirements might include purchasing the plan within a set time frame of the initial trip payment date, usually seven to 14 days, or that the supplier default must happen 15 days or more after insurance is purchased.

Allianz is among the insurers that maintain a list of covered suppliers, and it updates the list regularly, said Daniel Durazo, Allianz's director of marketing and communications.

Some insurance companies, including Allianz and Travelex Insurance Services, also include commission protection for agencies. Durazo said it varies in availability and how it works, and "because of that, travel agents should check with their provider to understand terms and availability."

Commission protection programs are usually provided to agencies as part of their contract with an insurer, he said.

Christine Buggy, vice president of marketing services for Travelex, said advisors are not charged to enroll in Travelex's Commission Protection Program. If the program's guidelines are followed, the insurer will reimburse a percentage of the trip cost.

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