Covid-19: Taxpayers funding compensation for holidaymakers

Taxpayers are funding compensation for holidaymakers hit by travel agency failures during Covid-19 as insurance provided by some businesses fell short of the amount needed.

The Commission for Aviation Regulation (Car) administers the Travellers' Protection Fund, which compensates those hit when travel agents or tour operators go out of business, and bonds – a form of insurance – provided by the companies themselves do not cover all those costs.

However, travel agents’ and tour operators’ contributions to the fund have run out, leaving €1.8 million provided by the taxpayer via the Department of Transport, to compensate those hit by holiday company failures.

The Car confirmed on Thursday that “currently the fund is supported by the department only”.

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The fund stood at €1.3 million at the end of 2019, while the department contributed €1.9 million last year to ensure there was enough cash to cover potential claims.

Since then, the Car has drawn €1.4 million from the fund to pay customers left out of pocket by travel agency failures, leaving it with the current balance.

The commission said on Thursday that it was continuing to evaluate claims from customers of two companies that have closed. The regulator did not name the businesses involved.

Car licensing rules require travel agents to put up bonds amounting to 4 per cent of turnover, to compensate customers in case of an insolvency. Tour operators must put up bonds equivalent to 10 per cent of turnover.

Where a company goes out of business and the bond is not enough to compensate its customers, the Car uses the Travellers’ Protection Fund to make up the difference.

EU law obliges the Government to ensure that there is enough cash in this fund to cover compensation for customers when travel companies fail, leaving holidaymakers stranded abroad or unable to take trips for which they have already paid.

The Department of Transport sets aside cash every year in case it is needed to to up the fund. This year it earmarked €10 million for this purpose, none of which has been called on to date.

In 2020 it allocated €15 million. The department returned the €13.1 million that was not called on last year to the exchequer. It will also put up cash as a contingency in 2022.

Protection for consumers

Before the pandemic, the commission had warned that the Travellers’ Protection Fund was depleting. It reached a high of €7.5 million in 2007-2008, but a series of big payouts over the following 10 years left it at €1.8 million in 2017.

At that point, the Car began a review of the Travellers’ Protection Fund and the bonds it requires from holiday companies, to ensure that both schemes could provide enough protection for consumers.

One of its proposals was to seek a once-off payment from travel agents and tour operators to top up the Travellers’ Protection Fund. The State had not sought a contribution from the industry to the fund since the 1980s.

As part of its review, the commission submitted a number of proposals on travel trade consumer protection to the department in late 2019. However, Covid-19 struck the following spring, forcing the Government and regulator to suspend the review.

“We plan to continue this work with the department in 2022,” said the Car on Thursday.