Taxpayers to foot bill for next tour firm collapse, UK watchdog warns | Business

Taxpayers would have to pay the bill if another tour operator followed Thomas Cook in insolvency, the National Audit Office warned, after a tourism industry fund that paid £ 481 million to repatriate and reimburse tourists hit by the collapse was seriously depleted.

In a report on the shock death from the 178-year-old tour operator last year, NAO said the state had already borne £ 156m in costs, a figure he said is set to rise in the future.

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And the body responsible for examining public spending has expressed concern that any future failure by tour operators could lead to much higher costs.

The warning comes with government finances already stretched by £ 330 billion economic stimulus to tackle the coronavirus crisis, which also put immense pressure on airlines and other tour operators. UK citizens are also trapped abroad after border closures around the world due to the coronavirus, while airlines have radically restricted services.

NAO's concerns are related to the Atoll, the safety net financed by the tourism sector that ensures that customers who buy package holidays are not left out when tour operators go bankrupt.

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Atol's air travel trust fund (ATTF), supported by a £ 2.50 per passenger payment from licensed tour operators, paid £ 481 million in Thomas Cook, said the NAO, more than any previous case.

Brexit
"Now there is little doubt that the Brexit process has prompted many UK customers to postpone their holiday plans this summer," said Chief Executive Peter Fankhauser in May. But it can't be the whole story – arch-rival Tui coped because his finances are healthier.

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Climate
The heat wave of the summer of 2018 encouraged potential tourists to stay at home, hurting prices in the final market, where operators try to take unsold vacations. There appears to have been a hangover in 2019, with customers calculating that waiting to book is a productive strategy.

Competition
An Airbnb pinch move and holiday budget changed consumer behavior, although Thomas Cook still managed to sell 11 million vacation packages last year.

Banks and debts
The tour operator has attempted to shoulder a huge debt over the past decade – £ 1.7 billion at the last count. Successive managers have failed to remove significant parts. Banks argue that they have supported an overworked company for years and the details of why it could not be saved may have to wait for the Insolvency Service's report.

Poor management
Thomas Cook's loans were very high. The moral of the story is that tour operators must finance themselves conservatively. If your balance sheet is fragile, you are at the mercy of events in an industry where most of the money comes in the summer and then flows in the winter.

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Nils Pratleyfinancial editor

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“The Civil Aviation Authority [CAA] he told us that it is likely that, after all the costs resulting from the Thomas Cook collapse are met, relatively limited resources remain in the ATTF, ”the report said.

"If another Atol-licensed company collapses and the costs cannot be met by the fund, the government has agreed to support ATTF."

Atol protection does not cover people who just bought flights, but it does cover most of the type of vacation package that was sold by Thomas Cook, protecting about 20 million people every year.

This includes customers from Tui, Thomas Cook's only major rival before his collapse. While there is no suggestion that Tui is in danger of suffering the same fate as Thomas Cook, she was one of the hardest hit companies in the midst of the coronavirus crisis.

Its share price has dropped two-thirds since the outbreak began, with the flow of global tourism stifled by travel restrictions imposed by governments.

The NAO report detailed the costs of Thomas Cook's decline, which culminated in his insolvency on September 23 last year.

The failure left an estimated 150,000 customers in 18 countries, triggering the greater repatriation effort in British peacetime history, with 746 flights from 54 airports.

The Department of Transport (DfT) is reimbursing CAA £ 83m for the cost of repatriating tourists who were not protected by the Atoll. The total cost increased by £ 22 million after the CAA revised the estimated proportion of customers without coverage to 55%, from 40% in February to 55%.

In December 2019, the government said it was planning a new regime that allow airlines looking to continue flying enough time to complete repatriations, limiting future costs to the taxpayer.

Meg Hillier, chairman of the Public Accounts Committee, said the existing agreements left the "industry off the hook".

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“The resources to cover other airlines that went bankrupt now are very limited. New regulations are urgently needed, ”she said.

The government also spent GBP 83 million on redundancy payments for 9,000 employees, in addition to the costs of the liquidation process.

The NAO said the costs are likely to rise above the £ 156 million total, including honoring legitimate claims from people who were injured while on vacation at the company.

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