I have given a great deal of thought to my next few opinion pieces and decided to write about the more controversial topics all starting with a C….and hence the heading “The C-Word Series”.
This collection of thoughts is intended to give insight into topics that have relevance during these unprecedented times and, more importantly, is intended to show our suggested roadmap during the tourism restart phase to the end of 2021 and into 2022.
Since I enjoy the robust debate in our lively industry, I chose this time to write about the topic that has generated the most heated debates: cancellation fees. Not only are those charged by the product owners of brick, mortar and steel but also the ones where DMCs are in the same position running scheduled tours, groups, group series, incentives or other MICE services.
In my German Virgo fashion, allow me to structure this in a chronological fashion, namely Pre-, During and Post-COVID-19. This is written based on my personal viewpoint, logic and experience, in addition to hundreds of conversations with many relevant stakeholders.
My background – as most of the readers will know – is not of a legal nature and this document is not intended to portray such an opinion either. It is a transparently honest, non-legal viewpoint, nothing more but also nothing less, attempting to get to a workable conclusion and of course each circumstance should be treated individually together with the facts that present themselves at that point in time.
First things first: Why are cancellation fees important in our industry?
In tourism, especially in our destinations as opposed to the source markets, all stakeholders are mostly only paid for their services and products after these have been consumed and long after the cost for delivering same has been caused. Maximum utilisation of infrastructure is hence critical to achieve any return on the investments.
During a normal year and seasonality, it is critical to fill properties, coaches, group series, scheduled tours, adventure tours and available manpower to the maximum in the peak and shoulder seasons in order to see through the off-season that is unfortunately still very pronounced.
Hence the industry needs to ensure that cancellation fees are structured in a fashion that protects against late releases, that cause displaced bookings and lost revenue streams. Depending on the type of product, the timeframes legitimately differ vastly as a result of different abilities to fill empty space on short notice. Simultaneously, every seat or bed unused expires forever without any ability to regain this revenue in the future without displacing fresh turnover.
From the above you can gather that I support logical and commercially thought-through cancellation fee principles, as long as they are consistently applied in all distribution channels with no exceptions that advantage certain business models as has happened in the past… nudge, nudge, wink, wink.
So why is there such conflict in our industry about the application of an ancient principle during the current crisis? Let’s look at the various stages of entering the COVID-19 era, the individual conflict potential and my logical conclusion – time-frames are still a tad of a guess, but not far off in my mind:
Phase 1:
Corona fear grips more and more countries, but no travel warnings, borders are open and aircraft fly. Still many consumers cancel as a result of being concerned about their health (January and February 2020).
Since the decision to cancel a valid booking is made out of free choice by the consumer with knowledge of consequences, during this period the charging of cancellation fees is one hundred percent correct, sometimes waived for business relationship purposes and more often than not covered by travel insurance and its cancellation specific components.
Phase 2:
Many countries issue a worldwide travel ban, effectively locking in their citizens, but our borders remain open and aircraft still fly (late February and first half March 2020).
Now it gets complex. In our destinations DMCs and products are still perfectly able to fulfil their obligations, but many of our mutual clients no longer have the ability to deliver their guests to us as a result of restrictions outside their control.
Contracts between overseas channel and DMCs as well as the ones between DMCs and product are effectively disconnected and no longer deal with the same circumstance. In my mind this is the phase in the recent developments that can cause the most conflict as there is a material gap between legal position, ethical consequence and commercial interests.
Notwithstanding that the supervening impossibility has released the end-consumer from his contractual obligations, there are so many separate contracts within the distribution chain that the position becomes problematic. Only conversations that intend to get to a mutually acceptable outcome seem to be the logical conclusion.
Phase 3:
The whole world has shut down, no air connectivity, shut-down of the hospitality industry (second half March 2020 until now and still for some time to come):
The disconnected nature of circumstance has now disappeared and to me the only logical result is that all obligations of all parties at that point have ceased to have any relevance, with the consequence that no fees can apply to anybody during this period. It is important to note that the impossibility now exists on all sides.
Due to the lockdown, the service providers are effectively hindered from performing themselves and are also freed from their obligations. Or in simple legal terms, the parties are each freed from their obligations.
However, and very importantly, it is critical to distribute any liquidity that remains in the system as a result of travel or business interruption insurances, prepayments and floating deposits throughout the total channel in an equitable fashion to ensure the survival of the overall industry. And yes, this again, will require truthful conversations that have the interests of all stakeholders at heart.
Phase 4:
The global tourism industry is restarting in a stop-go-stop fashion with dramatically lower demand (late 2020 to the end of 2021). For me this is the most important component, where consensus has to be achieved in order to restart our industry successfully.
Our source markets, our clients and our consumers have been deeply traumatised, their disposable income often materially reduced, the ability to insure for the similar events has become cost prohibitive and government activity is highly unpredictable. At the same time liquidity of DMCs and product has been largely wiped out and consequentially any ability to take on financial risk is severely reduced if not wiped out.
Processes such as the ‘Fit2Travel’ certificate and COVID-19 screening just before boarding flights make it impossible to predict the arrival of every single client and hence the charging of even short notice cancellation fees becomes an impossibility.
Minimum passenger numbers for groups, group series and scheduled tours will become erratic to achieve whilst the booking behaviour is going to become, no doubt, more short notice and last minute, again making cancellation fees virtually impossible to implement.
For the purpose of this opinion piece I will ignore the impact on wildlife protection and community support as well as development, but I must highlight that I have fullest understanding for these topics raised by many of our industry leaders over the last few weeks.
If I revert back to the original logic of charging cancellation fees namely to protect against displaced turnover, same has at this point simply disappeared.
The low occupancies expected in this phase simply do not allow for that argument and hence in my mind should not be charged until these become relevant again in a commercially logical fashion.
Phase 5:
The new normality has arrived and life as we knew it is largely back (2022):
We have survived as an industry; occupancies are closer to pre-COVID-19 levels and hence the logic around cancellation fees is sound again. It is during this phase that the industry should reinstate these fees in a commercially logical and fair way towards all channels as well as communicate in a fashion giving all stakeholders a reasonable timeframe to adapt to the changed circumstances.
So, to cut a long story short……let’s ignore phases 1-3 for the shattered crystal ball look into the future. These topics will no doubt be resolved in many conversations and the odd court case.
What about the future though?
In my mind it makes no sense to retain a historic principle of cancellation fees when the logical reason of protecting displaced sales will not be there due to low occupancies.
We recommend special dispensation T&Cs during the start-up phase, which could mean such fees never apply or at the least have maximum flexibility before we return to normality by 2022. In the interim, the benefit of assisting the stuttering tourism motor to remain alive far outweighs the disadvantages of losing the odd bit of turnover. I look forward to your opinions positive and constructive criticism is as always not only welcome but extremely appreciated.
