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The Rs 120-crore default by Spring Travels, a Delhi-based travel firm, has put the spotlight on the locus standi of passengers under such circumstances.
According to experts, while airlines' exposures are partly or fully covered by bank or insurance guarantees collected from agents, but there could problems if the agent cannot make the payment at all.
There could especially problems in refunds.
"If there is a refund due, the passenger may not get it back as the airline will try and adjust the refund amount with outstanding from the travel agent. And the agent also, due to lack of funds, may or may not pay," said Jay Bhatia, chairman of Travel Agents Association of India.
Bangalore-based consumer activist Y G Muralidharan felt that the airlines even may take the extreme step of not allowing passengers to travel in such circumstances. But this does not happen under normal circumstances because both the airline's market perception is at stake.
Also, the airline risks the prospect of legal action.
"As per the Indian Contract Act, the principal (in this case the airline) is always liable for the acts of the agent. This is so because the agent is selling the ticket on behalf of the airline and not on his own," explains Jehangir Gai, consumer activist.
Earlier this month, the International Air Transport Association (IATA) stopped Spring Travels from selling tickets till it makes the payment of over Rs 120 crore due to various airlines.
“IATA had suspended Spring Travels (P) Ltd from the IATA Billing and Settlement Plan as the agency had failed to settle amounts due to the BSP on 28 March. With the suspension, Spring Travels will not be able to issue air tickets via the IATA BSP. Spring Travels will be reinstated on the BSP after it settles all outstanding amounts within 30 days," said Albert Tjoeng, Assistant Director, Corporate Communications, Asia Pacific, IATA.
On monitoring, IATA provides airlines with an agent monitoring report daily on the sales of travel agents versus the financial guarantee they have provided. Ticket capping, whether by volume or value, is an operational decision by individual airlines. IATA cannot be involved in this.
In accordance with the rules of the BSP, agencies are required to provide a financial guarantee as deemed sufficient as per the financial criteria for India approved by the Passenger Conference. On the amount of the financial guarantee, we are not at liberty to release commercial information.
Travel agents participating in IATA's billing settlement plan (BSP) are required to make fortnightly payment for tickets sales. According to industry sources, a large chunk of this amount is due to Jet Airways. Agents are required to make bi-monthly payments to the BSP for all the ticket sales. The BSP, in turn, remits the amount to airlines.
"The BSP run by IATA also manages risk coverage/defaults through an agreed process between travel agents and airlines,'' Jet Airways said in a statement. Agents are required to furnish a bank guarantee or an insurance guarantee to the IATA BSP. This guarantee is in relation to 35 days of sales done by the agency in the last year and is reviewed and renewed each year. Airlines may also insist on a separate guarantee from the agents.
On the basis of these guarantees, airlines cap the number of tickets an agent can issue each fortnight. Sources say as per current practice the cap is on number of tickets that an airline can issue and not on the total value.
The cap (on the number of tickets that can be sold) can be changed as per demand from the agent or the basis of its past sales record. Airlines can monitor daily ticket sales done by agent including details like sectors, class and fare through data provided by reservation systems. Also the IATA Bsp shares data to airlines each month about sales done by agents. Following the default industry experts are asking if the agency sales were being monitored closely.
"IATA has put a mechanism in place but is upto the airlines how it monitors the sales,'' an expert said.
Rajesh Rateria of Cirrus Travels says that starting June airlines wants to shift to weekly payment model as against the fortnightly one now. This may only increase the defaults by agents who sell below airline's price to generate volumes. Hence, passengers should be careful about choosing travel agents. Apart from opting for trusted names in the market, avoid going to sub-agents (who work for another bigger agent), though it may not be easy to find out.
Sources said that last year Jet Airways also changed its productivity bonus policy insisting that agents meet their sales target across the entire year and specifically, in last quarter making many agents to push up the airline sales or risk lower pay outs.
Airlines' money is safe
Mandeep Singh Anand, chairman of Spring Travels on Tuesday claimed that airlines' money was safe and in addition to about Rs 60 crore in guarantees he has made Rs 60 crore in advance payments to airlines for bulk ticket purchase.
"No passengers are affected and everyone is getting refunds, if there are cancellation. If there was a default I would have run away. I am not running away. My office is working,'' Anand stated. He denied the change in Jet Airways policy was responsible for the problem.
