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The Rs 120-crore default on payments to airlines by Spring Travels, a Delhi-based company, has put the spotlight on the rights of passengers under such circumstances.
Experts say an airline's exposure is partly or fully covered by bank or insurance guarantees collected from agents but there could be problems if the agent cannot make the payment at all.
There could especially be problems in refunds. "If there is a refund due, the passenger might not get it back, as the airline will try and adjust the refund amount with the dues from the travel agent. And, the agent, due to lack of funds, might or might not pay," said Jay Bhatia, chairman of the Travel Agents Association of India.
Bangalore-based consumer activist Y G Muralidharan felt airlines might even 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. "By the Indian Contracts 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.
Current issue
Earlier this month, the International Air Transport Association (IATA) stopped Spring Travels from selling tickets till it made a payment of about Rs 120 crore due to various airlines.
"Spring Travels will be reinstated on the BSP after it settles all amounts in 30 days," said Albert Tjoeng, assistant director, corporate communications, Asia-Pacific, IATA.
Travel agents participating in IATA's billing settlement plan (BSP) are required to make fortnightly payment for ticket sales. According to sources in the sector, 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. 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 might 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 the cap is on the number of tickets an airline can issue and not on the total value. The cap can be changed in line with the demand from the agent or on the basis of its past sales record. Airlines can monitor daily ticket sales done by agents, including details such as sectors, class and fare through data provided by reservation systems. Also, the IATA BSP shares data with airlines each month about sales done by agents.
Issues
Following the default, experts are asking if the agency sales were being monitored closely. "IATA has put a mechanism in place but it is up to the airline on how it monitors the sales,'' one said.
Rajesh Rateria of Cirrus Travels says starting from June, airlines want to shift to a weekly payment model as against the present fortnightly one. This might increase the defaults by agents who sell below the 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 might not be easy to find out.
Last year, sources said, Jet Airways also changed its productivity bonus policy, insisting that agents meet their sales target across the entire year and specifically in the last quarter, making many agents push up airline sales or risk lower payouts.
No turbulence for carriers: Spring Travels
Mandeep Singh Anand, chairman of Spring Travels, the agency in the spotlight for allegedly defaulting on dues, said on Tuesday that airlines' money was safe.
He said in addition to about Rs 60 crore in guarantees, he had made Rs 60 crore in advance payments to airlines for bulk ticket purchases.
"No passengers are affected and everyone is getting refunds, if there are cancellations. If there was a default, I would have run away. I am not running away. My office is working,'' he said.
He denied a change in Jet Airways' policy was responsible for the problem.
