A Firm of Corporate Solutions and Environmental Awareness.

The impact of Thomas Cook Insolvency

The recent news on the collapse of the travel giant Thomas Cook means serious problems for a number of operators in different tourist destinations in Spain; namely, the Canary islands, where TC sent  some 7 million tourists in 2018.

While we believe that the remains of the TC empire will soon be picked up by other operators, we thought useful to highlight the safeguards provided by Spanish law in events like this.

Legislative Royal Legislative Decree 1/2007, of 16 November, approving the Law for the Defence of Consumers and Users (hereinafter LCU) include a number of references to “package travel”, ”combined travel” and related travel services, by establishing a number of safeguards in favor of consumers that would come into effect in the event of insolvency of companies organizing this type of travel products.

The LCU defines “package travel” as follows:

"The combination of at least two types of travel services for the same trip or vacation, whenever these services:

1. are combined by a single entrepreneur (even if at the request or according to the wishes of the traveler) before the individual contract for all the services is executed with the consumer; or

2. irrespective of the fact that separate contracts are executed, with different travel service providers, whenever such services:

i. are contracted at a single point of sale and selected before the traveler agrees to pay,

ii. are offered, sold or invoiced at a flat-rate or flat-rate price;

iii. are advertised or sold as a "package" or under a similar denomination,

iv. are combined after the contract is executed and under which the entrepreneur offering the services allows the traveler to choose between a selection of different types of travel services; or

v. are contracted with different companies through connected online booking processes  where the name of the traveler, his payment details and his e-mail address are transmitted to third parties by the company with whom the first contract is concluded not later than twenty-four hours after confirmation of the booking by the first travel service".

The definition encompasses most of the services that consumers normally identify with “package services” such as Flight/hotels, flight/hotels with tied excursions and others.

In the first place, the LRD provides that the contract to be executed by the consumer with regard to the above defined “combined travel” must include the name of an entity that will act as guarantor of the contract in case of insolvency of the organizing travel entity. (Article 155(2)(c))

And article 164 of the LCU deals with the scope of the guarantee against insolvency in package travel.

Both package tour organizers and retailers established in Spain as well as those established in a Member State of the European Union have the obligation to provide a guarantee and adapt it where necessary to the contents of EU Directive  2015/2302 of the European Parliament and Council of 25th November 2015 on Package Travel and Related Travel Services, amending Regulation (EC) No 2006/2004 and Directive 2011/83/EU of the European Parliament and of the Council and repealing Council Directive 90/314/EEC.

Such a guarantee may be established through the creation of a guarantee fund, the taking out of either insurance, a guarantee or other financial security, on terms to be determined by the competent authority. If the carriage of passengers is included in the package contract, a guarantee for the repatriation of the passengers shall be provided and the continuation of the package may be offered.

Organizers and retailers not established in an EU Member State either selling or offering package tours to Spain or by any means directing such activities to Spain will also be obliged to provide such a guarantee.

The guarantee must be effective and cover reasonably foreseeable costs. It will cover the amount of payments made either directly by travelers, or by a third party on their behalf, in relation to high season package holidays, taking into account the period lapsing between down payments and final payments and the completion of the package holidays, as well as the estimated cost of repatriations in the event of insolvency.

¿When is insolvency deemed to exist?

Insolvency is deemed to exist as soon as it is evident that due to the lack of cash flow (liquidez) of the organizers or retailers, the travel services will either (i) cease to be performed when in progress,  (ii) not be performed or (iii) be performed only in part; or when the service providers require the travelers to pay for them direct. Once insolvency has occurred, the guarantee must be made available. The traveler should have easy access to the protection offered by the guarantee, without prejudice to the possibility of being offered the continuation of the package services. Reimbursements for non-executed travel services shall be made without undue delay and at the request of the traveler.

The protection against the insolvency of the organizer and the retailer will benefit travelers irrespective of their place of residence, the place of departure, the place where the package was sold or the Member State in which the guaranteeing entity is located.

When the execution of the package is affected by the insolvency of the organizer or retailer, the guarantee will be activated free of charge for repatriations and, if necessary, for the financing of accommodation prior to repatriation, without implying the nedd for the traveler to make any advance payment.

 

Article 167 of the Law on the Protection of Consumers and Users also lays down requirements for protection against insolvency  with regard to other related travel services.

It is considered that travel services linked to at least two different types of purchased travel services the purpose of which is the same journey or holidaydo not constitute package travel, but give rise to the execution of separate contracts with each of the individual providers of travel services,  whenever an entrepreneur facilitates:

*          on the occasion of a single visit or contact to the point of sale, the selection and separate payment of each travel service by travelers, or

*          specifically, the contracting of at least one additional travel service with another travel service provider; provided that this contracting takes place no later than 24 hours after confirmation of the booking by the first travel agent.

Therefore, in the event of insolvency (bankruptcy) of a travel agency, as is currently the case, consumers are guaranteed their rights and the reimbursement of the money paid for the trip in the event that the trip has not started.

                                                  ===========