Tour/cruise operator default

Amid a rash of tour-company failures, including a few large operators within the last few years, the traveling public came to the scary realization that there was an underappreciated hazard connected with buying a tour package.

The full amount paid for a tour might completely disap­pear before the tour ever be­gan, or travelers might end up being stranded halfway through a tour without even transportation home.

When the rug is pulled out

These travel nightmares did in­deed descend upon a large number of 

tourists when Hemphill-Harris, Lindblad Travel and Mandala Tours suddenly turned belly-up.

Other tour companies have failed, and some others will continue to do so, but the collapse of these three large, well-known companies with expensive overseas itineraries re­ceived nationwide publicity.

What happened with these three big companies?

An attorney familiar with the Hemphill-Harris case told me that when the company was sold, funds on deposit to pay for tours “became unaccounted for,” with both sides claiming foul.

Lars-Eric Lindblad, an adventure- travel pioneer, passed away at the age of 67 last July 8. He began taking adventuresome travelers to Viet- Nam shortly after the war’s end. The U.S. Government prosecuted him for “trading with the enemy.” Fines and legal expenses caused Lindblad Travel to close.

Mandala Tours suddenly filed for bankruptcy in 1993; the filing records indicated $2 million in debts and $20,000 in assets.

Lots of people paid for tours they never received and have little pros­pect of any refunds.

How likely is it that you might face this unpleasant hazard?

This is a tough call, because sum­maries of default/bankruptcy activ­ity are not collected in the travel industry. The only alternative is to ask industry people what their best estimate is, based on their experi­ences.

Here’s what I was told.

I asked an NTA (National Tour Association) spokesman the follow­ing question: “Given the fact that millions of Americans buy overseas cruise or tour packages every year, what is the likelihood that an indi­vidual purchaser will be confronted with a tour-company failure?”

His response was, “This is very difficult to say, because of the lack of
a source of reliable statistics. I’d say that the chances are extremely re­mote. If you’re pressing me for a number, my best guess would be maybe one in 100,000.”

My travel agent supplied me with the following response.

In her many years in business, her agency has sold something like 50,000 tour/cruise packages. And in that time, she has had two tour compa­nies fail, affecting a total of eight clients, all of whom ended up 100% reimbursed.

This represents an exposure of less than one in every 6,000 tours. She said that if a travel agent has done the proper tour-company investiga­tion homework, clients should ex­pect this hazard to be minuscule.

If my travel agent’s figures are in the right ballpark, then it would take 60 lifetimes of travel (two trips per year for 50 years) to statistically run into a tour-company failure — no comfort to those who have lost money, of course.

Meanwhile, a representative of USTOA (U.S. Tour Operators Asso­ciation) felt that the odds of confront­ing a tour-company failure were much greater, “... perhaps as likely as one in 20.”

So much for trying to get accurate statistics from the travel industry!

What can you do to protect against tour failure?

Fortunately, tour operators and credit-card companies have recog­nized the consumer concern and are making it easier for the traveling public to feel more at ease when booking a tour or cruise.

Following are some precautions/ measures that can be taken.

Use a credit card

Charging a trip on a credit card should provide nearly bulletproof protection against loss due to what is considered “nonprovidingof service.”

Visa and MasterCard recently have extended the time period within which to file a challenge to any billed amount, I was told, to 120 days .. from the date of posting” (date of charging the tour or any other pur­chase).

Bankruptcy coverage from travel-insurance companies is also a good guarantee against loss, but make sure that they will also pay in case of simple default.

There can be a significant legal difference between formal bankruptcy and a company simply closing Its doors (simple default).

This is a great improvement from the old 60-day policy. The exact defi- nitionofthe 120-day period may vary with individual banks; check into this with the 800 number on your card.

Tour companies commonly require full payment 60 days before the be­ginning of a trip. This extended credit- card time period gives you adequate time to file a challenge if the tour company has not provided all or part of the purchased service for any rea­son.

Both the Visa and MasterCard customer/public relations represen­tatives clearly told me that if I filed a challenge within the allowed time limit and the tour/cruise company had not supplied the service due to bankruptcy or financial default, I would not have to pay the tour amount that had been charged on my credit card.

Some tour companies do not accept credit-card payment because of hefty fees charged by the credit-card com­panies. Those companies that do ac­cept credit cards build those fees into their tour costs, of course.

Proof positive that “There’s no such thing as a free lunch.”

Buy travel insurance

Bankruptcy coverage from travel- insurance companies is also a good 

guarantee against loss, but make sure that they will also pay in case of simple default.

There can be a significant legal difference between formal bank­ruptcy and a company simply closing its doors (simple default).

This coverage is usually included in “trip cancellation” policies at a total cost of between 5.5% and 8% of the tour cost. (Not a terrific value, but I’ve heard of no instance in which a claim was not paid, as long as the claim was well documented and sat­isfied the “fine print” conditions.) 

It’s reported that in some Euro­pean countries, a package of “trip cancellation” protection is required to be supplied to every tour pur­chaser — and at a very small pur­chase price. When I asked an insurance repre­sentative about this cost disparity, a few years ago at a travel convention, he responded, “The Americans tend to sue at the slightest opportunity, while the Europeans usually are able to settle amicably out of court.” Another happy result from our le­gal profession.

Ask your tour company

Ask your tour company what pro­tection it provides against the possi­bility of bankruptcy or financial default.

Tour companies should place tour funds in an escrow account held by a third party, usually a bajik. The po­tential hazard here is that funds can be diverted or not deposited.

The only way to nearly eliminate this risk is to ask for the name of the bank and call there to inquire about the safety of your funds and/or to make your check payable only to the escrow account.

Be aware that a tour company could offer its own equivalent of a travel- insurance policy. The bankruptcy/ default coverage would obviously be of no value if the company failed.

Ask about tour-company associations

Some 650 tour companies belong to either USTOA or NTA, which pro­vide travelers with some degree of protection against default losses.

U STOA requires each of their mem­ber tour companies to supply a bond in the amount of $1,000,000 to guar­antee customer protection.

For a list of these tour companies, write to USTOA. 211 East 51st St,, Ste. 12B, New York, NY 10022; phone 212/750-7371, or fax 212/421-1285. They also will send a brochure en­titled “Worldwide Tour & Vacation . Fackage Finder.”

(Lindblad Travel was a member of USTOA’s consumer-protection pro­gram but withdrew some months before the financial failure.)

NTA provides $100,000 of con­sumer protection against formal bankruptcy, (but not simple default) per tour company member.

NTA will tell you if your tour com­pany is one of their 600 participating members.

Contact NTA. 546 East Main St, Lexington, KY 40508; phone 800/755- TOUR.

Both USTOA and NTA have had a modest number of member tour-com­pany failures in the past few years.

USTOA reports that their default- protection programs have paid 100% refunds to those travelers affected.

NTA reports a total of 20 failures, 16 of which reimbursed travelers 100% and four failures in which the reimbursement was 65%.

Of special interest to ITN’a read­ers is the fact that some 300 of the NTA members have overseas itiner­
aries in their catalogs and NTA claims that none of these 300 tour operators has failed in recent years.

These two organizations represent only a modest fraction of all tour operators. Even here, there are dol­lar limits to an individual tour company’s coverage.

A large loss by an individual tour company could reduce a traveler’s expected 100% reimbursement amount to a smaller fraction, as in the three failures noted by NTA (but would not affect any other member tour company’s coverage).

Most tour-company failures are small regional companies that do not affect the international traveler.

Ask your travel agent

Don’t be shy about raising the is­sue of potential tour-company de­fault. A cruise or tour amounts to one of the few services that you are asked to pay for in advance — and usually in serious amounts of money.

ASTA (American Society of Travel Agents) has a “TOP” program that requires agents to demonstrate that they provide their clients with some aspect of default protection.

ASTA also recently introduced a “TRIP” plan that provides specific loss protection for clients who have been booked on a failed tour com­pany.

Ask your travel agent if they par­ticipate in one of these programs.

New legislation

In California, a bill (AB 918, spon­sored by the California Coalition of Travel Organizations and endorsed by USTOA) that provide s consumers with travel-default-loss protection is moving through the legislature.

Funding of this protection would be provided by fees paid by all pro­viders of travel services. Perhaps other states will follow the example.

Reading material

The April 1994 issue of Kiplinger’s Personal Finance Magazine had an article entitled “Travel Tales from Hell” and subtitled “Bankrupt tour operators, stranded students, phony telemarketing schemes — the list goes on and on. Here’s how to stay off it.”

The article covers these topics in great and grisly detail. If you can’t find this article, I will send you a photocopy upon receipt of a self-ad- dressed, business-size envelope with 29 cents postage. I can be reached c/o ITN.