Travel sellers assess strategies for surviving supplier shutdowns
The shuttering of two suppliers last month has served as a wake-up call to the travel advisor community that no matter how sound a company may seem, due diligence is required.
American Queen Voyages and Gogo Vacations each closed their doors at the end of February. American Queen, which canceled all future sailings, has put in place a refund process and said all guest deposits will be fully refunded. Gogo, meanwhile, said all existing bookings will be supported under the banner of parent company Flight Centre Travel Group.
A supplier shutdown can be both a logistical and emotional headache for advisors who have active bookings with the defunct company. Not only do they have to seek out refunds, but they must also deal with the potential erosion of client trust in the industry or even their advisor.
While it's not possible to definitively know the financial health of any given supplier, there are some telltale signs -- like missed commission payments -- that point to trouble in paradise. There are also steps advisors can employ to ensure their clients are protected in the event of an unexpected shutdown.
"As we know, from time to time, suppliers are going to have a failure along the way," said Nicole Mazza, chief marketing officer at Travelsavers. "It does happen. Just keep vigilant. Keep reading the boards. Keep reading the news."
Mazza said the shutdown of American Queen Voyages and Gogo are anomalies: None of the other suppliers in Travelsavers' portfolio seem to be struggling. But, she said, advisors should carefully vet any supplier they want to work with.
"Ensure that they are insured, make sure that they are bonded, make sure that they're financially stable," Mazza said. "That, I think, is one of the greatest advantages of belonging to a consortium or host agency. We do all of that legwork for them when we sign them as a preferred partner, and we all have really strong vetting processes."
She encouraged advisors to book with their host agency or consortium's preferred suppliers because of that added layer of research that goes into onboarding supplier partners.
Peter Lobasso, ASTA's senior vice president and general counsel, concurred. While it's "difficult" for individual advisors or small agencies to vet suppliers, Lobasso said if they are part of a larger network they should lean on its partners.
"Although not a guarantee that a supplier won't later fail for reasons no one could reasonably anticipate, third-party vetting can be a helpful tool in assessing which suppliers advisors should recommend to their clients," he said.
Signature Travel Network, Pleasant Holidays and AAA Travel had all suspended sales of American Queen Voyages prior to its shutdown.
If an advisor decides to book with a supplier that isn't part of a preferred partner program, "be careful," Mazza said; ask peers for recommendations and only book with a credit card.
Unfortunately, Lobasso said, "often there are no outwardly detectable signs of financial distress."
But he encouraged advisors to read the trade press and be aware of any reports of delayed commission payments. That could be an indication a company is in financial distress, he said.
He also encouraged advisors to book with tour operators who are members of the USTOA, which requires members participate in its Travelers Assistance Program.
That program was designed specifically to protect consumers in case of supplier bankruptcy, insolvency or closure. Active members of the association must post $1 million in security, which is held by the association and used solely for reimbursing consumers if such situations arise.
Lobasso also recommended advisors maintain errors and omissions insurance, which typically covers claims made by clients that an advisor's supplier recommendation led to financial loss. Finally, he said, advisors should always recommend clients buy travel insurance with financial default coverage.
Allianz maintains a list of covered suppliers, said Richard Aquino, vice president and head of sales at Allianz Partners. If a supplier is on that list, he said, the policyholder is covered for financial default as long as the policy is purchased within a certain number of days after a deposit is placed and the full cost of the trip is insured.
"I think our list is pretty robust," he said. "We have the majority of all cruise and tour companies on that list."
Aquino noted, though, that just because a supplier is not on the list doesn't necessarily mean they are not financially stable, and vice versa (American Queen was on the list, for example). The list just indicates that Allianz's risk assessment team has deemed the company an appropriate addition.
Daniel Durazo, director of external communications at Allianz, said suppliers are added to, and removed from, the list from time to time.
"It's not really a comment on the company if they're not on it," Durazo said. "They may just not meet our underwriting criteria."
Like Mazza and Lobasso, Aquino encouraged advisors to look to their networks like host agencies or consortia when choosing suppliers.
"I'm sure a consortium wouldn't have [a supplier] on their list if they didn't feel that [they're] a reputable company," he said.
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