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Executive summary soliciting contributions from interested parties, including:–the release of an Issues Paper–review of the submissions–face-to-face and telephone consultation with acomprehensive mix of consumer, industry andgovernment stakeholders. surveys of industry and consumers an analysis of available data and other information.Our findingsThe industryThe travel industry is diverse. It incorporates many different marketsand segments, with nuanced characteristics, trends andcircumstances in each. With some exceptions, travel markets aretypically highly competitive and dominated (in number at least) bysmall businesses.The travel industry has undergone major changes in its operationdue to the advent and uptake of technology (most importantly theinternet). In parallel with these changes, the industry has seen thegrowth of electronic payment methods. These changes have comeduring a period of increasing travel by Australians due to, amongstother things, the declining relative cost of travel.There is also a broad trend towards consolidation in previouslyunconsolidated sectors of the market; most notably, travelintermediaries. These developments have had a profound effect onthe industry, including changing the nature of the supply chain bywhich consumers have historically accessed travel products. Thisimpact is demonstrated by Figure ES1, with technology increasingthe number of transaction avenues available to the consumer.PricewaterhouseCoopersiv

Executive summaryFigure ES1 – Travel industry supply merCommunications TechnologyTravel AgentTourWholesalerTour OperatorHistorical supply chainAlternative channelsThese developments have improved the choice and informationavailable to consumers, while reducing their vulnerability toconsumer protection issues historically present in the market.The existing consumer protection frameworkThe centrepiece of consumer protection regulation in Australia is thegeneric provisions of Fair Trading Acts and the Trade Practices Act,applicable to all industries. These are being harmonised nationallyunder the Australian Consumer Law initiative, which is due to be fullyeffective and implemented by January 2011.While primary reliance for consumer protection regulation should beplaced on the generic rules applicable to all industries, there may besome limited circumstances in which industry-specific provisions areappropriate. Nevertheless, a clear need for additional consumerprotection should be demonstrated; for example, a particularly greatrisk of consumer detriment and/or inadequate opportunities forprevention, redress or non regulatory protection.In the travel industry, industry-specific consumer protectionregulation is currently focussed on travel agents. A compulsorylicensing regime and an insolvency protection scheme are in place.Together these measures attempt to achieve three key objectives.PricewaterhouseCoopers Competency – protecting consumers from inadequate servicefrom travel agents, to the extent this is the result ofincompetence on behalf of the travel agent. Compensation – providing compensation to consumers wholose funds in the event of a travel agency collapse, includingprudential oversight to minimise such occasions. Conduct – improving business conduct in the industry via thedisciplinary powers vested in the relevant licensing authority.v

Executive summaryOther industry-specific measures are being developed, including anational accreditation framework for the tourism industry and anindustry ombudsman for the aviation sector.A range of non regulatory measures are also present. These includeindustry associations’ codes of conduct, commercial arrangementsand some private sector protection (credit card charge-back andtravel insurance).The need for consumer protectionFor the most part, competitive markets underpinned by genericconsumer protection rules, some voluntary accreditation and someprivate measures provide an adequate and appropriate level ofconsumer protection in the travel industry.Notwithstanding, legitimate concerns have been raised about twoareas where the risk of consumer detriment, and the lack ofopportunities for redress, are potentially unacceptable.These areas are: inadequate service (in a variety of markets) the loss of prepayments (particularly in relation to travelagents and air travel).There is little evidence of substantial consumer protection issuesrelating to poor service in the travel industry. The area that wasraised by stakeholders however, related to the air travel industry –cancellations, delays, service quality and travel insurance – ratherthan travel agents. Substantial measures to address these concernshave already been proposed by the Australian Government’sAviation White Paper. These measures should be explored.A further initiative in relation to quality service is the NationalTourism Accreditation Framework (NTAF). The NTAF aims topromote improved quality and better outcomes for consumers via anumbrella scheme that supports and empowers accreditationprograms across a number of regions and industry sectors. Thisinitiative appears sufficient to address other consumer protectionconcerns relating to inadequate service in the industry.The risk of losing prepayments in the event of business insolvencywas the driving rationale for the introduction of specific regulation oftravel agents in the 1980s. Since that time, a number ofdevelopments have occurred which substantially reduced the risk ofconsumer detriment for agency collapses.PricewaterhouseCoopers Increasing household incomes and consumers’ familiarity withtravel, combined with the declining real cost of travel, maketravel purchases a less significant household purchase. Consumers have greater access to information and the abilityto contract direct with suppliers via electronic payments andthe internet. More and more consumers are doing so, in whichvi

Executive summarycase their funds are not at risk from travel agent collapse.The popularity of credit card usage also reduces the amount offunds exposed to this risk. Market consolidation and the declining market share(in terms of revenue) of smaller agencies have improvedmarket oversight of the solvency of businesses in the industry.At present, the available evidence suggests that the risk ofconsumer detriment is not sufficient to justify substantial regulatoryintervention in this market. In addition, some private sector optionsare also available to consumers to protect themselves againstthese risks.The effectiveness of the current travel agents regimeWhile it is likely that the travel agents consumer protectionframework has served a good purpose since its introduction in the1980s, in many ways the measures in the regime are duplicative,obsolete, disproportionate and/or poorly targeted to achieve desiredconsumer protection outcomes.Consumers value consumer protection in this sector, including beingwilling to pay a considerable component of their travel fare(at a minimum, 30 of a 1,000 fare) to obtain protection from travelagency bankruptcy. Estimates of the total willingness to pay forinsolvency protection in this sector exceed the estimated cost of theregulatory scheme. For the most part however, consumers areunaware of the existing regime. The willingness to pay therefore isnot a value of the current scheme, but rather a representation oftheir aversion to a loss and the value they place on protection.Industry also value consumer protection in the sector, but are criticalof a number of elements of the current framework.The licensing framework could retain its beneficial componentsunder a substantially less onerous scheme. In particular, in relation to competency, the training/experiencerequirements are poorly targeted and, in the most part,superseded by industry practice in relation to conduct, the enforcement powers largelyduplicate the provisions of the generic consumer protectionlaws – key enforcement powers provided to licensingauthorities can be achieved under the provisions of theproposed Australian Consumer Law.In short, there are few grounds for departure from the genericconsumer protection provisions in this industry. The regime also failsto reflect the national nature of the market. It remains a state basedsystem and creates unnecessary duplication for businessesoperating in multiple jurisdictions.PricewaterhouseCoopersvii

Executive summaryIn relation to insolvency protection measures, the schemerepresents an onerous and disproportionate measure, given: the approach taken in other comparable industries, includingthose that pose a similar or greater risk of consumer detrimentor are of greater systemic importance to theAustralian economy the annual regulatory burden of the scheme is significantlyhigher than the level of funds paid out improvements in the vulnerability of and choice available toconsumers from the growing uptake of information technologyand electronic payment options consolidation of the market and the growth of larger players,which gives greater capacity for consumers to observeindications of business solvency through media coverage ofrating agencies statements or ASX disclosures.Meanwhile, the licensing and insolvency protection regimesimpose a significant financial and administrative cost on travelagent businesses.In relation to licensing, the costs include: a financial cost to business (ie annual licensing fees) totalling,industry wide, approximately 1.4 million per annum staff time to complete compliance tasks, costingbusinesses a total of 270,000 per annum – these costs maybe compounded by businesses who are licensed acrossmultiple states the completion of required training courses, with anestimated financial cost of 800 and staff time costs of 1,200 – representing an estimated total cost to industry of 4.3 million per annum.In relation to the compensation scheme, the total cost is estimated at 19.3 million per annum, including: the operating costs of the TCF(approximately 2.8 million per annum) compliance activities of businesses (estimated at 3.2 millionper annum) the requirements to prepare audited financial accounts( 4.8 million per annum) the provision of securities ( 2.5 million per annum) the retention of excess capital reserves( 6.0 million per annum).In total therefore the cost of the regulatory scheme – includinglicensing and compensation – is 25.3 million per annum relative tothe average pay-out to consumers of 2.9 million (averaged over thePricewaterhouseCoopersviii

Executive summarylast 10 years). The regulatory costs are therefore around nine timesthe current value of consumer funds lost.Our recommendationsOverarching framework for consumer protectionThe consumer protection framework for the travel industry should bebuilt on two key elements: voluntary accreditation under the NTAF for all travelbusinesses, supported by, in relation to travel agents, anational registration scheme the generic consumer protection provisions of the proposedAustralian Consumer Law (ACL).The majority of PwC’s recommendations in this respect reflect thestatus quo or initiatives that are already in train (eg the developmentand implementation of the NTAF and ACL). Our recommendationshowever lend support for consideration of an extension to themandate of the proposed Aviation Ombudsman, to include referenceto the entire travel industry.With respect to travel agents however, our recommendationsrepresents substantial reform.Reform of the existing travel agents licensing regimeIt is clear from all stakeholders and from the available evidence, thatsignificant reform is necessary in this sector. Put simply, the statusquo is not appropriate. Stakeholders differ in their opinions on thenature and scale of reform necessary.With respect to the licensing regime, PwC recommends replacingthe existing provisions with: a registration scheme that:–is a single nationally administered scheme–removes existing competency requirements, includingthe mandated training–retains basic disclosure and ‘fit and proper person’character requirements an accreditation program, developed in conjunction withindustry, for the sector consistent with the NTAF the option of an enforceable industry code of conduct underthe ACL.Having reviewed the need for insolvency protection of travel agents,a demonstrable case for regulatory protection was not found.PricewaterhouseCoopersix

Executive summaryAt the same time, the scheme imposes a substantial economic coston the industry.PwC recommends the removal of all insolvency protection from thecurrent regulatory framework.Should this option not be preferred by government, PwC also seessome merit in two alternatives: the development of an industry-ledcompensation scheme, or various enhancements to the regime in itscurrent state.Careful consideration should be had to the implementation of theserecommendations. Accordingly, a phased implementation planis recommended.PricewaterhouseCoopersx

PrefaceOn 8 May 2009, the Ministerial Council on Consumer Affairs directedthe Standing Committee of Officials of Consumer Affairs (SCOCA) tocommission a review of consumer protection in the travel and travelrelated services market. PricewaterhouseCoopers (PwC) wasappointed by SCOCA to undertake this review.BackgroundUnder the Terms of Reference in the Consultancy Contract betweenPwC and the Commonwealth Department of the Treasury (on behalfof SCOCA), the review is to: identify and review the effectiveness of, or need for,consumer protection measures in the travel and travel relatedservices market, particularly in relation to consumerprepayments for services consider the relevance, effectiveness and viability of thecurrent travel agency regulatory scheme, with a particularfocus on the operation of the Travel Compensation Fund identify and consider regulatory and non-regulatory optionswithin a cost/benefit framework to address the identifiedconsumer protection issues at a Commonwealth andState/Territory level.PwC has considered consumer protection issues in connection withthe provision of travel and travel related services in the Australianmarket place, including services provided directly or indirectly bypersons carrying on business in Australia to both inbound andoutbound tourists as well as business travellers in connection withtravel inside and outside Australia.For the purposes of this review, travel services include air, sea andland transport, while travel related services include vehicle rental,accommodation, sightseeing tours, special events and otherservices associated with travel (such as finance and insurance).Suppliers of travel and travel related services include principals(those who directly provide the services) and intermediaries (thoseinvolved in making arrangements).The consumer protection measures in this industry, in particularthose concerning travel agents, have been the subject of severalreviews, including a National Competition Policy review in 20002 andan unpublished TCF review of the TCF’s capital adequacy andcapital requirements in 2004 (driven by the collapse ofAnsett/Traveland in 2001). This review is cognisant of the analysisand recommendations of these reviews and builds on them in light ofmore recent developments.2PricewaterhouseCoopersCentre for International Economics (2000) ‘National Competition Policy review of theNational Scheme for the Regulation of Travel Agents’.xi

PrefaceReview methodologyPwC’s methodology for this review included the following activities. A review of the existing regulatory and non regulatoryconsumer protection framework in the travel industry. The release of an Issues Paper highlighting the key issues forour review and inviting submissions from interested parties. Review of the 32 submissions received in response to theIssues Paper. A list of submissions received is provided inAppendix A. Face-to-face and telephone consultation with acomprehensive mix of consumer, industry and governmentstakeholders. A full list of persons/organisations consulted isprovided in Appendix B. A review of travel agent regulation in otherinternational jurisdictions. A summary of our findings inprovided in Appendix C. A review of business risk data prepared for this review by Dunand Bradstreet. Information on Dun and Bradstreet’s data,including their approach to collecting data and the full results,is provided in Appendix D. A survey of over 800 consumers in relation to consumerprotection in the travel industry. The survey is set out inAppendix E. A survey of all Australian travel agents participating in the TCFrelating to the regulatory scheme for travel agents. The surveyis set out in Appendix F. An analysis of available data relating to consumer complaints,business failures and other consumer protection matters.AcknowledgementsPwC is grateful for the assistance of many stakeholders and otherinterested parties throughout the conduct of this review. In particularwe were greatly assisted by the following organisations: the Travel Compensation Fund, and in particularMr Glen Wells the Australian Federation of Travel Agents, in particularMr Jayson Westbury.We would also like to thank the various industry representatives,government stakeholders and consumer groups that have assistedus throughout the course of this review. A full list of participatingstakeholders is contained in Appendix B.PricewaterhouseCoopersxii

PrefaceStructure of this reportThis report documents the analysis, findings and recommendationsof our review. It is structured as follows.PricewaterhouseCoopers Chapter 1 outlines the context of our review by definingconsumer protection and discussing the nature, dynamics andrecent developments in the travel industry. Chapter 2 outlines the current regulatory and non regulatoryconsumer protection framework in the travel industry, includingthe industry-specific regulations applicable to travel agents. Chapter 3 considers the need for consumer protectionmeasures in the travel industry, based on observations fromChapter 1 and 2, available data and information and the statedconcerns of stakeholders. Chapter 4 reviews the effectiveness of the current regulatoryregime in addressing key consumer protection concerns, inlight of these concerns and broad policy objectives. Chapter 5 outlines six options to reform the existing insolvencyprotection scheme relating to travel agents. Chapter 6 outlines PwC’s recommended reforms, including anoverarching consumer protection framework for the travelindustry and reforms to the existing travel a

consumer protection regulation in the travel industry. Subsequent developments suggest that there is no longer sufficient justification for industry-specific consumer protection regulation in this sector and that the existing scheme is now not fit for purpose. 3 Consumer protection concerns in the airline industry have been raised. These were