New package travel legislation: main implications for travel agencies
On April 6 the Official Parliamentary Gazette published the bill for transposing Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 November 2015 on package travel and linked travel arrangements.
The European Directive is targeted primarily at increasing the protection for travelers, and at harmonizing the existing legislation on travel agencies across all member states.
Although the Directive set January 1, 2018 as the time limit for its transposition, and July 1, for its entry into force, the preliminary bill was not published until November 3, 2017, which did not leave enough time to complete transposition of the Directive in the stipulated period. This led to the decision to put the bill through the urgent procedure to enable any amendments to be approved in time for it to come into force by the date set in the Directive. Travel agencies are concerned about this delay in approval of the legal amendments, seeing as how we are about to land in the high tourist season without knowing exactly what the contents of the legislation will be.
Companies classified as travel agencies are not the only ones set to be affected by the amendments contained in the Bill, instead the inclusion of the new “linked travel arrangements” concept is going to mean that the legislation will apply to any trader facilitating the purchase of additional arrangements to that purchased at their point of sale; whether by facilitating selection and payment for that additional arrangement while the traveler is still at that point of sale (although conceptually that selection and payment must be made separately to be considered a linked arrangement); or by facilitating the purchase of an additional arrangement with another trader within 24 hours after purchasing the first travel arrangement. These arrangements are only allowed to be treated as linked travel arrangements (a concept designed to modernize the definition and include linked sales online) if that additional service accounts for “a significant proportion amounting to twenty-five percent or more of the value of the combination”, removing from the equation any additional arrangements not having a considerable effect with respect to the main arrangement purchased.
A very important change in the preliminary bill is the provision of dual security rules:
- Security to cover the risk of insolvency
- Another purely contractual type of security, covering the correct provision of the service.
The security against insolvency is designed to make traders liable to travelers if that insolvency occurs. Travel agencies are concerned, however, about the vague and imprecise wording used in the definition of the term (“as soon as it becomes clear that as a result of the lack of cash flow for the organizers or the retail travel agencies, they will cease to be performed, are not going to be performed, or are only going to be performed in part, or where the service providers ask the travelers to pay for them”), because the looseness of the definition makes it hard to construe when that security must come into play.
Additionally, the security against insolvency includes linked travel arrangements, and traders are required to provide that security to cover the refund of payments made by travelers in scenarios where services fail to be performed “as a result of their insolvency”.
The Bill was designed to give the autonomous community governments the power to legislate on the financial security in respect of insolvency, which would have given rise to a new instance of dispersed autonomous community legislation, but this was stemmed by the decision adopted as early as in 2017 by the Tourism Industry Commission (through the Panel of Tourism Director Generals at the autonomous community governments), which set out harmonized rules on the adoption of security. This was a consequence of the warning by the European Commission as early as in 2014 that Spain was in breach regarding the provisions on security in the previous Package Travel Directive.
That decision determined that the security related to insolvency must be calculated by reference to 5% of the turnover based on revenues from sales of package travel obtained by the organizer or retailer in the previous year, and it also set a minimum amount of €100,000. This minimum amount was criticized by the Spanish Markets and Competition Commission (CNMC), because it could place a barrier to entry for new travel agencies.
For its part, the Bill has retained the security related contractual liability, which is designed to cover liability for actual performance of the obligations arising from providing the purchased services. This type of security may bring greater implications for industry operators, who are not happy that the provision has been kept in the bill when it is not laid down by the Directive; a provision that has also been construed by the CNMC as a potential restriction on free competition, by arguing that it is not required in other member states and leaves travel agencies operating in Spain at a competitive disadvantage.
Another big concern for the travel agencies in relation to the new legislation is the joint and several liability between organizers and retailers (article 161 of the Bill) for the correct performance of the obligations arising from purchased travel arrangements. Although the draft version recognizes the right to recover contribution from the operator that incurred the breach, it ought to delineate how far each of the two operators is liable, because it would be disproportionate to claim the same liability from organizer and retailer when the travel agency simply acts as intermediary between the organizer and the traveler. Especially since the Directive contemplates the retailer’s liability as an option (unlike the organizer who must be liable in all cases), and leaves it in the hands of the member states to decide whether to include that joint and several system in the law.
It would be recommendable, in short, for the final wording of the law to delineate more precisely who and what fall within the scope of insolvency requiring security, and which tourism operators will have to provide that security. In any case, the legislature will have to reconsider at the amendments stage: (a) whether a dual security system is necessary or advisable; and (b) if that dual security is kept, the joint and several system for the security between wholesalers and retailers, or at least a distribution of liability according to the value of the arrangement involved in the trip.
The legislative amendments mentioned above are the ones that principally are going to have the greatest repercussion economically and in terms of travel agencies’ liability. But the new obligations for travel agencies do not end here, instead the Directive makes a whole set of enhancements to the rights recognized for travelers, such as the rules on the ability to transfer a package travel contract, the restrictions on price increases arising from the impact of increased costs, and the changes to the rights to terminate, cancel and withdraw before the start of the package trip, which are going to bring additional consequences having a major effect on the sales and marketing activities carried on by travel agencies.
We will have to wait and see what the final wording will be, and whether the changes sought by the operators through the amendments submitted by the various groups are included by the legislature, which would be desirable to facilitate and boost the tourism business and legal certainty for an industry like tourism that plays such an important role in the Spanish economy.
Garrigues Tourism and Hotels Department