Supplementary written evidence submitted by ABTA – The Travel Association
Digital, Culture, Media and Sport Select Committee Inquiry:
Impact of Covid-19 on DCMS sectors
Introduction
ABTA is the largest travel association in the UK, with around 1,100 Members operating from more than 4,000 locations across the country. Our Members range from small, specialist tour operators and independent travel agencies specialising in business and leisure travel, through to publicly listed companies and household names, from call centres to internet booking services to high street shops. Combined, ABTA’s Members have an aggregate annual turnover of more than £40bn.
The UK’s vibrant tourism mix, encompassing inbound, outbound, and domestic travel and tourism businesses, is worth a total of more than £145 billion a year to the UK economy, and employs more than 3.3 million people. The UK also has a world leading outbound travel sector, with more than 72 million overseas trips taken by UK residents in 2019. The overall economic contribution of outbound travel is impressive, amounting to over £37 billion (GVA) annually, and supporting around 500,000 jobs right across the UK. Given the economic importance of the sector, and the role outbound travel plays in supporting employment, it is vitally important the Government does all it can to support travel businesses through the current Covid-19 crisis.
Executive Summary
ABTA made an initial submission to the DCMS Committee inquiry – ‘Impact of Covid-19 on DCMS sectors’ – which focused on the immediate impact of Covid-19 and the support required for the travel industry. This supplementary submission focuses on the longer-term impacts and the concerns that need to be addressed to support the industry through the recovery period. This includes the following issues:
• Financial support for the industry
• Rebuilding demand and enabling consumers to travel with confidence
• Other challenges facing the UK travel sector – the UK-EU future relationship and labour market flexibility
• Specific support and guidance required for the school travel sector
• International coordination
1. Update on current situation
The UK travel industry is facing an existential crisis as the result of the unprecedented global shutdown caused by Covid-19. The Foreign and Commonwealth Office (FCO) has issued advice against all but essential overseas travel, which now applies “indefinitely”, and businesses are struggling to deal with an avalanche of refund requests. The situation has been exacerbated by the failure of key suppliers, most notably airlines, to refund monies owed to tour operators and travel organisers, which has left many travel organisers unable to meet their legal obligation to provide cash refunds within fourteen days, as is required under the Package Travel Regulations.
The European Commission published, on 13 May, recommendations on vouchers which clearly encourage Member States to support, and indeed to promote, national regimes offering consumers deferred refunds, provided insolvency protection remains in place. ABTA remains in close contact with the Department for Business, Energy and Industrial Strategy and Department for Transport, as well as the Civil Aviation Authority (CAA), and is urging a temporary solution that benefits businesses and consumers.
In the absence of Government action, ABTA has provided Members with clear guidance on issuing Refund Credit Notes, which maintain the consumers right to an eventual cash refund, and which align fully with the existing rules of the Air Travel Trust Fund payments policy for the ATOL scheme, as well as the Package Travel Regulations. Members adhering to this guidance will ensure that consumer financial protection remains in place when Refund Credit Notes are issued. The consumer does not lose his or her right to a cash refund as a result.
2. The outlook for international travel from the UK
When the Government’s strategy for ending lockdown is assessed, the detail suggests that many businesses in travel and tourism face a prolonged recovery period, beyond that of other economic sectors, as well as depressed demand and fragile consumer confidence which will reduce the appetite for travel and tourism both domestically and internationally. With businesses across the sector already faced with both an avalanche of cancellations and a cliff-edge drop in bookings, travel and tourism businesses’ most immediate challenge will be the ability to stay financially viable. As a result, it is likely that businesses will require continued liquidity support to pay staff, rent and suppliers over the coming months.
Given the current FCO Travel Advice, and with confidence in overseas travel likely to have shrunk notably because of Covid-19, the overseas sector faces a particularly uncertain outlook. Coupled with the uncertainty and unpredictability about proposed quarantine of inbound passengers as well as the actions that may be taken by other countries, particularly in relation to border controls, the industry is likely to be impacted over a longer time frame than many other sectors, who may see a quicker return to ‘business as normal’ once the UK lockdown has lifted. The outbound sector will likely experience a delayed recovery compared even with businesses within other parts of the UK tourism industry.
Recovery of the travel sector will be dependent on several interlinking factors, including the return of consumer confidence and demand for travel, which will require measures including international coordination around the lifting of travel bans and the establishment of health and safety protocols, and supporting the travel insurance industry to ensure adequate cover is available for travellers. This will require a strategic, cross-departmental approach from the Government, ensuring efficient and effective communication and collaboration between the various strands of Government with involvement in international travel.
As the leading trade association for travel in the UK, ABTA is keen, as we enter the next phase of the Covid-19 crisis, to work with Government Ministers and officials to play a proactive and constructive role in supporting the recovery of the travel sector. In this regard, we are engaged in the newly-established Government Taskforce on the Recreation and Leisure sector, under the auspices of the Department for Digital, Culture, Media, and Sport, as well as being involved with the “Restart and Recovery Unit” developed by the Department for Transport. In addition, we continue to provide regular input through our long-standing working relationships with officials across other departments, most notably the Foreign and Commonwealth Office, and Department for Business, Energy, and Industrial Strategy.
3. Financial support
Whilst ABTA welcomed the Government’s Covid-19 financial support schemes, we also have concerns about the practicality and accessibility of the individual measures. It is important to make clear that, unlike many other sectors, loans simply will not be a viable way through this crisis for many travel companies. The travel industry generally operates on very low margins, and for many businesses their balance sheet position would not enable access to the Government’s financing schemes. Even where businesses can access the lending facilities available, it is often the case that businesses would simply not be able to afford the interest incurred during period of reduced capacity after this pandemic.
ABTA is recommending additional financial support measures tailored to sectors deemed to be in prolonged distress, such as the travel and tourism industry. ABTA would particularly like to see two key additional measures made available to businesses within the travel and tourism industry: ongoing salary support, and recovery grants to support businesses in the next phase of the Covid-19 emergency. We also believe the government should consider an extension of existing business rates support for the sector in the 2021/2022 financial year.
It is worth noting that other governments have already started to implement targeted, sector-specific measures as part of a second phase of support schemes aimed at those businesses who will be most severely impacted by the pandemic. The Government of Jersey’s tailored business support scheme is one such example.[1]
Ongoing salary support
The furloughing scheme (Coronavirus Job Retention Scheme) established by the Government to support employers throughout the crisis has been strongly welcomed by businesses in the travel industry. The extension of the scheme through to the end of October, recently announced by the Chancellor, is also positive news, albeit that final details of the policy are yet to be published and will need to be fully analysed and understood.
During the opening weeks of the Covid-19 crisis, ABTA has been contacted by numerous businesses within the sector regarding the structure of the Coronavirus Job Retention Scheme, which requires companies to furlough staff to access the 80% salary support on offer. At a time of significant disruption, travel businesses are extremely busy dealing with cancellations and rebooking of consumer trips, and ensuring that those affected can be repatriated or assisted in destination in the most appropriate manner. This places an enormous strain on the staff working in travel, but it is a vital and valued part of the proposition that organised travel offers consumers: support and expertise when things go wrong. When customers require their services more than ever, it is impossible for travel businesses to furlough large numbers of their operational staff.
As such, ABTA welcomes the additional flexibility indicated in the announcement of the extension to the furlough regime, which aligns with our request for staff to be able to undertake non-revenue raising tasks of benefit to consumers, but travel businesses currently have very limited revenue, and are legally required to issue refunds as soon as possible, which is weakening their financial situation notably. Given the prolonged timeline for recovery outlined, many travel companies will struggle to bring employees back into the workforce if that requires a significant salary contribution from August onwards. ABTA believes the Chancellor must carefully consider the need for future salary support to be tailored to specific sectors, based on the Government’s own plans for easing lockdown and on analysis of where continuing economic distress will occur
Recovery grants
The government has recognised the unique vulnerability of the retail, leisure and hospitality businesses in this crisis, with a specific support regime part of the existing business support measures announced, including a tailored grants scheme. This grants scheme is allocated by local authorities and tied to existing business rates support. In England, it includes the possibly to apply for up to £25k per affected business unit depending on the rateable value of the premises involved. The devolved institutions have chosen to allocate this funding in different ways.
As we enter the recovery phase, and with the difficulties and restrictions facing travel and tourism, ABTA is recommending that the government carefully consider the case for a further grants scheme to support those industries identified as being in need of additional financial liquidity to prevent mass insolvencies and redundancies, such as the travel and tourism industry. While it will be a matter for HM Treasury to consider appropriate levels of financial support, ABTA believes it would be reasonable for these grants to set at a similar level to the previous support for businesses in the retail, leisure, and hospitality sector. This level of support would recognise recovery as a distinct phase of the Covid-19 crisis, and provide emergency finance assistance to a seasonal sector of the UK economy facing the loss of much of the vital summer revenues in 2020. Especially for SME businesses, and those with a physical presence in high-streets up and down the country, where travel and tourism businesses are a vitally important part of the community, recovery grants could make a valuable contribution to business survival. As has been seen to date, the UK Government must continue to work with devolved institutions and local authorities to provide clear guidance on the intended applicability of grants, and to encourage the widest possible take-up of financial support made available.
4. Rebuilding demand and enabling consumers to travel with confidence
A critical element of recovery in travel and tourism will be rebuilding demand for travel and enabling consumers to do so with confidence. While an important part of this recovery phase will be taken care of by travel and tourism businesses, through the adoption and clear communication of relevant health and safety protocols in individual premises and settings, the Government also has a vitally important role to play. The Government should consider short-term fiscal measures to boost demand, as well as adopting a strategic approach to ensuring that travel and tourism can return in a coordinated and managed way, both within the UK and internationally.
As the UK exits lockdown, and enters the recovery phase, it is critically important that all businesses, and the public, are given clear and consistent guidance and messaging from Government in relation to the restarting of the travel and tourism sector. ABTA fully appreciates the importance of the Government using the best health and scientific advice in making decisions, however it is essential that any Government statements made in relation to future travel, including the Government’s strategy for lifting the existing FCO travel advice, are aligned to published Government policy.
An important element of confidence for consumers when booking domestic and overseas packages is the financial protection of those arrangements in relation to pre-payments made. The UK has a long tradition of effective protection in this area, pre-dating European requirements. Consumer confidence in these systems is an enabler of recovery.
For financial protection systems to operate efficiently, a return to a more normal and stable approach within the financial sector will be crucial for businesses. We deal with this in the following section, alongside travel and other insurance that are essential to consumers, businesses and regulators.
Insurance and Financial Markets
The short to near-medium term sector risks within travel and tourism have resulted in a ‘knee jerk’ reaction from insurance and financial markets, which risks adding to the burden of failures and slowing recovery.
The Banking, and in particular Merchant Acquiring, part of the card services industry is taking action against traders that are threatening its survival and cutting off what little positive cash flow exists in the current environment. The powerful position of these market participants and the effective duopoly of the VISA and MasterCard networks places many travel businesses in a highly exposed position, where business terms can be varied with little or no notice, against a threat of the suspension or withdrawal of card facilities.
Healthy, functioning, competitive, insurance markets are as essential to recovery as they are in normal times. The Government has already recognised the challenges in relation to the trade credit insurance market, with the Economic Secretary to the Treasury announcing on 13 May Government support for businesses through Trade Credit Insurance guarantee.
Credit insurance is essential for the functioning of recovery towards normal business within the travel and tourism supply chain, as with other areas of the economy. Specialist credit insurance lines, such as Supplier Failure Insurance and Supplier Airline Failure Insurance are essential to the protection of travel businesses and indirectly therefore consumers (in the absence of any regulatory regime of airline insolvency protection – see below). Financial Protection arrangements, including those of the CAA’s own Air Travel Trust (ATT), rely on functioning insurance markets.
The performance of the insurance sector in relation to business continuity and interruption covers is well reported in the media and subject, we understand, to scrutiny by regulators. We are concerned that similar issues may arise in relation to liability covers.
Travel insurance
A functioning travel insurance market is essential to provide consumers with confidence to book travel services – domestic, outbound, and inbound.
However, over recent weeks, the travel insurance market has effectively withdrawn, or those underwriters still on sale for ‘trip’ insurance are excluding all Covid-19/pandemic risks for forward sales. This has resulted in confusion about cover for existing sales, which consequently poses a significant reputational risk issue. ABTA is urging HM Treasury, the Financial Conduct Authority and the Financial Ombudsman Services to look at this issue urgently, and to work with the Association of British Insurers (ABI) and other insurance industry stakeholders, to ensure the availability of adequate insurance cover, including medial cover, to enable confidence in travel to return once lockdown measures and FCO Travel Advice are lifted. A properly functioning insurance market will enable customers to book replacement travel later this Summer, next Winter and for Summer 2021, and therefore will play an extremely important role in the recovery of the sector.
In addition, we would ask ministers to review the rate of insurance premium tax levied on travel insurance, which is currently set at the higher rate of 20%. A reduction from 20% to the lower rate of 12% would help to boost consumer demand when the travel and insurance markets fully re-open, and align with the FCO’s objectives of encouraging maximum levels of take-up of insurance for overseas holidays.
Insolvency protections
The Queen’s Speech in December 2019 promised legislation on Airline Insolvency rules within the UK, and ABTA now urges the Government to proceed with a thorough consultation on the Independent Airline Insolvency Review, which was conducted after the failure of Monarch Travel Group in October 2017, and prior to the subsequent failure of the Thomas Cook Group in September 2019. The Covid-19 crisis, and ensuing difficulties with issuing of consumer refunds, has highlighted the serious disparity in consumer financial protection between airlines and travel organisers operating within the Package Travel Regulations, and this must be a focus of the Government consultation.
The recent round of Bond renewals for ABTA and the CAA, which was due to complete on 30 March and is still ongoing, is a concern.
A number of key institutions in this market, Swiss RE, Zurich and others, are taking positions which range from withdrawal to a highly selective approach. It is our understanding that the CAA and ATT are experiencing the same market issues with renewals, also affecting the ATT insurance programme.
We are extremely concerned that this situation will only become more difficult in the short term and that as the CAA and ABTA (along with the two other BEIS Approved Bodies) move through the worst of the crisis to come for travel during the Summer, the September round of ATOL and Bond renewals is likely to be even more difficult.
Government and the independent regulators should encourage financial institutions to look beyond the relatively short term, if sharp, impacts of this crisis, to allow markets to return to ‘normal’ functioning.
APD holiday for summer 2021
The UK charges the highest rates of air departure taxes in the world, and significantly more than those levied by our European competitors. As such, Air Passenger Duty is one lever available to the UK Government to provide a short-term boost in demand, which could mitigate some of the anticipated fall in demand for international air travel in the coming years. ABTA is calling for a temporary suspension of Air Passenger Duty, to be introduced as quickly as possible and covering the summer season 2021. This measure should be combined with robust consultation about the future of aviation tax reform, and progress on the promised review into domestic connectivity.
Quarantining for inbound passengers
ABTA is clear that the Government’s approach to quarantine and other restrictions must be driven by the best scientific and epidemiological advice, but any mandatory quarantine period for arriving passengers will have a serious impact on customer demand for holidays and business trips, making the financial and administrative situation facing the travel industry materially worse. To help manage this, it will be important that relevant scientific advice is communicated in an open and transparent manner, to both businesses and travellers, and there should be a clear review process to assess whether the regime is effective, and how it interacts with other control measures such as testing and contact tracing. We would also continue to urge the Government to keep any measures proportionate, targeted and limited only to what is necessary and to seek a coordinated approach with destinations in the EU and beyond.
5. Other challenges facing the UK travel sector
UK-EU trade deal
ABTA is concerned that, with the Covid-19 crisis, businesses have been unable to dedicate the necessary resources required to planning and preparation for the UK’s exiting of the transition period at the end of 2020. There has also been a dearth of detailed information from Government for business organisations on what the UK is seeking from the future trade deal, or progress towards these aims. Given the proximity to the June 2020 deadline for deciding upon any extension to the transition period, and the limited announcements in areas critical to future travel between the UK and EU, ABTA would urge the Government to carefully consider the benefits of requesting an extension beyond December 2020.
The stated purpose of the transition period throughout the Brexit process has been to allow time for the UK and EU negotiate additional arrangements, and for businesses and individuals to adequately prepare for the new UK-EU relationship. However, as many businesses across the UK and the EU are now focusing both time and resources on their response to the Covid-19 pandemic, and many staff in the UK have been placed on furlough, organisations are insufficiently resourced and ill-prepared to deal with the significant social and economic change anticipated in January 2021. An extension to the transition period would allow businesses time to recover from the pandemic, and to engage more fully with the Brexit process and the changes required going forward. Failure to extend transition could result in further economic damage to the travel industry, and the wider UK economy, precisely when stability and certainty is required to aid recovery.
Labour market flexibility
Prior to the Covid-19 outbreak, the wider travel and tourism industry had an ambitious growth agenda, with sector growth rates consistently outpacing the overall UK economy over the last decade. As we emerge from this crisis, the entire economy will face significant challenges and readjustment. However, the travel industry is uniquely placed to help achieve the Government’s objective of “levelling-up” the country, with a presence in every constituency and every community. Protecting this advantage in the short term will be critical to ensuring that long-term economic recovery is felt across all regions of the United Kingdom. The Government must deliver the right policy framework to allow travel and tourism businesses to thrive, which includes access to the skills and global talent required. It is imperative that the Government avoids disrupting the workforce in a way that risks limiting future recovery and growth.
ABTA anticipates that the Government’s new Points-Based Immigration System will place further constraints on the availability of staff and skills in the travel and tourism industry in the long run. Ultimately, travel is a service industry based on people and personality, where so-called ‘soft’ skills are crucial. It would be a mistake not to recognise how vital these skills have been for travel businesses in their response to Covid-19 – whether demonstrated by essential frontline staff working hard to repatriate customers stuck overseas, or by staff guiding customers through the often complex and personal processes of cancellations, refunds and rebookings, where travel has been disrupted.
Looking at the wider labour market and the pipeline of future talent, the Government’s National Apprenticeship Service provides vital opportunities for people to develop new skills; both young people entering the workforce for the first time, and also those individuals who may find themselves having to transfer into another sector, or re-train.
Travel businesses are already facing significant challenges and financial difficulties, and without sufficient levels of funding to provide fit for purpose apprenticeship programmes, it may well be that the majority of businesses cut their apprenticeship programmes altogether, reducing these opportunities for vast numbers of people.
On 15 April ABTA received correspondence from the Education and Skills Funding Agency in relation to the T-levels rollout, which stated that “now, more than ever, it is vital for the economy that we have a pipeline of skilled young people to help the economy recover”. It therefore seems at odds with this sentiment to be simultaneously consulting about a significant reduction to apprenticeship funding.
6. Specific support and guidance required for the school travel sector
ABTA would highlight the school and educational travel sector as a sub-set of the travel and tourism economy that is particularly exposed.
Government advice against school trips pre-dated the current FCO Travel Advice and was implemented in response to safeguarding issues with regards to keeping pupils safe whilst travelling. It is highly likely that the recovery in this sector will lag behind mainstream travel because of the timing of the summer holiday season relative to the crisis and the added challenges around health and safety. The importance of Easter for educational trips and a late ski market along with the final term of the school year, means that many travel arrangements had been fully booked and suppliers paid, before they had to be cancelled. This has led to liquidity and refund challenges, affecting both schools and parents.
When schools return, as anticipated, in September, their main focus will be on helping pupils to catch up with curriculum learning and adjusting to life back at school. Time will be very short, perhaps too late, to organise many of the educational travel arrangements in early 2021 that would otherwise be part of the school year.
We also believe that schools, Local Education Authorities, Trusts and Outdoor Education Advisers will naturally be cautious in relation to committing to new arrangements and a return to school trips will require a clear and coordinated message from the FCO and Department for Education. This caution will be increased by concerns of the availability of travel insurance, including through the Governments own risk protection arrangement (RPA) scheme.
The school travel sector makes a valuable contribution to learning outside the classroom which greatly enhances children’s resilience and mental wellbeing, as well as to the tourism economy of the UK. This sector is not unique in the challenges it faces, but it was the first affected and will very likely be one of the last to return to normal. We estimate that the sector will lose almost an entire year of activity.
ABTA therefore supports the work of the School Travel Forum (STF) and the Council for Learning Outside the Classroom in seeking targeted assistance for this important sector and the contribution that it makes to education and our wider society.
7. International coordination
Recovery of the travel sector will require a strategic, cross-departmental approach from the Government, ensuring efficient and effective communication and collaboration between the various strands of Government with involvement in international travel. ABTA has communicated the importance, as the UK enters the recovery phase, of clear and consistent guidance and messaging for consumers and businesses in relation to travel and tourism.
The travel market is, by its very nature, a global market, and the UK has one of the most
developed outbound travel markets in the world. UK residents take more than 72 million trips abroad each year, with around 75% of these to destinations in the 27 member states of the European Union. Figure 1, below, shows the top ten countries visited by UK residents in 2018, nine of which are members of the EU. Our economies benefit significantly from the close links we share, and the direct and indirect spending, job creation and wider-reaching contributions that travel generates. Research commissioned by ABTA highlights that, in addition to the 500,000 UK-based jobs that the outbound travel sector generates, outbound tourism from the UK directly sustains over 380,000 jobs across the EU, supporting a further 486,000 jobs indirectly through supply chains.[2]
Figure 1
There is, therefore, clearly an important joint role for the Foreign and Commonwealth Office, the Departments for International Trade, Digital, Culture, Media and Sport, Transport, and Business, Energy and Industrial Strategy, to help support the recovery and future growth of the travel industry.
Attached to this submission is an annex containing a list of sources which highlights proposed plans, and actions taken by, a number of international organisations and governments in support of the recovery of international tourism. The UK Government should be cognisant of these plans when formulating its own approach.
Conclusion
The travel and tourism industry has historically been a UK success story, and this success has permeated right across the depth and breadth of the country. The unprecedented outbreak of Covid-19 has, however, wreaked havoc on a once thriving and vibrant industry, which now needs targeted Government support to help retain jobs and businesses throughout the period of recovery. Essential to this will be clear, and consistent communication from Government and a cross-government strategic approach to support travel and tourism.
UK travel companies are doing everything in their power to help customers, while saving jobs and keeping their businesses viable during this extraordinary time. The Government must play its part too. That means delivering the right policy framework and targeted support to allow travel and tourism businesses to thrive in the future. Critical to this will be an injection of financial liquidity to cover the period between restrictions being lifted and the point in time when travel agents and tour operators begin to realise their income, which will not likely materialise until the end of Q1 2021, and additional time to adapt to a new immigration regime and new relationship with the EU. It is vitally important the Government avoids further damage to the industry in a way that risks limiting future recovery, and the loss of thousands of jobs in a potentially high growth industry. Specific support is required for school travel, but the Government must also look to rebuild demand and confidence across all travel – domestically and internationally. More broadly, international coordination will be crucial for an industry, in outbound, that is by nature global.
3 June 2020
ANNEX
Source List
UN World Tourism Organization (UNWTO) – https://www.unwto.org/tourism-covid-19
World Travel and Tourism Council (WTTC) – https://wttc.org/en-gb/COVID-19/Global-Protocols-for-the-New-Normal