Imagine you have flown halfway around the world, after laying out thousands of dollars for your vacation, then being kicked out of your hotel with your flight home canceled.
That was the fate last year with more than 150,000 customers of Thomas Cook of London, a once-proud institution that has been around for 178 years, were stranded in their destination. Despite being in an industry where they’re mainly collecting commissions on trips where someone else is doing most of the work, they managed to rack up an unsustainable debt of £1.7 billion. This was just a decade after being so flush with cash that they were buying back shares of stock.
They blamed Brexit, the economy, the weather, and anything else they could think of, but really anybody on one of their trips probably could have run the company better than the current management team. It probably didn’t help that the execs paid themselves plenty while the ship was sinking. “Top directors at the holiday company have been paid a combined £20m in salaries and bonuses since 2014,” said the BBC.
Now we have another wrench in the machine and more travel companies in trouble. The recent shutdown of the worldwide economy for health reasons has meant what may be the world’s biggest industry–travel–is in huge trouble. Any company that was highly leveraged is especially vulnerable. It didn’t take long for those to start filing for bankruptcy.
As I write this, Avianca Airlines, LATAM Airlines, and Hertz have all filed for bankruptcy protection. They have cut off all commissions to publishers like us who send them bookings, basically saying, “Sorry, we can’t afford to pay you.” Hertz has already laid off 10,000 workers.
Yet all three are still heavily marketing to their customers, pleading for flight bookings and car rentals, despite their precarious financial position. Are you willing to roll the dice with them right now? What happens if they go under?
Lessons Learned from a Travel Companies’ Collapses
Teetering travel companies in trouble can wreak havoc on the people who have trusted them with their vacation funds. What could the customers of Thomas Cook have done differently? Well it wasn’t really their fault, first of all, for trusting a tour company with such a long track record. If they didn’t study the financial news, they would have thought the company is just as stable as other long-running ones like Cox & Kings, Tauck, Abercrombie & Kent, Globus, or Apple Tours. Thomas Cook kept acting like everything was fine as it pursued a bailout.
There are things you can do when plunking down your money though to hedge your bets.
1) Get Travel Insurance
Whether you buy a one-off policy each time or get an annual policy from Allianz like I have, you’ll have someone to call for help if you get stuck or delayed. The more you pay the more you are covered, of course, but even a basic annual policy will at least get you back home and take care of any baggage woes. (On top of medical accident insurance and other perks.)
If you’re laying out five or six figures for a vacation, you’ll want to go beyond that and read your travel insurance policy carefully. These days you might even want to pay extra in case you contract a deadly virus: many policies don’t cover what is now a very real possibility.
2) Don’t Put All Your Eggs in One Basket
While it’s tempting to pay one company to take care of everything for you, it can backfire if that company goes out of business or just screws things up. That’s putting a lot of trust in one company’s hands, or often even in one person’s hands if something goes wrong.
Ideally, book your own flights even if you’re on a tour or cruise. Or if an agency is doing it, still be clear on what the cancellation policies are. Know the pitfalls of booking through multiple airlines on one trip–it may be worth it to pay more so one delay doesn’t lead to a bureaucratic mess for the flights that follow. Perhaps build in some time on your own somewhere at the beginning and the end before the tour starts so you’re not in trouble when any kind of trouble pops up. Each of these steps makes you less fragile if anything goes wrong.
3) Regular Airlines Are Better Than Charter Ones
You have a lot more rights with a commercial air carrier than with a charter flight, which is another reason not to just pay one price and be done. Sure, those hotel + flight package deals are tempting when you see them advertised, but if they mean you are putting your whole vacation in one company’s hands, that elevates your risk considerably. Many of these charter airlines end up being the first travel companies in trouble during a recession.
4) Always Pay for Travel Costs With a Credit Card
Although the Dave Ramsey types like to advise you to use cash or a debit card to pay for things, you are actually taking a much greater risk by doing that. If you use a credit card for your travel purchases, you have recourse if something goes wrong. (You’ll also get free future travel out of it with the right credit cards.)
Often just the threat of contesting a charge from a company is enough to get them to fix the problem. They know the credit card companies are more likely to side with the customer than the merchant, guilty until proven innocent. With cash, Western Union, or a debit card, however, what’s gone is gone.
I recently had to play the bad guy and contest a charge on my card when Interjet wouldn’t refund my ticket price. I like flying on Interjet because they give you more legroom than most, but they canceled all international flights in March and as I write this, they still haven’t started them back up again. So my May 27 flight to the USA was clearly not happening. I asked for a refund and was told I could only get a credit, despite Department of Transportation rules that anyone flying into the USA has to refund the fare if the airline cancels the flight and there’s not another alternative within 24 hours. They were flouting the law, hoping I’d just accept it. On top of this, creditors impounded some Interjet planes due to unpaid bills. A credit with them may turn out to be worthless.
I appealed to Chase because I used their credit card for the purchase of two tickets and after a couple of hours on hold before explaining the situation, they put it under review. A week and a half later, charges reversed.
5) In Troubled Times, Be Extra Vigilant
We’ve seen this movie before. During the big recession in the George W. Bush era, travel tour companies were going under left and right. Some had taken on too much debt. Others had gotten used to a level of business that was now dropping and they couldn’t adjust their overhead quickly enough.
One U.S. company that went under a decade ago had “$2.6 million in liabilities but only $18,000 in assets.” In their filings, they estimated an average future gross income of about $16,500 per month and future expenses of $1.6 million per month.
Sometimes you can spot the coming storm in advance, like when Mexicana Airlines went bankrupt around a decade ago. They imploded from too much debt, just as companies inside and outside the travel space are doing now. Most airlines that aren’t receiving government help will fail. It’s an expensive business to run with no customers, including all those idled planes that need to be maintained constantly.
Don’t be afraid to do some research about a tour company you are booking with. It’s okay to ask questions about not just their financial stability, but the stability of the real company actually running the trip. Usually that’s not them, but a local operator they’re outsourcing the work to.
Ask what happens if something goes wrong and ask if that plan of action is in writing. Ask how far out you can cancel or postpone without penalty if the borders shut down. Then if you’re spending 5 0r 10 grand apiece on a tour, pay with a credit card and buy some independent insurance to protect that investment.
Travel companies in trouble may not be very forthright about their troubles, so if you protect yourself every step of the way, you won’t lose your investment or days of your valuable time.