Every year, it seems, at least one big wholesale tour operator fails, leaving its customers holding the bag. Last year, it was Milestone Educational Institute; this year, Fling Vacations. While there’s no way to foresee operator failure, there’s no reason to get caught, either: Travelers can easily protect themselves with a few sensible precautions.
Operators typically fail for a similar reason: In a financial squeeze, they use current customers’ deposits and prepayments to cover unpaid hotel and airline bills for previous customers. The operator may not make a conscious decision to cheat; it simply engages in a bit of wishful thinking: “Sales will be better next month, and we’ll be able to cover the shortfall.”
We’ll never know how many operators have managed to weather a crisis that way. But we do know that, every year or so, some fairly big operator can’t catch up enough to cover mounting current bills.
The end usually comes when the tour operator falls behind in hotel payments. The hotels then notify the tour operator-and, where possible, travel agents-that they’ll no longer accept the operator’s vouchers. If tour buyers with vouchers show up, they have to pay again for their accommodations. At that point, the operator closes its doors.
Here are the three main ways to avoid getting caught:
1. Buy your tour from an operator that belongs to an association with a consumer-protection program. The American Society of Travel Agents, the US Tour Operators Association and the National Tour Association all have programs designed to protect consumers against operator failure. Tour operators that belong to any of those groups almost always feature their membership prominently on their brochures.
2. Buy your whole tour with a major charge card. Under Federal law, consumers who don’t receive a service purchased on a card can demand a chargeback (cancellation of charges) from the charge-card issuer.
3. Buy trip-cancellation insurance. For about $5.50 per $100 of tour cost, you can buy insurance that protects you against the failure of a tour operator. Some insurance companies exclude the failure of the agency (retail travel agency or tour operator) that sold you the tour, so buy the insurance from a travel agency. Avoid the few policies that pay off only in the event of bankruptcy: In many failures, the operator never gets around to a formal bankruptcy filing.
No federal law requires a safety net for tour buyers. But several states regulate the way tour operators and travel agencies handle advance payments. In some cases, operators must put prepayments into an escrow or trust account or post a bond. Before you buy any sort of tour, ask your travel agent about the laws in your state.
Even where there is a state law, operators sometimes evade their responsibilities. But if you follow the three rules above, you won’t have to worry in any event.
