Trusts may be ‘only option’ for travel post-Covid

Published on June 8th, 2020 on Travel Weekly.

A boom in the use of trust arrangements in travel is inevitable in the wake of the Covid crisis, according to leading industry accountant Chris Photi.

Speaking on a Travel Weekly Webcast, Photi – head of travel and leisure at White Hart Associates said: “People are having to face up to an unpalatable truth. You’re going to see trusts become more prevalent in the industry.”

He said: “There is a paucity of financial failure insurance. There are probably only two or three bonding companies available. It is inevitable [more businesses move to trusts].”

Photi insisted: “Trusts are going to become more prevalent because they tick off a lot of the stakeholder requirements for a travel business – not just the regulator and refunds, but merchant acquirers’ Section 75 risks.”

Section 75 of the Consumer Credit Act gives consumers the right to chargeback on a credit card for goods or services they don’t receive.

Photi said: “For merchant acquirers, a trust is perceived to cover all of these arrangements.

“I’ve had clients come to me and say ‘We want to go to a gold standard trust, move us to a gold standard trust. We want our messaging to consumers to say ‘Don’t worry, we’ll pay you back’.”

He acknowledged: “It’s very difficult for a travel business to switch from using company cash to a trust structure.

“Even the CAA expects companies to retain a certain minimum level of free cash in the business, generally 70% or thereabouts. So there is an acknowledgement by the CAA that 30% of client cash is going to be used.”

Photi noted: “Trusts are virtually impossible for travel businesses which sell through agents. You can’t get the money into the trust account.

“A CAA-approved trust requires client monies go into the trust within 48 hours of receipt.  [But] if you’re selling through an agent, their merchant service is probably not going to get the money to you in 48 hours.

“Also, if you take asset inventory risks, they [trusts] are almost impossible unless you change the whole model. If you’ve got airlines to run, hotels you own, that requires a lot of upfront cash.”

Photi said: “It’s difficult to transition, but if you’re able to transition, it will put you in a good position.

“If you have surplus cash or you are able to raise surplus cash, it makes sense to move into a trust model.

“Your messaging can be ‘In any event of a recurrence of Covid, we run a gold standard trust. You’re going to get no nonsense from us with regards to refunds’.

He added: “if you can’t get financial insurance, if you can’t get bonding, it’s the only option.”