Covid 19 Delta outbreak: What minister was told before key meeting with travel agents

Consumer Affairs Minister David Clark was advised by officials before a key meeting withtravel agents about what to tell them if businesses were in danger of going under.

A Ministry of Business, Innovation and Employment briefing for Clark outlined key concerns that may have been raised at the meeting in June, when the future of the $47.2 million Consumer Travel Reimbursement Scheme was discussed.

In documents released to the Herald under the Official Information Act, officials ran through talking points the minister needed to be aware of before the June 3 meeting with senior executives of the “big four” agencies and suppliers’ representatives. Agents unsuccessfully pushed for excess funds not paid out in the scheme to be allocated in one-off grants to the struggling sector, which has shrunk by more than two-thirds during the pandemic.

One notable casualty in the past year was the $11m collapse of STA Travel.

Officials said if discussion turned to options for other businesses at risk of insolvency, Clark was advised to tell the agency bosses that they should consult “both their bank and a licensed insolvency practitioner to understand what options they have available to them”.

First Travel Group, House of Travel, helloworld Travel and Flight Centre, and the New Zealand Travel Suppliers Group, were represented at the meeting. Before Covid-19, they were part of a booming $7 billion to $9b industry. Much of that annual spending by Kiwis tripping overseas was done through them.

The meeting gave Clark the opportunity to convey the Government’s decision to extend the reimbursement scheme brought in last year when wage subsidies ended.

The industry was at risk of mass insolvencies and approached the Government for support, outlining the potential impacts for consumers if mass failures were to occur. The primary risk was of consumers losing access to an estimated $690m worth of funds held by international travel suppliers, officials told the minister.

(The June advice also said that as a result of border restrictions and lockdowns, New Zealand has eliminated Covid-19 and enjoys relative freedom in comparison to the rest of the world.)

The reimbursement scheme pays eligible travel businesses 7.5 per cent of all refunds and 5 per cent of all credits that they recover for New Zealand consumers. The scheme went live on October 19 last year and to June had paid out more than $27m to the industry.

Throughout the year agents pushed for:
• An extension of the scheme’s end date
• An increase in the payment rate for credits/re-bookings to 7.5 per cent
• That the unspent scheme funding be distributed to the industry as grants, or
• A further industry-specific wage subsidy

The scheme was originally intended to end onJune 30 this year but early that month it was decided to extend it for six months – the only concession the Government was prepared to make.

“The industry have informed us that extending the scheme without any changes to the payment rates is likely to limit the flow of funding to the industry, which may put consumer credits at risk, where they are being managed by travel agents who become insolvent.”

Major travel agencies informed MBIE that their head offices would attempt to manage customer credits if individual agents were forced to close.

“We agree that there is a risk of travel agent insolvencies due to the financial pressures travel businesses are facing. The extension of the scheme partially mitigates these risks and we consider it to be a low risk that consumers will be left with no access to their credits, even if their travel agent closes,” officials said.

The minister was reminded that the scheme was primarily set up for out-of-pocket travellers, not for travel agents.One suggested discussion point was: “It is important to note that Scheme was set up with a consumer focus, rather than being targeted support for the travel industry. I am satisfied that the funding has achieved its aim of supporting positive consumer outcomes.”

If asked whether he had considered the wider economic benefits of maintaining a viable outbound travel sector, Clark was advised to respond with the following:

“As the Minister of Commerce and Consumer Affairs, my focus has been on protecting consumers and making sure that we are providing support where it is most needed. I understand that the Minister of Tourism (Stuart Nash) was also copied into the letter you sent in March due to his role in working to maintain the viability of the inbound and outbound travel sectors.”

Kiwis’ strong demand for overseas travel before Covid helped persuade new airlines to fly to New Zealand, on top of demand from tourists wanting to come here.

Clark was advised in the documents – marked confidential – to stress that extra payments were made for refunds rather than credits, for the good of consumers.

“The point of this was to encourage a focus on the recovery of refunds rather than credits as they are of higher value to consumers and this is still the case.”

The travel industry provided data to MBIE that it still had more than $500m worth of customer credits.

But officials said not all of those credits wereeligible for payment under the scheme – some have already been subject to a payment under the scheme or some were domestic bookings.

“However, the industry have made the point that although many of the bookings making up this total figure are ineligible, there would be negative outcomes for all customers with credits if mass insolvencies were to occur.”

Domestic travel made up between 6 per cent and 15 per cent of agents’ business pre-pandemic and officials said it was never intended for this to be part of the scheme.

“This was not the intention of MBIE or the previous Minister of Commerce and Consumer Affairs and any misunderstanding may have been the result of the fast-paced nature of the project.”

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