Travel Agents Repeal Bill

Second Reading

Adjourned debate on second reading.

(Continued from 22 May 2014.)

The Hon. G.A. KANDELAARS (16:24): I rise today to speak to this bill, which seeks to repeal the Travel Agents Act 1986 and implement a key recommendation in a national Travel Industry Transition Plan. I understand that the national travel industry plan (the transition plan) is the outcome of three reviews over 12 years which have considered the suitability of the existing travel agents regulatory framework, introduced in 1986, to modern market conditions. The transition plan was proposed following the third review that commenced in 2010 and is seen as a pathway towards reform, taking into account all previous reviews.

Following a period of public consultation, South Australia did not support the transition plan and voted to maintain the Travel Compensation Fund at the meeting of consumer affairs ministers on 7 December 2012. However, the transition plan and implementation timetable were approved by the majority, a majority of Liberal governments. The transition plan was developed in collaboration with all states and territories and was the subject of public consultation in 2012.

The reforms have already seen that, from 1 July last year, all travel agents are no longer required to lodge annual financial returns to the Travel Compensation Fund, excluding the Northern Territory travel agents as they were not participants of the compensation fund. This bill seeks to implement phase 2 of the reforms, the repeal of the travel agents legislation, by 30 June this year. Phase 3 will see the introduction of a voluntary accreditation scheme, and phase 4 will see the closure of the Travel Compensation Fund altogether by mid to late next year.

The approved transition plan provides for the dedication of a proportion of the remaining funds to those states and territories which choose to adopt the transition plan, for a range of purposes. I understand that they include stakeholder communication and education initiatives, both as part of the implementation process for the reforms, and, supposedly, on a long-term basis.

Also, they include a one-off grant for consumer research and advocacy purposes; a one-off grant to fund development of an industry-led accreditation scheme by a national working party of government, industry and consumer representatives; and paying any transitional compensation and the Travel Compensation Fund's legal fees for undertaking cost recovery action relating to these claims. Some of the remaining funds, I understand, will be redistributed to the states in the proportions equivalent to the total number of participants they have.

I understand that, as part of the transition plan, the consumer affairs ministers have formed a partnership with the Australian Federation of Travel Agents (AFTA) to develop a voluntary industry-led accreditation scheme to replace the current national scheme for the regulation of travel agents across Australia. To assist in the development of the accreditation scheme, a consultative committee was established, comprising of industry and state and federal government representatives, which I understand now includes business and consumer services, on behalf of South Australia.

The role of the consultative committee is to review the work being undertaken as part of the development of the accreditation scheme criteria and framework, including addressing any best practice criteria standards and regulatory requirements. It appears to me that the bigger Liberal states have colluded to agree to abolish the fund, which protects consumers and provides compensation if providers are unable to provide the service they have booked.

At the consumer affairs ministers' meeting in December 2012 all states and territories, with the exception of South Australia and Western Australia, agreed to abolish the Travel Compensation Fund. The fund, which industry members pay into, is used to compensate consumers who suffer loss as a result of an operator not providing the services that had been paid for. Now the compensation fund will be replaced with a voluntary industry-led accreditation scheme, a deregulated scheme. I commend the bill to the house.

The Hon. S.G. WADE (16:31): I appreciate getting the call. I am disappointed that the government wants to try to dominate the speakers' list. I remind the government that they are two members short of the Liberal Party in this chamber and they have no greater rights to speak than any other member in the house. The Travel Agents Repeal Bill 2014 was introduced to the Legislative Council on 22 May by the Hon. Gail Gago as Minister for Business Services and Consumers. The bill provides to repeal the Travel Agents Act 1986 as part of a national reform program to reduce red tape and promote efficient regulation.

In 1986 a cooperative scheme for uniform national regulation of travel agents was introduced. Under the national scheme travel agents are required to be licensed under state legislation and to be members of the Travel Compensation Fund. The scheme is funded by fees on travel agents and compensates consumers who have suffered financial loss because their travel agent has failed to pay travel or a travel-related service provider on their behalf.

After two decades of operation the following drivers for change in the national scheme have emerged: first, there has been strong growth in direct distribution channels. According to the Australian government report 'Going Global: An action plan to adapt to the changing tourism distribution landscape', of November 2011, a large proportion of travel arrangements are now made online. Online bookings in Australia increased from 5 per cent in 2001 to almost 35 per cent in 2008, at an average annual growth rate of 34.6 per cent. Globally this figure is estimated at over 50 per cent.

The minister in her second reading contribution said that two-thirds of travel and travel-related expenditure is now made without relying on a travel agent. As a result, most consumer transactions fall outside the scope of the existing scheme and are not covered by TCF compensation. I notice the government is running on two tracks. We had the minister talking without criticism of the transition, and then we had the Hon. Gerry Kandelaars, presumably speaking as a government member, criticising the reform. If the Hon. Gerry Kandelaars, and shall we say the government's second voice, wants to explain what they were going to do with the two-thirds of travel-related expenditure which is not relying on a travel agent, and therefore not covered by TCF, that would be interesting.

Secondly, the industry is increasingly globalised and consolidated. Many overseas players have entered the local market, bypassing the national scheme altogether, and complex ownership arrangements undermine the effectiveness of the TCF's prudential oversight. As a result of consolidation the market is largely dominated by a small group of large companies, who I understand collectively hold almost 60 per cent of the market share. The TCF is no longer able to guarantee to compensate consumers in the event that one of the major travel agent businesses collapse. Considering the minister was not raising these concerns, perhaps Mr Kandelaars could explain how, in his view, the TCF would provide assurance to consumers when it would not even have the funds to handle a collapse of the nature of Ansett.

The third driver for the change has been compliance costs related to the TCF; they have continued to grow. The cost to industry of complying with the TCF arrangements is estimated at $19.3 million by PricewaterhouseCoopers, in 2011, and $18.4 million, in 2012.

The fourth driver for change has been regulatory duplication. Travel agents, particularly those who are incorporated or publicly listed, are already subject to financial controls under laws of general application, the Franchising Code of Conduct, and under industry-led mechanisms, such as accreditation of training through the International Air Transport Association. In practice, these controls cover the majority of the travel agent market, which is dominated by a small group of large companies. In response to these challenges, from 2009 state and territory consumer affairs agencies developed a Travel Industry Transition Plan taking into account two independent cost-benefit analyses and two rounds of public consultation.

The plan was approved by a majority of state and territory governments on 7 December 2012. I understand that the reforms are taking effect in four phases: phase 1, from 1 July 2013, where travel agents were not required to lodge annual financial returns to the TCF; phase 2 is the repeal of travel agents legislation by 30 June 2014; phase 3 is the introduction of a voluntary industry accreditation scheme from 1 July 2014; and phase 4 is closure of the TCF by mid to late 2015 and final payments of any consumer claims by 30 June 2015.

The travel agents will continue to be regulated and consumers will have redress through a range of measures. Firstly, through the Australian Consumer Law and existing company laws, consumers will be able to access consumer protection for transactions with all travel agents and travel providers. Secondly, the transition plan supported industry-led accreditation. Many travel suppliers already insist that only an accredited agent can provide particular services, such as issuing tickets or selling boutique travel products.

A new accreditation scheme, called ATAS (the AFTA travel accreditation scheme), is being established and administered by the Australian Federation of Travel Agents and commences from 1 July. AFTA has received a one-off grant of $2.8 million for ATAS, which has been funded by funds from the TCF. Other accreditation already available includes the International Air Transport Association, the Cruise Lines International Association (Australasia) and the National Tourism Accreditation Framework.

In terms of consumer protection, typically current consumer travel insurance only covers the cost of cancelling or changing any travel arrangements for unforseen reasons, lost luggage or travel documents, legal bills, and overseas emergency medical expenses. Most policies do not offer protection when consumers travel arrangements fail to go ahead as planned because the airline or other end supplier collapsed or became insolvent. ATAS-accredited agents will only be required to hold public liability and professional indemnity insurance.

I am advised that the removal of the TCF will allow the emergence of more insurance options for both travel providers and travel consumers. Agents can opt to take out three types of insolvency protection; firstly, travel agent and intermediary failure insurance—the only service provider providing that insurance in the Australian market at this stage is Gow-Gates, and they have indicated that they will only make it available to ATAS-accredited travel agents. Secondly, there will be insurance for scheduled airline failure insurance, which covers insolvency of an airline. Thirdly, there will be end supplier failure insurance, which covers losses arising from the insolvency of an airline and other end suppliers. It must be stressed that under the new arrangements it will not be compulsory for travel agents to be accredited, or even for accredited agencies to have any of those three insurances.

TCF funds will also be used to support the creation of a consumer voice, and I understand that Choice has been the successful tenderer to undertake this project. In terms of the winding up of TCF, all jurisdictions party to the national scheme need to repeal their travel agents legislation. I am informed that South Australia is the last state to introduce legislation, and I understand that we are one of only three not to have got the legislation through its parliament. In that sense the bill before us today is somewhat of a fait accompli; I am sure that if we were not to pass this legislation the TCF would still be wound up.

I understand that TCF funds at the end of 2013 were $27 million. The TCF trust deed requires that any funds remaining after the TCF closes be redistributed to participating jurisdictions. I understand that the only jurisdiction that did not participate was the Northern Territory. No portion of the TCF funds will be redistributed to agents; however, the transition plan approved a range of uses, including funding educational and informative material about the reform for businesses and consumers.

Having highlighted the drivers for change, I also do not want to be blind to the risks of that change and, on behalf of the Liberal opposition, I indicate our concern that governments right around Australia make their best efforts to ensure that this reform is implemented effectively. There are significant challenges ahead.

There are some in the industry who believe that the TCF could have been reformed rather than abolished, and even now that it should be extended so that an effective replacement is in place before it is wound up. I think we are so late in the process that an extension is not likely to be possible, which makes it doubly important that all the key stakeholders redouble their efforts to make sure that the implementation of the plan is successful.

I have no doubt that the fact that accreditation is voluntary, and that insolvency cover will also be voluntary, even for accredited agents, will lead to significant market confusion and consumer vulnerability. While the United Kingdom and New Zealand have a voluntary approach, both provide some default protection against travel agent failures. AFTA has already highlighted that the TCF lacks consumer awareness, and 97 per cent of the public is unaware of its existence.

The challenge for consumers in that environment was quite simple: there was either TCF cover or there was not, because all the agents were required to be licensed. The new regime, which has both voluntary accreditation and voluntary insurance cover, puts greater onus on a consumer to be informed beyond accreditation to insurance cover—and, for that matter, to be informed beyond insurance cover to the three streams of insurance.

I am concerned about consumers being properly informed. Considering that all agents are required to have public liability and professional insurance it could be quite legitimate for a travel agent to say, 'I have all the insurances I am required to have.' The consumer might hear that to mean that because they have their shingle out they must be accredited; because they have the insurance that they claim they are required to have, that that includes consumer-style insurance and supplier insurance.

I think the challenge for the industry to make sure that the consumer properly understands is a very important one. The reputation of a market like the travel industry, which is experiencing significant challenges from online providers in any event, is significant. I certainly respect the work of AFTA and the people involved in ATAS in making sure that they are developing a robust regime. Of course, ATAS will need to have time to develop awareness and a presence, and there may be, shall we say, settling down issues in the new arrangements, but I am sure the players realise the risks of not doing it properly.

Concern has been raised with me that ATAS—that is, the accreditation service—is not being independently governed from AFTA. It has been suggested that that was the intention of the plan. I will ask the minister about it in terms of second reading questions. I do not think that it is essential that an accreditation service such as this needs to be completely structurally separated from a peak body such as AFTA; after all, in my primary area of responsibility, which is in relation to the legal profession, the Law Society has organisations such as Law Claims which are part of the structure, if you like, but are managed at arm's length. Likewise, that could be the case with AFTA and ATAS, but I think there are concerns. One of those is the disclosure requirements to ATAS to make sure that that information is not inappropriately made available to an agent's competitors.

I think it is important that the market arrangements are fair between AFTA members and non-members and between small businesses and large businesses. Concern has been expressed to me that the fees are relatively high for smaller entities. The current fee for TCF, for example, is $425 per annum for a head office or a sole location and $320 for each additional location. ATAS participation, on the other hand, is subject to an annual fee and based on an entity's annual gross total transaction value.

The fee for an agent with a turnover of $1 million would be $1,350 for a non-AFTA member. If the agent's turnover was $250 million, the fee would be $20,000 for a non-AFTA member. That is 15 times higher for a 250 times increase in turnover. Of course, I am sure that AFTA and ATAS would say to me, 'Well, it's not insurance; this is the accreditation fee,' so I appreciate that there are, if you like, fixed costs in a particular accreditation being processed. However, I just put on record that we as a Liberal Party believe in free and fair markets and we would not want an accreditation system to be set up which was not fair between all market participants.

Another concern that has been raised with me is in relation to client trust accounts. It has been suggested that without the protection of a statute the client trust accounts held by travel agents are vulnerable to claims from financial institutions that deal with that agency, and that includes not just the funds themselves but also the interest generated from them.

I would like to now put a series of questions on notice. I regret that I was not able to do this earlier. It would normally be my practice to do so at a briefing, but considering the unusual circumstances by which I became responsible for this bill on behalf of the opposition I need to put the questions on notice at this stage.

Considering the Hon. Gerry Kandelaars' claim that the Travel Industry Transition Plan, when it was agreed in December 2012, was not supported by the government, I would seek clarification as to whether the government now supports the plan. I would ask: did the state and territory ministers envisage that ATAS would be independent of or at least governed at arm's length from AFTA? Did the state and territory ministers and the plan envisage that insurance would be voluntary? How much money does the state of South Australia expect to be returned to it following the winding up of the Travel Compensation Fund? Will any money returned to the South Australian government from the Travel Compensation Fund be used to market the visitor economy and not returned to consolidated revenue? If not, what other purposes does the government intend to put the money to?

I appreciate that the TCF will continue to operate and will close by middle to late 2015, with final payments of any consumer claims by 30 June 2015, but as I understand it the TCF cover itself will finish on 1 July 2014. I seek confirmation of that. I am advised that agents are having trouble getting quotes from insurers for the range of insurances available, and that is particularly concerning since we are only 27 days from the start of the new arrangements. So, I ask the government: is there a risk of a gap in insurance cover?

I would ask what processes will be in place for oversight and influence of the implementation of the plan by ministers for consumer affairs? In particular, the ATAS charter talks about an ATAS code compliance monitoring committee and it refers to it as:

…an independent review body specifically established under ATAS to review and determine customer complaints, allegations of non-compliance with the ATAS Charter and Code.

The copy of the charter that I have available does not have the attachment which details the appointment process for members of that committee, and whilst I appreciate that it may not be in the minister's knowledge, if the minister is aware of how that committee will be formed and in particular what role consumer affairs ministers might have, I would be indebted.

I ask: what consumer education is the government envisaging to make available to consumers to make them aware of the new arrangements? Considering that we have 27 days to go, I notice there was a very small newspaper comment in the Sunday Mail on Sunday about these changes, but as a person who does from time to time travel, I was oblivious to these changes and I would not be surprised if I am not alone.

By way of side comment, I have already highlighted that the consumer education challenge is a significant one. Instead of, shall we say, most information regimes where you are telling people: this person is either licensed or not, or registered or not, this consumer education challenge is to make people aware of the significance of whether their agent is accredited or not, or insured or not, in relation to three levels of insurance policies, plus the mandatory professional indemnity and public liability. I think it is particularly challenging because I understand that some of the largest retail groups have indicated that they intend to self-insure. In particular, I understand that helloworld and Flight Centre are intending to self-insure. So, it will be a challenge for the ministers and for AFTA to communicate to the public the benefits of accreditation and insurance when such well-established and respected suppliers as those are choosing to self-insure.

I would ask the minister whether the government has any information as to what proportion of the industry is likely to self-insure. Following on from the comment that I made at the end of my second reading comments, I would ask: does the government consider that the repeal of this act makes client trust accounts or interest on those accounts vulnerable to claims from financial institutions? I would certainly appreciate the answers to those questions, whether that is at the second reading summing-up stage or at clause 1.

In conclusion, I want to indicate that, whilst the opposition supports the bill and supports the transition plan, we are certainly not underestimating the challenge that the industry has ahead of it. It has a significant challenge to make sure not only that the system is well structured but also that consumers are aware of it. It also has a challenge to make sure that it acts in a way that is fair to all suppliers, both big and small.

The Hon. T.T. NGO (16:56): I also rise to speak in favour of this bill. I understand that at the consumer affairs ministers' meeting in December 2012, South Australia highlighted three concerns with the proposed transition plan. The first is to ensure that travel intermediaries are prohibited from excluding charge-backs in their contracts with consumers. Credit charge-backs allow consumers to seek relief from their issuing bank by requesting to reverse a transaction where goods or services are not supplied, are defective or transactions are unauthorised. However, recent action by the Australian Competition and Consumer Commission (ACCC) has seen the removal of clauses that exclude the use of charge-backs from travel contracts.

The second relates to ensuring that the accreditation scheme to replace the compensation fund is established by a working group including state and territory governments. The approved transition plan included a consultative committee comprised of industry and jurisdictions, although it still remains only a consultative committee. The third was to ensure that travel intermediaries that hold consumers' money for a period before forwarding it to suppliers of travel services have, at a minimum, a separate trust account, even if they are not members of a voluntary accreditation scheme.

The transition plan does not provide for mandatory separate trust accounts and the only way to include such a requirement would be through a voluntary accreditation scheme which would only apply to participants of the scheme. I understand that, due to the majority agreement of consumer affairs ministers in 2012 to approve the transition plan, the compensation fund will be abolished, regardless of repeal legislation in jurisdictions.

I understand that South Australia raised concerns at the consumer affairs ministers' meeting last year, regarding the set-up costs for travel agents, in particular, the compensation fund fees which, notwithstanding the cessation of prudential oversight last year and imminent closure of the fund, remained at just over $8,000. South Australia has had success in calling for new entrants into the industry to have their contribution into the fund reduced to reflect the shorter period of time they will be covered by it. I understand that, to further assist South Australian operators, the government also made the decision to reduce or waive licence fees they pay.

While South Australia's initial concerns about the transition plan continue to be relevant, I commend the government for recognising that retaining the current licensing regime for travel agents operating in South Australia will only impose additional regulatory burden and red tape compared to other jurisdictions. Given that many travel agents operate across Australia, it is important that South Australia maintains a competitive business climate and ensures that travel agents operating here are not disadvantaged.

I note that it is estimated that around two-thirds of travel-related expenses are now made without relying on a travel agent, through online bookings, and growth forecasts predict the trend is likely to continue. These transactions currently fall outside the scope of the existing regulatory scheme, and I understand that these consumers are not eligible to access compensation through the Travel Compensation Fund.

I still believe the Travel Compensation Fund provides the greatest level of protection to consumers who will use the services of travel agents. Without a national travel compensation fund, I believe it is crucial to educate consumers about their rights under the Australian Consumer Law as well as the importance of using reputable travel agents. This also applies to all consumers already purchasing travel-related products and services that are not captured by the protection of the Travel Compensation Fund.

I also understand that, regardless of the passage of this bill, the implementation of the transition plan to date will see all travel agent licences cease upon termination of the fund membership on 1 July. I support this bill and again commend South Australia for fighting to ensure consumers remain protected in a changing market and fighting for new entrants coming into the industry during this period of transition.

Debate adjourned on motion of Hon. J.S.L. Dawkins.