05 Aug 2021

Repairing consumer confidence: CHOICE report is a warning for the travel industry

By Mihkel Wilding, Michael Corrigan and Ankita Choudhary

As COVID-19 continues to disrupt travel plans in 2021, the travel industry has an opportunity to rebuild consumer confidence by developing clear cancellation policies and guidance for its customers.

Who is responsible for providing a refund when travel plans are derailed by a global pandemic?

Australian travellers, businesses and consumer agencies have been grappling with this question since COVID-19 hit Australia in March 2020. A recent CHOICE report argues that this uncertainty has led consumers to lose faith in the travel industry (travel agents, airlines, hotels, cruise companies, booking platforms and the like) as they struggle to recover their money.

The resumed lockdowns in July 2021 tell us that COVID-19 is likely to be a part of life over the longer term. CHOICE's report contends that to restore consumer confidence, the travel industry should adapt to a future where customers need to amend or cancel travel plans.

Uncertainty is the legal issue cited by CHOICE

Between January and March 2021, consumer advocacy group, CHOICE, surveyed over 4400 Australians who had their travel plans disrupted by COVID-19. According to CHOICE's analysis, experiences brought about by COVID-19 cancellations in 2020 have dented consumer confidence and travellers are hesitant to make bookings for the future.

CHOICE reported that the key issue for consumers going forward is distress and uncertainty about their right to a remedy (eg. refund, credit note). In particular, it contends there is a gap in the Australian Consumer Law (ACL) and other laws because the ACL does not allow consumers to obtain a remedy when the only reason for the cancellation was an act, default or omission by a person other than the supplier (ACL section 267(1)(c)).

As a result of this gap and other issues reported in its report, CHOICE has recommended that the Australian Competition and Consumer Commission (ACCC) conduct a market study and implement a mandatory industry code to improve the protections available to consumers.

Concerns for the travel industry

Views may differ whether more regulation in the form of a Code is the best solution to the reported lack of confidence in consumers' rights on cancellations caused by the COVID-19 crisis. If one accepts the CHOICE findings, they may be a signal that the travel industry could adapt and clarify its refund policies in order to restore consumer confidence and emerge from COVID-19.

CHOICE reported that the primary concern for consumers was the lack of clarity or communication from the travel industry. There is an opportunity for travel agents and primary suppliers of travel services to develop clearer policies and guidance if customers find they have to amend or cancel bookings due to COVID-19.

Reviewing terms and conditions used as a standard across the industry suggests many were devised long ago when no one predicted the effects of a COVID-19 pandemic. In many cases no distinction is made for a "cancellation" which is optional and one caused by public health orders

With the experience of the last 18 months there is an opportunity for travel providers to now review their booking terms to offer an amended package of rights for consumers that better reflect the experience learned and balance the risks for all parties.

Including clearer statements in consumer contracts and websites about COVID-19 related cancellations is likely to benefit travel providers as well as consumers:

  • Repair consumer confidence: CHOICE's survey suggests that consumer confidence was challenged due to the lack of clarity about their entitlement to a refund. In a climate of prolonged uncertainty due to COVID-19, the travel industry can start to rebuild consumer confidence and encourage bookings by giving travellers certainty about their rights to a remedy.
  • Protection from claims for frustrated contract: CHOICE notes that in the absence of ACL protection, suppliers may be open to claims that the contract has been frustrated – that is, that without the fault of any party, the contract is incapable of being performed due to an unforeseen event that results in the contractual obligations being radically different from those contemplated by the parties.

In normal circumstances frustration of the booking is difficult to show under common law. Mere delay or interruption to a contract will not generally amount to frustration, unless parties can show that they never agreed to be bound in the fundamentally different situation that has unexpectedly emerged.

However a booking may be subject to "frustration" in legal terms if the booking terms do not deal with the interruption and where COVID-19 or government health orders prevent a consumer from travelling to the destination they have booked, or cause the service to be postponed for an indefinite period of time.

In such a case, a consumer who has made some pre-payment, may be able to recover deposits under the Frustrated Contracts Act 1978 (NSW) (and equivalent legislation in South Australia and Victoria). The legislative regime also enables customers to claim damages for breach of contract, if obligations due before the frustrating event were not performed.

Suppliers can protect themselves from uncertainty and win confidence with intending travellers by clearly stating their COVID-19 cancellation policy in representations to customers and customer contracts, as a contract cannot be frustrated by an event contemplated by the parties.

ACCC's guidance for the travel industry

In the absence of any mandatory rules, the ACCC has published best practice guidance for the travel industry for COVID-19 related travel cancellations. Key points for the travel sector include:

  • When processing a valid refund, remit funds to the consumer as soon as possible.
  • Credit notes should have a value that is, at minimum, equivalent to the value of the original booking. When offering consumers a choice between a credit note and refund, the ACCC recommends that the value of the credit note offered should be greater than the refund to incentivise consumers.
  • Credit notes should have an expiry date that will allow the consumer a reasonable period in which to use the credit after the COVID-19 restrictions are lifted. Suppliers should be prepared to extend expiry dates.
  • Clearly communicate any cancellation fees to be charged and only charge a single fee for each booking (rather than charging fees on an individual passenger basis).
  • Travel agents should take active steps to recover funds from suppliers and keep the consumer informed of steps taken. Where a supplier will not remit funds, offer consumers an alternative remedy, such as a credit note.

Some further tips…

In addition to the ACCC's recommendations, suppliers who update their terms and conditions may wish to specify:

  • the available remedies (eg. full or partial refund, credit notes, option to reschedule);
  • any cancellation or change fees;
  • the terms of any credit notes, including expiry dates;
  • minimum notice periods for cancellations and amendments;
  • timeframes for processing a remedy;
  • a single point of contact for consumers seeking to amend or cancel bookings due to COVID-19;
  • the terms and coverage of any relevant travel insurance policies offered;
  • whether consumers can access a remedy if they elect to cancel bookings before the cancellation is mandated by government health orders; and
  • for travel agents, whether the consumer will be bound by the end-supplier's terms and conditions.

What you should do now

If you are a travel agent or the supplier of travel services, we encourage you to review your consumer contracts and develop policies for handing cancellations relating to COVID-19.

It is also important to watch this space for developments from consumer law regulators who may be hesitant to conduct a market inquiry or pursue law reform in this area at the present time, but can be expected to closely monitor the travel sector when economic activity rebounds.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.