As we emerge from the COVID-19 pandemic there are many travel businesses that are considering the viability of changing their business model. Those changes may take many forms but the most common are to:
- move from acting as a Package organiser to a traditional agency or single-service model, in the hope of de-risking sales; or
- the reverse, moving from an agency model to acting as a principal, Package organiser, in the hope of gaining more control over sales.
For those travel businesses that are considering such a change, there are various key considerations that are worth exploring in full, before taking the decision to adopt a new business model.
Note, however, that the considerations we have set out below are only an overview of the key issues that will arise when changing your business model. The considerations below are not tailored to your business and so likely will not reflect all of the issues that you will need to consider and address. This article is therefore not a substitute for considered legal advice.
1. Understand the legal requirements
The first key consideration is to determine whether there are any legal requirements that you need to comply with, as a result of the proposed change to your business model?
In short, this step involves determining whether there are any legal requirements that are specific to the new business model you will adopt, that did not apply to you before and that you will therefore need to take steps to comply with before implementing the change.
Now, if the change of model involves moving from, say, Package sales to accommodation only (or other single service) sales, it may be that there is not a great deal of new regulation that you need to be aware of. Certainly, Package sales are more heavily regulated than single service sales and so you are unlikely to encounter a great deal of new and complex regulation, by making a change of this nature (although beware, of course, of the potential applicability of the ATOL Regulations if you are selling flights).
On the other hand, if you are moving from a principal to an agency model or from non-Package sales into Package sales, the position will be very different and there certainly will be new legal requirements that you will need to become familiar with (if you are not already) and take steps to comply with.
2. Consider your supplier relationships
The second key consideration is to determine whether the change in model affects the relationships you have with your suppliers?
The most notable issue to consider here is the contracts that you currently have in place with your suppliers. It will be necessary to assess whether those contracts are fit for purpose, given the proposed change to your business model and whether they will continue to ‘work’ once you have adopted the new model.
If the contracts that you have in place at present will no longer be fit for purpose, for example because you are intending to move from a principal sales model to an agency model, it will be necessary to re-draft those contracts accordingly and to go through the process of re-contracting with your suppliers.
While this may not be a particularly appealing task, as re-contracting processes can at times be long and arduous, it is nevertheless a very important one; as it is vital to ensure that your contracts properly reflect your business model and (as far as is possible) address the risks that arise as a result.
In addition, while the re-contracting process can be difficult, having good communication with your suppliers often helps to smooth the process. For instance, explaining exactly what you are doing and why (in as much detail as you are comfortable sharing, at least) can often cause suppliers to be more receptive to contractual changes.
3. Consider how you sell services to your customers:
The next point to note is that it will also be necessary to consider how you sell travel services to your customers and whether any changes are necessary to your sales processes.
The main issues to consider here are:
- As with the supplier assessment, it is necessary to determine whether your Booking Terms and Conditions properly reflect and apply to your new model or whether changes are required.
- For example, if you are taking the decision to no longer sell Packages, it will be necessary for your T&Cs to reflect this and not give the suggestion you are in fact Packaging. Likewise if you intend to move to an agency model from a principal one, the T&Cs that govern your sale of travel services to customers will need to be updated to reflect your new role.
- Similarly, it is also necessary to determine whether you need to make any changes to the way that you sell travel services. Such changes may be necessary where you have taken the decision to start selling as an agent, rather than a principal, or where you intend to stop combining the sale of travel services in such a way as to create a Package and to sell single service arrangements instead.
4. Wider issues
Finally, there are two wider issues that, while not necessarily legal considerations, are nevertheless important to consider if you’re thinking about changing your sales model. Namely:
- Insurance: It will be necessary to determine whether your existing insurance policies are suitable and will continue to provide cover in light of your new sales model – or whether new or additional insurance coverage is required.
- Tax: It is also important to seek tax advice in respect of your new model too, to determine whether there will be any change to the tax treatment of your sales, in light of your new model.
As we mentioned at the outset, however, the above is just an overview of the key considerations you will need to bear in mind, when changing your business model.
If you are considering such a change (whether as a result of the COVID-19 pandemic or otherwise) please feel free to get in touch and we will be happy to discuss the legal implications with you in greater detail.