Call to regulate travel agencies

Low barriers to entry, lax regulation and a chance to make quick money are drawing many to set up travel agencies. For example, with a paid-up capital of just $100,000, a travel agency can collect $3 million in unprotected deposits by selling at half
Low barriers to entry, lax regulation and a chance to make quick money are drawing many to set up travel agencies. For example, with a paid-up capital of just $100,000, a travel agency can collect $3 million in unprotected deposits by selling at half price at fairs, such as this one seen here.ST FILE PHOTO

More are closing down when their businesses fail, causing customers to lose money

Revenues are sliding, consumers are bypassing them and their reputation has taken a hit in recent years; still, more travel agencies are setting up shop here.

Some people are asking if these businesses are sustainable. They are calling for greater regulation after a spate of agencies shutting suddenly recently, leaving thousands of customers stranded.

Five Stars Tours' closure in January last year affected at least 3,000 travellers, while at least 500 were affected when Asia-Euro Holidays shuttered in May.

Large amounts of money change hands at travel fairs. The Travel Revolution fair in April, for example, pulled in an estimated $100 million in sales. With more fairs coming up - there are at least four major ones next year - it is becoming more timely to prevent such closures, which have given the industry a bad name, said travel agencies.

The total number of agencies climbed from 1,096 at end-2012 to 1,195 at the end of May this year, according to data from the Singapore Tourism Board (STB), which issues travel agency licences. The number of agencies which closed down per year also grew over the same period, from 96 in 2012 to 114 last year.

  • MORE SHUTTING DOWN

  • 96

    Number of travel agencies which closed down in 2012

    114

    Number which closed down last year

    86

    Number which closed in the first five months of this year

In the first five months of this year, 86 closed while 80 started business.

Agencies said rising labour costs and travellers' direct purchases from airlines and hotels have hurt their bottom line. "These few years have been the most challenging," said Mr Benny Ho, director of Apple Holidays. "Falling revenues coupled with rising costs have put intense pressure on the industry."

Why do new companies want a slice of a diminishing pie? Industry watchers point to three factors - low barriers to entry, lax regulation and the chance to make quick money.

To obtain a licence, a company must have a paid-up capital of at least $100,000 and a net worth of a similar amount, among other conditions. The bar is too low, said Ms Kay Swee Pin, interim president of the Singapore Outbound Travel Agents Association (Sotaa).

"With $100,000, an agency can collect $3 million in unprotected deposits by selling at half price at fairs," said Ms Kay, the managing director of SA Tours. "But in some cases, they don't know how to manage the money, expand too fast and end up closing a year later," she added.

Recent high-profile closures include agencies such as Five Stars Tours and Asia-Euro Holidays. Many agencies go under without making headlines.

The Consumers Association of Singapore (Case) said 19 agencies folded suddenly in the past three and a half years, resulting in consumers losing millions of dollars.

Mr Devinder Ohri, president of the National Association of Travel Agents Singapore, said: "Perhaps the authorities could be more stringent in the screening of would-be applicants."

More should also be done to protect the cash that agencies collect upfront for tours, said Dynasty Travel's marketing communications director Alicia Seah. She suggested setting up an escrow fund for customers' money, kept separate from the operating account.

A Chan Brothers Travel spokesman said STB should perform an audit to ascertain the financial health of agencies before renewing their licences.

Case had asked STB to make it mandatory for travel agents to take out insurance against their sudden closure. "We are disappointed that STB has not taken up this proposal," said its executive director, Mr Seah Seng Choon.

Mr Allan Chia, head of SIM University's Master of Business Administration programme, said an escrow fund or a mandatory insurance scheme will offer consumers "the protection, sense of security and peace of mind, that they seek".

But STB has adopted a light-handed approach. Last month, it added a new licensing rule which required agents to remind customers to buy insurance against agent insolvency. Asked if STB intends to tighten its criteria further or roll out new measures to safeguard consumers, Ms Ong Ling Lee, its director of travel agents and tourist guides, said: "We are already engaging our industry stakeholders on this and will share more details when ready."

A version of this article appeared in the print edition of The Straits Times on July 28, 2015, with the headline 'Call to regulate travel agencies'. Print Edition | Subscribe