Life is getting harder for the little guys

This article first appeared in TTG 15 April 2015

One of the most rewarding aspects of working with travel start-ups is seeing an entrepreneur finally achieve their ambition. Often, securing the necessary ATOL, IATA, or ABTA licence is the final step to getting their business up and running and as their advisers, we at Travel Trade Consultancy are in a privileged position to see them complete what is for many, a lifelong goal.

For those new to it all,  the process of applying for a licence and complying with regulations can be long and maddeningly frustrating at times, but travel by its nature seems to attract optimists with boundless enthusiasm and energy to see off the many challenges along the way.

Increasingly though, we’re finding that enthusiasm start to wane when they hear the stark reality of the eye watering pile of cash required to get their venture off the ground.

There are 3 main culprits:

  1. Recent changes to the Small Business ATOL (SBA) scheme which come into force in October 2015 will require those applying for their own SBA to put £30k of share capital into their company and provide a £50k bond before being accepted. That’s a huge capital commitment to make on what is, at that stage a “pre-product” idea with no guarantees of return.

These particular new requirements will only apply to brand new applicants. That’s great news for existing, established SBAs but it creates a huge barrier to potential new entrants and has more than a whiff of anti-competitiveness about it.

  1. In a similar spirit, we expect IATA to confirm changes to its agents handbook later this month (though at the time of writing, the date they will become effective remains unconfirmed) that will force new companies to pay for tickets weekly for the first 2 years of their operation.

The move is aimed at reducing airline’s exposure to agents collapsing but it puts severe cash flow pressures on start ups at the phase in their lifecycle when they need it most.

It’s likely to mean a big drop off in new IATA applications, with more agents turning to flight consolidators for access to ticket stock.

  1. To complete the unholy trinity, May 2015 is likely to bring with it the first glimpse of the new European Package Travel Directive text. Though it won’t come into law in the UK until 2017, it’s wider package definition means more holidays will need to be protected, at greater cost to the organisers.

All of these changes will make starting a travel business a far less attractive proposition for the entrepreneurs, creators and disrupters of tomorrow which could leave the travel industry and its customers worse off.

Of course there are alternatives to going it alone. There are currently around 10 consortia/ franchise/ Accredited Body groups in the UK, whose small business members give up an element of independence and autonomy in return for a range of group licensing and banking solutions.

The forthcoming rule changes are likely to push many new travel start ups (and even some existing ones) their way. You can expect to see a big step up in their marketing activities over the next 6 months as they jostle for position, with even 1 or 2 new entrants joining the space.

The reality is that going it alone, and setting up a totally independent travel business is becoming a pipe dream for many would-be entrepreneurs, and that is a real shame.