News broke late on Friday(15th July)that the Lowcost Group had ceased trading and called in administrators.
Though the recent Brexit vote, and resulting financial turmoil was blamed for the collapse, in truth the group had been experiencing financial challenges long before June. Pressures in core holiday markets like Turkey, rising costs of pay per click Google advertising and a notoriously price sensitive customer base meant that the Lowcost Group was operating on very low profit margins with little reserves to cushion the impact of a shock.
Warren Buffet used to say that when the tide goes out, you can see whose been swimming naked. Well Brexit was the tide.
Lowcost Holidays had a very public falling out with the CAA back in 2013 and took advantage of a controversial loop hole in the ATOL regulations that allows companies established in other EEC member states to sell into the UK without the need for ATOL protection.
Lowcost Holidays relocated its head office to Mallorca and was regulated by the government of the Balearic Islands, who offered a significantly cheaper way of complying with European Package Travel regulations. The CAA warned customers back in 2013 to be cautious about booking with the Lowcost Holidays. Their move was widely condemned by the travel trade at the time and has formed the basis for many a discussion as other businesses considered similar moves.
We understand that there are currently 27,000 customers overseas. Whilst repatriation shouldn’t be an issue (most flights will have been paid in full) many customers will be asked to pay again for their accommodation in resort.
For the 110,000 poor customers who have not yet departed, their summer holiday plans lie in tatters and the Balearic scheme is unlikely to be able to cope with the volume of refund claims.
There are wider complications too. Many travel businesses sold flights together with product, sourced from Lowcost Beds as a B2B wholesale supplier.
Under Flight Plus rules, they are now faced with a stark choices. They must either find their customers an alternative bed with little chance of reclaiming any already paid. This could prove very expensive given well publicised capacity shortages in Spain and other “safe” destinations. Alternatively they will have to offer a full refund of the hotel as well as the flights and car hire making this equally costly an option.
While the CAA will have no involvement in helping consumers of Lowcost Holidays, they will be watching closely with fingers crossed that the failure of Lowcost Beds doesn’t cause a domino effect of other travel business failures.