Bank guarantees and credit crunch hit travel agents in the region hard

Though travel, both leisure and business, is still happening, travel agents in the Middle East are being hit by credit crunch and bank guarantees they are required to pay to the airlines and to Iata, travel trade sources said.

Travel agents said the retail travel trade has been hit by the credit crunch faced by many of the corporate clients who have been delaying their payments for travel bills by up to four months. Since "the travel agents have to make their airline payments every fortnight, these delays in payment from clients are eating into their profits", said Samer Ascha, General Manager, Skyline Travel, Tours and Shipping.

He said: "Many travel agents have taken a bank overdraft to bridge the gap" and are paying interest on these loans too.

Leo Fewtrell, General Manager, Dubai Travel Tour Agents Group, said: "In 2009, the credit crunch looks to be a major hurdle for the trade in the short term. Given the shortage of cash available to many clients, we can expect to see them requesting longer credit terms.

"In the same period, airlines are not going to accept this scenario and pressure will be on agents to pay higher bank guarantees to both airlines and Iata.

"The bank guarantee is based on the volume of sales by the travel agents," Fewtrell said. "Increasing the bank guarantee is logical considering the credit crunch, which has caused many of the clients to extend the credit period from 30 days to 60 or 90 days."

Fewtrell said: "Additionally, there could be a reduction in business and leisure travel in coming months. This could cause further competition among the trade and possibly cause job losses as agencies look to cut costs.

"This would further cut customer service standards and increase the number of complaints against agencies. There are now measures in place for travel agents to be held accountable for such complaints that are upheld by the authorities. Such measures can include fines and possible closure of agencies."

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