Travel agents fear more defaults as credit period halved

Aerojet Travels, a Delhi-based travel agent, could not pay around Rs 50 crore to airlines last month, making it the second big sales default in a year. Last April, Spring Travels failed to pay Rs 120 crore to airlines. Travel agents fear more such defaults after airlines halved their credit.

"Aerojet Travels had given a bank and insurance guarantee to the International Air Transport Association (IATA)'s billing and settlement plan but traded much above the limit. The default happened last month and a large chunk of the Rs 50 crore is due to Air India," said an aviation source.

Air India and Aerojet Travels proprietor Maneesh Mehta did not respond to queries.

An IATA spokesperson said: "Aerojet Travels was suspended from participating in the billing and settlement plan when it failed to settle its due. Its passenger sales agency agreement is in the process of being terminated. This is also one of the reasons why the implementation of the weekly settlement is critical in minimising the risk exposure of airlines. We have been in contact with the affected airlines and are providing them with support in their recovery efforts."

Agents must furnish a bank or insurance guarantee to IATA as a cover in a new settlement mechanism that got going last month. Airlines cap the number of tickets an agent can issue each fortnight based on these guarantees. The cap can be changed on demand from the agent or based on its past sales. IATA provides airlines with a daily report on the sales of travel agents versus the guarantees they have provided.

The new mechanism requires agents to remit ticket sale collections after seven days, half the 15-day credit they had in the old system. Agents are resisting the switch and plan to move the Supreme Court after the Karnataka High Court dismissed their petitions against the new mechanism. Iqbal Mulla, president, Travel Agents Association of India, said: "We are examining all legal options and plan to go to the Supreme Court. The seven-day payment cycle will hurt agents."

"Corporate clients enjoy longer credit (periods) from agents and will not pay in seven days. There is no practice among companies to pay agents in advance. Agents take overdrafts from banks and managing working capital will be a challenge. If one payment is delayed, an agent's financials can go haywire. Airlines believe they can manage sales with a few large agents but should realise that when you put all your eggs in one, basket there is a risk," he added.

Pradip Lulla, general secretary, Travel Agents Federation of India, said: "A weekly settlement system will be difficult to implement in India. Defaults will also impact the credibility of agents and clients will take advantage of the situation."