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Current issues in Finland concerning package travel guarantees Petteri Lehtonen Head of a unit 5.10.2009 Brasil.

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Presentation on theme: "Current issues in Finland concerning package travel guarantees Petteri Lehtonen Head of a unit 5.10.2009 Brasil."— Presentation transcript:

1 Current issues in Finland concerning package travel guarantees Petteri Lehtonen Head of a unit Brasil

2 Group guarantee Preparations started in Main goal was to ease tour operators burdens (total guarantees at the moment aprox. 200 M). Talks about switching to some sort of a fund: 1.Government run: –The Finnish government did not want to start the fund. 2.Privately run: –The main problem in Finland is that we have three big companies (about M total). –They do not have any problems of getting guarantees and usually they get the guarantees rather cheap.

3 Group guarantee The only possibility was some sort of a group guarantee and there was two ways to organize this: 1.Companies could make theirs own groups. 2.The Consumer Agency would make the groups. We asked the opinion of the Competition Agency. –They thought that if the companies would make the groups it would prevent competition in this field. –They also raised the question how would this sort of a system work without discriminating new companies. So it was clear that the Consumer Agency needed to be the one to make the rules and also to manage the groups.

4 Group guarantee So Consumer Agency made the rules for the group guarantee. –Companies finance needed to be in satisfactory level. –Companies need to report regularly to Consumer Agency about theirs sales. –Guarantees would be joint so that if a company in the group goes bankrupt everybody else will pay a calculatory amount to cover all the claims. If you fulfilled these demands you could join the group for a period of one year. Late 2008 Consumer Agency held two meetings open to all travel operators/agents where the companies could ask about the cons and pros of the new system.

5 Group guarantee For the year 2009 we made three groups as we needed to see how the system would work (guarantees up to 55 T euro). The first group started in January 2009 and the second in March. The third group was planed to start in May (25-55 T) but at that time we could see that there was not enough companies willing to attend and also there was some doubts about how the financial crisis would hit the industry. So the third group was delayed until the fall and at this moment we are thinking of delaying it until the next year.

6 Group guarantee An example how travelers claims are handled in a case of a bankruptcy (group 1): –Group has 22 members. –Company will give a guarantee of euro (88 T) and they can sell packages so that the claims do not go beyond –If a company goes bankrupt and there is claims up to 10 T Consumer Agency will first pay from the guarantee of the bankrupt company. –Then we will take the rest from the other 21 companies equally so all the other companies would in this case pay the amount of 286 to cover all the claims. –If the overall claims would be higher others would pay more and if they were lower other would pay less.

7 Group guarantee So what are the pros and cons of the system? From the industries point of view: –pros are of course that you can do more with less guarantee. At these times when the money is really tight this is the biggest benefit of the new system. –Down side is of course that you might end up paying for others mistakes from your own pockets. From the Consumer Agency´s point of view: –pros are that if somebody is cheating we will have a small reserve so we can pay all the claims in almost every scenario = Enforcement of the law is easier. –Down side at least now is that the guarantees are mostly from different banks which makes the payment rather complex.

8 Summary Group guarantee is close to a insurance but the difference is that you will only pay a fee if somebody goes bankrupt. At the moment we haven´t had any bankruptcies Within couple of years it could be possible that almost all smaller (under 1 M) companies would use this system in Finland –It would be an ideal situation if Consumer Agency could manage to find a bank/financial house from EU to be the only one giving out guarantees to the system. –It might be a simple public procurement that would consist guarantees worth of some M.

9 Other issues A big problem came up when the global crisis hit Europe last fall: –As Finland´s package travel guarantees are individually given there was (or is) a major concern what happens if a bank is going down at the same time with a tour operator. –You would have a bankrupt tour operator with possible claims from the guarantee and even travelers abroad waiting for a return transportation but the guarantee would be worth of nothing (or at least at the time). We needed to take some precautions that we would not be in that sort of situation: –For different reason our unit does not have a person familiar with the banking industry –The only option was to get the information somewhere else. –So in the fall of 2008 we bought a license from S&P to estimate the financial hoses

10 Any questions? Thank you

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