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Wednesday, Dec. 18, 2002
TICKET TO NOWHERE
Discount travel agents take the unwary for a ride
By TOMOKO OTAKE
Marco Solas was looking forward to getting out of Tokyo and spending some time with his family back in Britain -- until the discount travel agency that was handling his ticket went belly up, leaving him stranded and out of more than 200,000 yen.
Solas, an assistant English-language teacher at a junior high school, recently made round-trip reservations for himself and his girlfriend through Beyond Ltd., a Tokyo travel agency dealing in discount airline tickets.
He paid 208,520 yen for the pair of tickets by mid-November and was due to depart on Dec. 20.
But on Nov. 28, Solas received a notice from Beyond, informing him that it had gone bankrupt. The travel plans of Solas and about 310 others, mostly foreigners, who had reserved tickets through the Shibuya Ward-based firm are now in limbo.
The agency failed to transfer its customers' ticket payments to a wholesale agent, and the would-be travelers must cough up the full amount again if they want to get out of Tokyo. Solas says he simply cannot afford it.
"Our Christmas is basically wrecked," he said. "I don't know what we're going to do."
Solas' case provides a glimpse into the life-or-death competition among Japan's discount air-ticket sellers, which are suffering amid the sluggish economy and fallout from the Sept. 11, 2001, terrorist attacks in the U.S.
Beyond blamed its bankruptcy on a "drastic drop in sales due to recent social situations," including "competition for low-price airfares and the frequent occurrence of terrorism incidents." But sources close to the company laid the blame squarely on the shoulders of Beyond President Mohammed Hai.
"(Hai) was too optimistic about his outlook," said Yasusada Kimura, a lawyer who represents the failed firm. "He hired seven employees, when he only needed two or three people for the kind of business he operated."
Hai set up the agency 4 1/2 years ago. The firm's liabilities now total some 40 million yen, Kimura said.
Hai, whose nationality is unknown but is originally from Bangladesh, could not be reached for comment.
A former employee of Beyond who declined to be named said that after the firm opened a branch in Yokohama in late September, the staff there had little to do for more than a week as the phones rarely rang.
But Beyond's case is symptomatic of a wider problem, industry sources said.
Many travel agencies that depend heavily on sales of discount air tickets stand little chance of making it in the current harsh business climate, the sources said.
Over the past several years, overheated price competition has forced many agencies out of business. A few specializing in discount tickets have thrived, but the ever-narrowing profit margins are weighing heavily on many, according to experts.
Wholesalers made international discount air tickets available in the late 1960s, when they began contracting with airlines to buy seats in bulk at discounted prices. The deals are made on condition that agents use the tickets only as part of group package tours.
Unlike regular tickets, discount tickets come with various restrictions, including being nonrefundable and unchangeable. As demand for discount tickets grew, wholesalers started selling them separately to individual travelers. The premise that such tickets must be part of a package that includes, for example, hotel accommodations has also fallen by the wayside.
Discount tickets occupy murky legal territory. Their prices are not fixed and remain negotiable between wholesalers and airlines.
Discounted fares meanwhile contributed to the surge in the number of Japanese traveling overseas. The number of outbound tourists continued to grow even after the bubble economy burst, from 10.9 million in 1990 to nearly 16.8 million in 1997.
A manager at a midsize travel agency in Tokyo said many agents started up about 10 years ago, when the sales volume of discount tickets was on the rise and margins from ticket sales averaged around 15 percent.
In the last four or five years, however, the number of overseas travelers has leveled off, and margins began thinning as competition grew.
Then came 9/11. The attacks dealt a severe blow to Japan's travel industry, which was already reeling from sluggish consumer spending.
The manager of the midsize agency said: "We buy a ticket to Seoul from a wholesaler for 28,000 yen, add 1,000 yen on it and sell it for 29,000 yen. But then we find someone else is offering the same deal for 28,500 yen, with only a 500 yen margin."
According to the All Nippon Travel Agents Association, a 6,000-member group of small and midsize travel agents, the amount of money it refunded to customers through a legally mandated compensation scheme as a result of bankruptcies of its members was 267 million yen in fiscal 2001 -- more than triple the 76 million yen returned in 1991.
The Japan Association of Travel Agents, an industry body of mostly major travel agencies, reimbursed 260 million yen to customers affected by the failures of 17 of its members in fiscal 2001. This figure is well down from the 1.06 billion yen refunded in fiscal 1998, when two major banks went under.
The association came to the aid of customers of 28 travel agents, including big names like Jetour Corp. and Shiki-no Tabi Co., which caved in to the winds of recession.
Industry sources said that some of the travel agents currently running massive advertising campaigns in newspapers and magazines may be struggling to stay afloat.
"We must keep operating and get new customers (so we can pay our current debts)," a small agent said, adding that his company is in the same boat as Beyond.
The customers affected by the Beyond bankruptcy are also victims of the voucher system, which is unique to Japan. The standard practice by travel agents here is to take customers' cash for fares and only issue a travel voucher -- not the actual ticket. Customers present their vouchers at the airport and are then given their tickets.
Industry sources cited various reasons as to why this practice is prevalent.
A key factor is that many travel agents in Japan are not accredited by the International Air Transport Association, a trade body representing the airline industry worldwide. Retail agents must buy tickets from IATA-accredited agents, which are entitled to issue the actual tickets.
Many retail agents meanwhile try to hold on to the money as long as possible.
For example, when customers pay the balance three weeks ahead of departure, agencies can then use that money to meet other payment obligations. The agents only pay the money to wholesalers and have them issue tickets just three days before takeoff.
"It is common sense in any business to charge early and pay late," said Yusaku Kawakami, president of Ascent Co., a small travel agency in Tokyo's Minato Ward.
By having travelers pick up their air tickets at the airport, travel agencies can avoid the trouble of customers forgetting their tickets or losing them before departure, Kawakami claimed. Some companies mail tickets to customers if they ask, he added.
Travel vouchers, which simply list the names of passengers and the flights booked, have no financial value and are not acknowledged by wholesalers or airlines unless they are accompanied by money from retail agents.
Travel agencies registered in Japan fall into three categories, depending on the size of their business. Beyond, capitalized at 7 million yen, was in the third category.
By law, a third-category agent must put up a refund guarantee of at least 2.5 million yen with its home prefectural government so it can reimburse customers in case of bankruptcy. But by the time this is divided between the 310 eligible customers of Beyond, the dividends per person will be negligible.
Solas said he is networking with other people in the same boat to put up a united front against Beyond, and plans to file a criminal complaint with police over what he claims is fraudulent business activity.
Air ticket deal too good to be true?
Here are some pointers provided by travel industry sources on how to avoid trouble when buying discount air tickets from travel agencies.
Is it safe to do business with an unfamiliar travel agent offering a great bargain?
Compare the price with those of other agencies. Use caution if the agency is offering an exceptionally cheaper deal than others. While genuine bargains exist, it is also possible that a cash-strapped agency is making a last-ditch attempt to lure customers.
How can one tell if an agency is sound?
Make sure the agency is registered; if the registration number does not appear on their ads, call them to ask their number. There have been several cases of unregistered agents being arrested for operating a travel agent business.
If concerned about an agency's financial footing, ask if it can issue tickets before departure. While most discount air ticket agencies in Japan use vouchers, legitimate agencies will mail tickets to customers or hand them over in advance if so requested.
What course of action is available if a travel agent goes under?
All registered travel agents in Japan are required to put up a certain amount of money to reimburse customers in case they go bankrupt. The amount differs by the size of the business.
How long does it take to get money back, and will reimbursement be paid in full?
Unfortunately, the reimbursement process typically takes more than a year, and the amount of money a customer can reclaim averages 5 percent of the amount paid, or less, experts say.
The Japan Association of Travel Agents and the All Nippon Travel Agents Association each have an additional customer compensation scheme for member firms that have voluntarily paid a fee.
Who should be contacted?
Call JATA at (03) 3592-1266 or ANTA at (03) 5401-3600, in Japanese. They will mail you forms to fill out for reimbursement procedures if your agent is a member of either industry group.
If your agent is not a member of either group, contact the local prefectural government section in charge of travel agencies. The Tokyo Metropolitan Government contact number is (03) 5320-4769.
Note that few such offices can handle calls in English or other foreign languages.