5. At the invitation of the Chairman, Mr Augustine CHENG briefed members on the review of the regulatory mechanism of outbound travel industry, highlighting the salient points of the paper.

The regulatory regime

6. Mr CHENG explained that there were roughly ten major travel agents in Hong Kong taking up about 75% of the market share of the outbound package tours. Where there was evidence to support that a travel agent would run into financial difficulties, a task force would be set up to advise the Travel Agents Registry (TAR) and the Trade Industry Council of Hong Kong (TIC) on necessary actions to be taken which might include reducing the scale of operation of the travel agent, and cutting down advertisements and number of branches. The travel agent concerned might also be advised to suspend admission of customers and to review its situation on outbound tours so that the number of affected travellers would be minimised should its business eventually come to a close. The Administration had to exercise great care in deciding when the public should be informed of the financial difficulties of a travel agent as any premature announcement might have adverse impacts on its business.

7. On members' concern over the improvements made in the regulatory regime over the years, Mr Patrick NIP advised that the improvement measures included the introduction of the licensing system, the establishment of the Travel Industry Compensation Fund (TICF) and the Package Tour Accident Contingency Fund, and the gradual increase in the rate of ex gratia payment . The Administration would continue to monitor the regulatory mechanism with a view to strengthening the control over travel agents and enhancing the protection of outbound travellers.

8. Mr K C LEE added that even with the most stringent regulatory measures in place, they could not prevent the closure of travel agents. Undoubtedly, travel agents would wish to run a viable and profitable business but many factors were beyond their control. The Travel Agents Ordinance, Cap. 218 sought to prevent travel agents from carrying on business contrary to public interest. The effectiveness of the existing regulatory system was proven by the occurrence of few default cases of licensed travel agents in the past six years. The TAR had made great effort to minimise the adverse impacts on travellers caused by the closure of travel agents. Taking the closure of Mera Travel Services Ltd as an example, the number of affected travellers had been kept to a minimum because its business was substantially scaled down on the advice of the Registrar of Travel Agents (RTA) when signs emerged to show that the company encountered financial difficulties. As such, the compensation paid out from the TICF only amounted to around $300,000. The TAR also provided assistance to stranded travellers overseas to help them return to Hong Kong upon the closure of the travel agent.

9. Mr Simon HAU concurred that there was no way to prevent the closure of travel agents. When a travel agent was found to run into financial trouble, the TIC would alert the TAR. Immediate suspension of a travel licence at an early stage was not considered the best solution since the travel agent should be given an opportunity to overcome its financial hardship. Should closure become unavoidable, the TIC would try its best to ameliorate the impacts on the travellers concerned.

Information available to consumers in choosing travel agents

10. Some members were of the view that the public should be provided with sufficient information on the financial position of travel agents to assist them in making a choice. A member suggested that the business accounts of travel agents for the past three years should be made available to the public for information. Mr LEE replied that travellers might not be interested in this information. The RTA had all along been examining the accounts of licensed travel agents upon their application for renewal of licences. The recommendations of the review, inter alia, required licensed travel agents to submit, within one month of its receipt of the auditor's report on statements of accounts in respect of the business of the previous financial year, a copy of the report to the RTA. Upon request by the RTA, the licensee should also submit a quarterly return on the financial position of its business in a form specified by the RTA. Mr HAU added that the TIC could not provide guidelines to assist consumers in determining the reliability of a travel agent because this might not necessarily relate to its financial standing. He shared members' view that affected travellers cared more for their holiday plans than monetary compensation. The TIC always endeavoured to assist the affected travellers in proceeding with their holiday plans with the cooperation of other travel agents under the TIC's membership. Monetary compensation would be provided to the affected travellers who so opted.

The TICF reserve

11. Mr HAU informed members that since the setting up of the TICF in 1988, it had an accumulated reserve exceeding $220 million. So far, only $5 million was being paid out as ex gratia payments. The Fund grew at a rate of about $34 million per year. A member suggested that the Administration should consider temporarily suspending the collection of levies since the interests generated from the reserve should be more than enough to cover the ex gratia payments. In response, Mr CHENG stated that suspending or lowering the levies was considered not appropriate at the present stage, given that the rate of ex gratia payments from the TICF would be revised upwards and the Package Tour Accident Contingency Fund had just been established. Furthermore, operational experience showed that at peak season, the accumulated business turnover of a major travel agent could be as much as $200 million. The Administration would consider the proposal at a later opportune time when the reserve of the TICF was built up further.

12. On a member's query as to why the Administration did not adopt the British model on compensation to travellers, Mr CHENG said that the TICF was considered a better option. Under the British model, consumers had to pay an extra 2% on the basis of tour fare and the compensation fund was managed by the travel trade itself and compensation was payable not only to the affected clients but also to tour operators.

The TIC Board

13. Some members were concerned about the composition of the TIC. They noted that out of 21 members of TIC, only four were independent members appointed by the Financial Secretary. They asked if the Administration would review the Council's composition to increase consumer representation. In response, Mr TAM Kai-on stated that sufficient trade members in the Council would guarantee the provision of professional advice and assistance. In forming a sub-committee to handle complaints and other specific cases, the Council would ensure that consumers were adequately represented and that trade members would not constitute a majority of its membership.

Rate of ex gratia payment

14. The results of the recent survey on the rate of ex gratia payment conducted by the Democratic Party were tabled at the meeting.

15. At the invitation of the Chairman, Mr SIN Chung-kai briefed members on the Member's Bill to be introduced by Mr Fred LI Wah-ming (who was out of town) on 27 November 1996 which sought to increase the ex gratia payment under the TICF from 80% to 100% of the tour fare. He referred members to the results of the survey which showed that the proposed increase in ex gratia payment to 100% was welcomed by consumers and that the proposal would not discourage consumers from exercising prudence in choosing travel agents. The results also indicated that the quality of service and the reputation of the travel agents were the most important factors in consumers' choice. He appealed to members to support the Bill.

16. Several members stated that they were in support of the Administration's proposal to increase the rate of ex gratia payment from the TICF from 80% to 90% of the tour fare. They were of the view that consumers should bear some responsibility for their choice of travel agents. Notwithstanding their support for the Administration's proposal, some members were concerned that with the proposed increase in the rate of ex gratia payment from the TICF, travellers might not exercise as much care as they should in their choice of travel agents and would likely go for those offering the lowest price. They were worried that this might lead to unhealthy competition amongst travel agents.

17. In reply, Mr CHENG said that if the ex gratia payment was increased to 100% of the tour fare, travellers would tend to be less prudent in their choice of travel agents knowing that they would not suffer any financial loss upon the closure of the travel agent concerned. The Advisory Committee on Travel Agents (ACTA) and TICF Management Board, after considering the interest of different parties, had advised that the rate of ex gratia payment should be increased from 80% to 90% of the tour fare. This would further enhance the protection of travellers but at the same time make them aware of the risks and liable for the consequences of their choice. Travellers would be compensated for less than the full tour fare similar to the "no-claim" portions borne by the insurance policy-holders.

18. Mr HAU stated that the TIC was in support of raising the rate of ex gratia payment from 80% to 90%, but not to 100% of the tour fare because this might defeat the purpose of the regulatory mechanism. Mr TAM added that if the ex gratia payment was increased to 100%, travel agents would be less inclined to uphold professional ethics nor to honour their moral obligations to clients knowing that the latter would be fully compensated upon the closure of their business.

19. Mr SIN Chung-kai opined that travellers paid a fare to the travel agent for a service. Should this service not be provided for whatever reasons, they were entitled to get back the money in full. This should not be considered as a kind of compensation. In reply, Mr LEE stated that it was the travel agent who owed travellers the money and travellers were entitled to full refund from the travel agent, not the TICF, the payment from which was ex gratia in nature.

20. On a member's comment that the TICF was in effect a cross-subsidy by the law-abiding travel agents to the unscrupulous ones and that the proposed increase would further reinforce cross-subsidy, Mr CHENG responded that cross-subsidy was true to a certain extent and it applied to compensation funds of different nature. However, the problem was not considered serious given that the levy was only 0.5% of the tour fare.

21. Summing up the discussion, the Chairman expressed appreciation for the efforts made by the RTA and the TIC in regulating the outbound travel industry, and in ameliorating the adverse impacts on travellers affected by the closure of travel agents in the past. He concluded that other than Mr SIN Chung-kai, members who had expressed views were in support of the Administration's proposal to increase the rate of ex gratia payment from 80% to 90% of the tour fare.

22. There being no other business, the meeting closed at 4:00 p.m.
Legislative Council Secretariat
7 December 1996

Last Updated on 21 August 1998