Information Paper for the
LegCo Panel on Trade and Industry
Review of the regulatory mechanism
of the outbound travel industry

Introduction

This paper briefs Members on the outcome of the review of the regulatory mechanism of the outbound travel industry.

Background

2. At the Panel meeting held on 18 June 1996, some Members asked the Government to consider the following suggestions :

  1. the rate of ex gratia payment from the Travel Industry Compensation Fund (TICF) be increased from 80% to 100%;
  2. the ambit of the TICF be widened to cover fare paid in respect of air passage and hotel accommodation; and
  3. the regulatory mechanism of the outbound travel industry be strengthened with a view to better protecting the travelling public.

Review of the regulatory mechanism of the outbound travel industry

3. The Government has conducted a review of the regulatory mechanism of the outbound travel industry and sought the comments of the Advisory Committee on Travel Agents (ACTA) and the TICF Management Board on the above suggestions.

(a) Rate of Ex gratia Payment

4. We note that there is no consensus on the suggestion that the rate of ex gratia payment from the TICF should be increased from 80% to 100%. The arguments for and against full compensation are set out in the Annex. On balance, it appears that a further increase in the rate of ex gratia payment from 80% to a level less than 100% is justified and would be a reasonable compromise. It could further enhance the protection of outbound travellers whilst at the same time address the concerns of the outbound travel industry. Having examined the arguments in detail, the ACTA and the Management Board have advised that the rate of ex gratia payment under the TICF should be revised upwards to 90%. We have also noted that the TIC has recently proposed that the rate of ex gratia payment should be increased to 90%. In accordance with section 32G(2)(b) of the Travel Agents Ordinance and subject to the agreement of the Financial Secretary, the Management Board will specify 90% as the maximum rate payable as an ex gratia payment in respect of an outbound traveller.

(b) Widening of the ambit of the TICF

5. We note that in accordance with the existing trade practice, travellers normally will be issued with air tickets or hotel vouchers upon full payment of fares. Upon defaults of travel agents, travellers can still proceed with their scheduled flights/hotel bookings on production of relevant air tickets/hotel vouchers. The impact of the closure of a travel agent on such travellers should be minimal. We further note that it is a common practice for travel agents to offer credits to their clients, in particular, big commercial firms. Therefore it appears that consumers are at present afforded with adequate protection in this respect. It should also be noted that if the ambit of the TICF is to be widened to cover such sales, it is more than likely that the extra 0.5% levy in respect of the air and hotel fare will be passed on to the travelling public.

6. In view of the above, the ACTA has advised that the ambit of the TICF should not be widened to cover fare paid in respect of air passage and hotel accommodation.

(c) Strengthening of the regulatory mechanism

7. At present, the TIC and the Travel Agents Registry (TAR) undertake mutually complementary work to regulate licensed travel agents. The TIC, in its capacity as the self-regulator of the outbound travel industry, is mainly responsible for the improvement of trade practices as well as enforcement of codes of conduct and directives of the industry; collection of the TICF and TIC levies; handling of complaints and enquiries and establishment of TIC membership criteria and maintenance of membership records. The main functions undertaken by the TAR are licensing of travel agents; financial surveillance and character-checking of licensed travel agents and hearing of appeals and handling of complaints concerning suspected unlicensed travel agents.

8. In response to a recommendation of the Public Accounts Committee of the Legislative Council in 1994 that the Government should take immediate action with a view to achieving the stated policy objective of having total self-regulation of the outbound travel industry within two years, a review on the self-regulation of the outbound travel industry as set out in paragraph 7 above was completed in September 1995. After consulting organisations concerned, the ACTA advised in 1995 that the existing regulatory regime was functioning effectively and should therefore be retained. Moreover, the retention of the existing regulatory system is further justified by the occurrence of few default cases of licensed travel agents in the past six years.

9. As mentioned in paragraph 3 above, the Government conducted another review of the regulatory mechanism of the outbound travel industry between July and October this year. The recommendations of the review which have been endorsed by the ACTA are set out as follows -

Preventive Measures
(a) In case of financial difficulties of a major travel agent, a task group should be set up to advise the Registrar of Travel Agents (RTA) and the TIC on necessary actions to be taken which may include reduction of the scale of operation of the travel agent, cutting down its advertisement and number of branches, etc. The task group should comprise representatives from ACTA, TICF Management Board, Consumer Council, TIC and the TAR.

(b) The TIC should step up its efforts to ensure that receipts for outbound package tours issued by licensed travel agents are properly and adequately franked.

(c) The organisation and management effectiveness of the Executive Office of the TIC should be reviewed to further improve the quality and efficiency of service to its members and the public.

(d) The TAR should made regular reports to the ACTA on the performance standards and targets as set out in its Performance Pledge.

(e) Each licensee shall, within one month of receipt of the auditor’s report on statements of accounts in respect of the business of the previous financial year, submit a copy of the report to the RTA.

(f) Upon request by the RTA, a licensee shall submit a quarterly return on the financial position of its business in a form specified by the RTA.

(g) The TIC and Consumer Council should continue to refer substantiated complaints against quality of service to the RTA who will take them into account when applications for renewal of licences are considered. If a travel agent fails to improve the quality of service provided to travellers in spite of repeated advice, disciplinary actions such as verbal warning, written warning, warning for revocation of licence, suspension and revocation of licence, should be taken against the company.

(h) More publicity should be given to the work of the TIC with regard to the protection of outbound travellers, e.g. its complaints handling mechanism.

Remedial Measures

(i) The Management Board should be requested to examine the TICF (Procedure for Ex Gratia Payments) Rules so as to reduce the time for processing applications for ex gratia payments under the TICF.

(j) The task group mentioned in (a) above should also co-ordinate follow-up actions required immediately after the closure of a major travel agent, e.g. assistance to travellers stranded overseas and arrangements for clients affected to proceed with their package tours as originally planned as far as practicable.

Members are invited to note that recommendations (d), (e), (f) and (g) are being implemented and that actions will be taken to implement the remaining recommendations as soon as practicable.

Trade and Industry Branch
4 November 1996
Ref. : L/M (33)B to TAR 2/2091/78

Last Updated on 21 August 1998