The recent spate of abrupt travel agency closures in Singapore has affected many travellers and given the industry a bad name. Paige Lee Pei Qi examines why these businesses fail and what should be done to address the root of the problem

As more travellers turn to the Internet to plan their own trips and the proliferation of OTAs continue to pose a strong threat, the heat has proven too much for a growing number of players in the traditional travel agency sector.

Managing the bottom line of businesses while keeping pace with the dynamism of the rapidly evolving customer needs is a constant challenge in a mature travel market like Singapore, opined Jane Chang, head of marketing communications, Chan Brothers Travel.

Chang said: “We are constantly at the mercy of health epidemics, natural calamities and political unrest, among a whole host of possible travel disruptions that can wipe out months of sales collection.”

CTC vice president of marketing and PR, Sylvia Tan, commented: “While there is still demand for traditional travel agencies from the more mature age group, there is a lot of competition today with more choices and options available for travellers via different distribution platforms with travel offerings directly from suppliers to consumers.”

A total of 86 travel agencies have shuttered in the first five months of 2015 according to the Singapore Tourism Board (STB), and this number looks set to exceed the 114 that ceased operations last year. There are currently 1,195 travel agencies in operation in Singapore as of end-May this year.

Major player Asia-Euro Holidays surprised the trade and consumers alike with its sudden closure in May, leaving hundreds of customers in the lurch. Likewise, Five Stars Tours, another well-known travel agency, went bankrupt in January last year and affected thousands of travellers.

NATAS spokesman Gregory Tan attribute the high operation costs, a sluggish economic outlook and poor business planning or management as some of the factors driving agencies to fold up.

Michael Chiam, senior tourism lecturer at Ngee Ann Polytechnic, agreed: “Agencies who are prone to failure include those small agencies with limited capital and those who compete purely based on price. Competition is becoming more intense and that may lead to price cutting and low margins for the agencies.”

These abrupt closures have resulted in industry experts rallying for tighter regulations on travel consultancies to prevent more of such shutdowns that cast the  industry in poor light.

According to STB’s director, travel agents and tourist guides, Ong Ling Lee,  all travel consultants operating in Singapore are licensed by the board under the Travel Agent (TA) Act & related regulations.

“The intent of the legislation is to weed out fly-by-night TAs and provide safeguards for the public against malpractices,” explained Ong.

“When applying for, renewing their licences or at all times during their operation, TAs have to fulfil certain requirements, such as maintaining a minimum of S$100,000 (US$74,000) in paid-up capital and net worth, or minimally S$100,000 cash for sole proprietors or partnerships.”

The barrier to entry is not enough though, remarked Alicia Seah, director of marketing communications at Dynasty Travel. She said: “We can increase the paid-up capital to at least S$500,000 or even up to $$1 million so that the owners will be more committed and not set up a “pop-up” store.

“This will show that these TAs are making a serious commitment and they have the capacity to last in the industry.”

Seah added that STB, in addition to its annual audits of TA licensees, should perform stringent checks on the background and qualifications of owners or directors before issuance of the TA licence.

Likewise, Chan Brother Travel’s Chang proposed a minimum capital amount of S$1 million as well as stricter financial audits to “flush out those without financial strength or with financial woes to continue their businesses”.

Ngee Ann Polytechnic’s Chiam suggested for STB to also assess applicants based on their prior experience and business model – on top of the capital amount – before issuing them with a TA licence, although he added that it is not STB’s  duty to monitor the travel agencies’ operational cash flow to ensure that they will not go into the red.

To protect travellers in the meantime, all licensed travel consultants in Singapore must now ask outbound leisure customers if they would like to purchase travel insurance covering travel consultant insolvency.

This new licensing condition, which has been introduced since July 15, requires travel consultants to offer their customers travel insurance against the company’s insolvency and to record their customers’ final decision.

It is applicable on a per person basis whenever a consumer makes a deposit or payment of S$500 or above, or purchases a travel package costing S$1,000 or more.

According to STB, the new rule “serves to educate consumers of the measures they can take to protect their interests when they make travel bookings”, and was launched following STB’s discussions with the trade assessing consumer protection measures over the past year.

STB, assistant chief executive, Yap Chin Siang, said: “With the implementation of the new licensing condition, consumers will now be better informed on steps that they can take to protect themselves against unforeseen circumstances including travel consultant insolvency.”

Yap said STB will assist industry stakeholders with implementation of the new condition and will “layer on with continued consumer education efforts”.

However, Dynasty Travel’s Seah said the insurance does not provide 100 per cent coverage hence more has to be done to address the “root of the problem” and the financial health of travel consultants.

In response to whether new measures will be rolled out to protect outbound travellers, STB’s Ong said: “As the tourism landscape is constantly evolving, STB keeps a close watch on industry trends and developments. We are already engaging our industry stakeholders on this and will share more details when ready.”

This article was first published in TTG Asia, August 7, 2015 issue, on page 6. To read more, please view our digital edition or click here to subscribe.