KATA E-Bulletin May 2010

The Ash Crisis

 In mid April, flights operating in and out of most parts of Europe faced massive cancellations and delays due to an ash cloud from a volcanic eruption in Iceland. The crisis impacted 29 percent of global aviation and affected 1.2 million passengers a day a scale far worse than the 9/11 crisis.

The Travel Industry was in a crisis mode with thousands of passengers stuck in Europe with no means to get to their next destination and no idea when their next flight would be available. The role of a Travel Agent was tested in this crisis and Travel Agents proved their value as the public reached out for help.

It was noted that many Travel Agents went an extra mile for their clients, responding with professional skills to a crisis that engulfed millions of travellers. Many Travel Agencies rallied customer services and communications teams to ramp up hours and provided 24/7 availability. Travel Agents did everything from re-routing flights to just provide peace of mind. They worked around the clock to book stranded passengers into hotels for accommodation and onto the first available flight. The Travel Agent became the hero, the advocate for the thousands of stranded passengers.

We would like to thank all our members for the professionalism that was displayed during this crisis. You have proved that despite the penetration of online booking engines globally, nothing beats the human touch.

Please remember to join us in a Campaign that promotes the services of a Travel Agent. Contact KATA Secretariat for Slogans that you may attach to all your communication.

Have you received a notice of irregularity in thE last 12 months?

 A notice of irregularity is a warning sent to an Agent to inform him/her that some failure has been detected on his part in matters such as reporting or remittance. This notice basically classifies the Agent as ‘high risk’.

In East Africa, an Agent should not have more than 2 instances of irregularities for late payment issued against the agency in the previous 12 months. However, the reality since the introduction of value capping has proved that sometimes Agents are not to blame for late remittance. So under these circumstances what should an Agent do?

Under IATA Resolution 832 “if it is established that such non-payment or dishonoring is due to a bona fide bank error, as provided for in Paragraph 1.7.9, and settlement of all amounts due is received on demand, the Irregularity if recorded, shall be rescinded” The Resolution states that a Bona Fide Bank Error is one of the following circumstances substantiated by evidence acceptable to the Agency Administrator;

1.7.9.1 Credit Arrangement or Automatic Transfer of Funds- When on the date the cheque or other method of payment was presented to the Bank for payment, sufficient funds should have been available in the account on which the cheque or other method of payment was drawn by virtue of a valid written line of credit or other written arrangement, dated and executed between the bank and the Agent prior to the Reporting Period involved, and the bank erroneously fails to honor such line of credit or other arrangement, or
 

1.7.9.2 Sufficient Funds - if the bank erroneously fails to honor a valid cheque or other method of payment when sufficient collected funds are in the Agent's account on which the cheque or other method of payment was drawn and available for immediate withdrawal at the time the cheque or other method of payment was presented to the bank for payment. 

So, when you receive a notice of irregularity,

1. Investigate the cause
2. If it’s a Bank issue, write to them immediately
3. If it is a bona fide Bank error, let them write to IATA and inform them of the same. (Note human error of lapses do not quality as bona fide Bank Errors in IATA terms)

Reminder
1. + 2 instances of irregularities in 12 months = Default
2. Call KATA

Credit and Risk Management

 On 21st April 2010, KATA held 1st first training on Credit & Risk management which was very successful. The course aimed at instilling a culture of strong and effective credit management systems.

A recent survey showed that 95% of Travel Agents advance credit to their clientele. The key motivation to extend credit was driven by the need to increase revenue, improve profit margins, create a loyal customer base and to be competitive.

However, there is always a risk in advancing credit to your customers. These risks include profit erosion, defaults that lead to write-offs and the possibility of reputational risk if you have to end up in court with your customers.
What does it cost to give credit? If interest rates are 12% p.a and inflation is 24% p.a. the cost of credit for one month then becomes 3% of the total invoice value. Can you really afford not to recover this amount from your customer?

To ensure effective credit management; please ensure that you do the following;

1. Develop a Credit policy: – every Travel Agent should have a credit policy. This is a framework that provides the basis of credit underwriting standards. A credit policy lays down the procedures that need to be followed when advancing credit. This policy must be understood by all your staff. (KATA can send you a template at a cost)

2. Establish/ Update your Credit Application forms- Ensure that your Credit Application forms are updated with relevant information on key contact persons and that they are signed. There should clearly stipulate terms and conditions. Include a clause that states that you share credit information with the Travel Industry. Ensure that all your staff update their clients files.

3. Establish your Client’s creditworthiness- Ask your Client for some basic information, contact your client’s suppliers, contact Credit Reference Bureaus and lastly read the Kenya Gazette.

4. Set up Credit Limits – This will help you determine the financial involvement that you are prepared to support as a result of credit sales to a customer. Credit limits should reflect the risk that the customer is perceived to carry. Ensure that all your staff refer to these limits before they advance credit.

5. Documented every aspect of your transactions- Ensure that all communication between your Agency and the client is documented and signed. Picture yourself in Court and determine if you have all the evidence needed to win a case.

Business failure is a process not an event. It takes time and occurs in some structured sequence. Do not set yourself up for failure; strengthen your systems and structures.

Updates

•  KATA held the first ever meeting in Kisumu on 7th May 2010. 15 Agencies were represented at the meeting which sought to enforce KATA’s role in Industry. The Meeting was proudly sponsored by Kenya Airways.
• Amadeus donates HP Proliant Server to KATA.