The basics of an agency relationship
The concept of “agency” is perhaps nowhere more prevalent than in the travel industry. However, it is a term which is often used imprecisely and to describe relationships which the law would not consider truly to be that of an agency. In two parts, we set out the basics of the law of travel agency and how it applies in the travel industry.
What is an “agent”?
An agent is someone who has been authorised to act on behalf of someone else (i.e. the “principal”), such that the agent can affect the relationship between the principal and a third party. The classic example of an agent is a party which is authorised to arrange for its principal to enter into contracts with third parties, but the concept of agency is a broad one and extends beyond simply contract formation. It can be applied to almost any scenario where someone is doing something for someone else.
What is a “travel agent”?
A “travel agent”, whether online or bricks and mortar, is used very broadly in the travel industry and often to describe arrangements which go beyond the strictest sense of the word “agency”. It is often used to describe any company which acts in an intermediary capacity of some sort, for instance:
- Agents of suppliers: agents which are appointed by third party principals to sell their travel services under written agency agreements (e.g. agents for tour operators, airlines, hoteliers, etc.).
- Agents for the consumer: agents which are appointed by the consumer to purchase travel services on their behalf from third parties (e.g. a travel agent which purchases a low cost flight for the consumer by using the airline’s public-facing website, where the travel agent is doing so on the instructions of the consumer and not as an agent for the airline).
- Booking service providers / platforms: businesses which provide a booking service to the consumer, whereby in return for a fee the business will provide a service to the consumer which enables the consumer to make bookings with third party principals.
- Travel advisors: businesses which provide advice to a consumer as to their holiday arrangements and/or create bespoke package holidays for the consumer (although note that, when it comes to the sale of any travel services, the business may conclude these transactions as an agent for the supplier / consumer or as a principal).
- Principals: the term “travel agent” is also sometimes used incorrectly to describe a business which sells travel services to the consumer in its own name (i.e. a reseller), particularly outside of the UK.
- Introduction agent / marketing agent / marketing affiliate: these terms are often used interchangeably and cover a broad range of different models, such as:
- a company which advertises the travel services of the principal but then refers the consumer to the principal to conclude the sale;
- a travel company which itself sells single travel services (such as hotel only), but which advertises and provides a link through to a third party car hire provider;
- A “white label” model, whereby a travel company will provide a third party (such as an airline) with a package holiday platform to incorporate within its own website. The airline will overlay the package holiday platform with its own branding, but all consumer interactions on that website will be taking place with the white label provider.
It is often the case that travel agents will act in a number of different capacities in a single transaction. For instance, a travel agent may act:
- as a travel advisor in the creation of a consumer’s itinerary;
- as an agent for the consumer in the sale of the flight; and
- as an agent for the supplier in the sale of the hotel.
How does one become a travel agent?
In order to be a travel agent in the legal sense, the travel company must be appointed by its principal (e.g. a hotelier) as its agent. This is typically set out in a written agency agreement, which will determine the rights of the parties. In addition to this formal appointment, the travel agent must then ensure that it discloses the fact that it is acting as an agent to third parties (e.g. consumers) and that it does not give third parties the impression that it is acting as a principal.
The law will generally respect the terms of the contracts entered into by the parties. If the contract denotes a travel company as an agent, then that will usually determine the issue. However, there could be situations in which the courts would disregard the terms of the contract if it found that the contacts were a “sham” and/or did not properly reflect the economic reality of the relationships between the parties. Indeed, the UK tax authorities have tried to pursue this argument in relation to the business models of a number of online travel agents. So far it has failed, primarily because of the emphasis given by the courts on the importance of the courts respecting the terms of contracts.
How does the creation of a package holiday affect the travel agent’s status?
The involvement of the travel agent in the creation of an itinerary for the consumer might lead to the creation of a package holiday (or a linked travel arrangements) under the Package Travel and Linked Travel Arrangements Regulations 2018. Moreover, if the travel agent sells a flight to the consumer, whether on its own or as part of a package holiday, then the travel agent might be required to hold an ATOL pursuant to the ATOL Regulations 2012. Does this change the status of a travel agent into a principal?
The short answer is “no”, provided that the travel agent is careful to ensure that the sale process and the consumer “paperwork” maintains its status as a travel agent. There is otherwise a risk that the travel agent may end up selling a package of travel services under a single contract to the consumer and so act as a principal.
The next part of our overview of the law of travel agency will focus upon the relationships between the principal, travel agent and consumers and the rights and obligations which arise under these relationships.