More rules needed as travel agencies sprout?
REVENUES are sliding, consumers are bypassing them and their reputation has taken a hit in recent years. Still, more travel agencies are setting up shop here.
Some people are asking if these businesses are sustainable. They are calling for tighter regulation after the recent spate of agencies' sudden closures left thousands of customers stranded.
Five Stars Tours' closure in January last year affected at least 3,000 travellers, while at least 500 were hit when Asia-Euro Holidays shut in May.
With more travel fairs coming up - there are at least four major ones next year - it is becoming more urgent to prevent such closures, which have given the industry a bad name, said travel agencies.
The total number of agencies climbed from 1,096 in end-2012 to 1,195 at the end of May this year, according to data from the Singapore Tourism Board (STB), which issues travel-agency licences.
The number of agencies which closed down per year also grew over the same period, from 96 in 2012 to 114 last year. In the first five months of this year, 86 closed while 80 started business.
Agencies said rising labour costs and travellers' direct purchases from airlines and hotels have hurt their bottom line.
So why do new firms want a slice of a diminishing pie?
Industry watchers point to three factors: low barriers to entry, lax regulation and the opportunity to make a quick buck.
To obtain a licence, a company must have a paid-up capital of at least $100,000 and a net worth of similar amount, among other conditions.
The bar is too low, said Kay Swee Pin, interim president of the Singapore Outbound Travel Agents Association.
"With $100,000, an agency can collect $3 million in unprotected deposits by selling at half price at fairs," said Ms Kay, managing director of SA Tours.
"But in some cases, they don't know how to manage the money, expand too fast and end up closing a year later," she added.
More should also be done to protect the cash that agencies collect upfront for tours, said Dynasty Travel's marketing communications director, Alicia Seah.
She suggested setting up an escrow fund for customers' money, kept separate from the operating account.
The Consumers Association of Singapore (Case) had proposed that STB make it mandatory for travel agents to take out insurance against their sudden closure.
"We are disappointed that STB has not taken up this proposal," said Case executive director Seah Seng Choon.
STB has adopted a light-handed approach. Last month, it added a licensing condition requiring agents to remind customers to buy insurance against travel-agent insolvency.
Asked if STB intends to tighten the criteria further or roll out new measures to safeguard consumers, Ong Ling Lee, director of travel agents and tourist guides, 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."