Get ready for Iata’s new financial criteria

AFTER drawn-out
negotiations, Iata has
finally announced the new
local financial criteria (LFC) –
including a minimum financial
guarantee – applicable to
BSP ZA. This LFC also covers
BSP-BW. The new criteria come
into effect on February 1, giving
agents less than three months
to comply.
Under the new criteria,
agents will have the option to
remit monthly, fortnightly or
weekly. The new criteria have
also introduced minimum
financial security amounts
of R160 000 for weekly
remittance, R250 000 for
fortnightly remittance and
R500 000 for monthly
remittance. For agents who
have previously defaulted in
the preceding 12 months from
the date of review, the security
amounts could be even higher,
as they will need to provide
financial security that covers
the ‘sales at risk’. To calculate
this risk, the new criteria
introduce a new financial risk
formula calculation that takes
into consideration a 12-month
average sales period. This is
as opposed to six months in
the current criteria.
Agents fear that smaller
agencies will be heavily
affected. David Pegg, md of
Sure Viva Travels, says it
will be extremely difficult for
these agencies to afford a
bank guarantee of at least
R160 000.
Meanwhile, larger agencies
will need to manage their
cash flow very carefully to
avoid running into trouble,
particularly corporate agencies
servicing government, says
another agent, who preferred
to remain anonymous.
One of the changes in
criteria is that the financial
test will be more specific. In
the past, when agents passed
the financial test as stipulated
in the financial criteria, their
financial guarantee could
be nil. Agents who pass the
financial test will be able to
receive discounts but will still
need to provide a minimum
financial security, says
Janaurieu D’Sa, Iata’s area
manager for Southern Africa.
“One important point is that,
in the past, remittance was
only fortnightly or monthly;
now there is an option for a
weekly remittance. This will
give agents more choice and
options.” He adds that, under
the new financial criteria,
sales will be assessed over
12 months instead of six,
taking into account seasonality
and peak periods.
Janaurieu adds that Iata
is at an advanced stage
of approving a Default
Insurance Programme (DIP)
provider. “Once the process
is complete, travel agents will
be able to opt for either the
bank guarantee or the DIP.
Introduction of the DIP will
be made in the near future,”
he says. “Premiums for the
DIP will be calculated on a
per-ticket basis. The DIP has
been introduced elsewhere in
Africa and indeed around the
world with great success as it
removes the need for agencies
to put up a bank guarantee.”
The changes to the LFC have
come about after a lengthy
consultative process between
airlines, agents and Asata in
the Agency Programme Joint
Council (APJC) to meet the
constantly changing business
environment while aligning
with Resolution 800f, Iata’s
baseline criteria.
The LFC had not been
updated in over 15 years.
Furthermore, earlier this
year, it transpired that BSP
Southern Africa was amongst
the 14 BSPs with the most
unrecovered debts in 2013.
The current changes to the
LFC are one way to make
sure that any gaps that led to
this situation are addressed
Janaurieu says.
Asata ceo, Otto De
Vries, told TNW Asata was
reviewing the LFC on behalf
of industry and would be
making comment in due
course. “Asata has a number
of concerns regarding the
financial criteria but would like the opportunity to review it
properly before we give further
comment.”
To help agents comply before
February 2016, Iata has
announced it will undertake
an extraordinary financial
assessment in December
2015. At that time, the
new local financial criteria
will be applied against the
current audited financial
statements as held by Iata.
The assessment will be based
on the 12-month sales period
between December 1, 2014
and November 30, 2015.
“Travel agents will have to
provide a minimum amount of
financial security subject to the
remittance frequency selected
or a value higher, subject to
the calculated amount at
risk based on the financial
assessment results,” Iata said
in a statement.