The Local Financial Criteria (LFC) for Iata Bank Guarantees in Southern Africa has been revised, but not in the direction agents were hoping for.
Just when cash-strapped South African agents were hoping for a little relief in the form of a reduction in the LFC to free up cash flow during this crisis period, the reality is that the LFC for BSPZA has actually increased, requiring agents to set aside more money as a guarantee to maintain their Iata licence.
Speaking to Travel News in August last year, ceo of Asata, Otto de Vries, reported that the APJC was looking at options to deliver a temporary LFC to the market that was more fit-for-purpose in the current environment. At the time, Otto was hopeful that the revision would enable a reduction in agents’ bank guarantee requirement, which would free up much-needed cash reserves for South African agents.
However, according to a recent Iata memorandum, it appears that the fortnightly LFC in Southern Africa has actually increased rather than decreased. The memorandum reports the minimum financial security for fortnightly remittances has been revised from R250 000 to R330 000 and adds that the temporary LFC will be effective until December 31, 2022, subject to six-monthly reviews. This means that BSPZA agents on a fortnightly remittance have to increase their guarantees by R80 000.
Travel News understands that the ruling is in line with Iata Resolution 812, which now specifies that a minimum LFC of US$20 000 must apply.
When asked why the LFC had increased rather than decreased at a time when ticket sales were so low, Otto explained that while months of APJC discussions around the world had highlighted the need to reduce the LFC to better reflect a lower ticket sale volume requirement, the severe depreciation of the rand since the R250 000 requirement was put in place for BSPZA had placed the local LFC well below the global LFC average.
“The agent representatives on the APJC fought really hard against the minimum global requirement of a US$20 000 LFC and in favour of a US$5 000 LFC for weekly remittances and a US$10 000 requirement for fortnightly remittances. Unfortunately, the airlines would not tolerate a lower amount and we had to compromise to align with global standards, resulting in R330 000 for fortnightly settlements and R160 000 for weekly settlements,” said Otto.
“For agents under immense pressure at this time, our advice would be to move over to a weekly remittance period which would bring down the Iata guarantee requirement from R330 000 to R160 000. This would still have the desired intention of freeing up cash reserves.”
Otto reiterated that, despite the upward adjustment in the LFC, there had been many positive outcomes of the APJC discussions, such as an adjusted criterion for the evaluation of agents’ accounts and the agreement to review the LFCs every six months. Travel News will report on these updates in the near future.