Air ticket refunds | Travel agents caught between a rock (read wallet) and a hard place (credit shell)

Travel companies, both online and offline, are in a bind.

Not only has their business come to a near standstill for over a month, but they have also now been forced to dip into their fast-depleting cash reserves to refund customers.

These are customers who had booked to fly between April 15 and May 3, the lockdown period. According to a directive from the Ministry of Civil Aviation, airlines have to refund customers who had booked tickets during this period, and, for travel on these days.

The real impact of this has been on online and offline travel agents. "We have started refunding the customers," said Nishant Pitti, CEO and Co-Founder of EaseMyTrip.com. "But it's our cash flow that has been impacted. And not the airlines'," he added.

That is because of the way the industry functions.

Online travel agents (OTA) and offline agents maintain a wallet with each of the airlines that they do business with. These wallets function the same way as any other - recharge them with money and use them for purchases.

The travel companies use these wallets to sell tickets of that particular airline. For instance, if an OTA has a daily wallet of Rs 10 crore with SpiceJet, then it can sell tickets worth the same amount to its customers.

In case there is a refund, airlines put the money in the wallets of the travel agents, who can use the money for future bookings. The agents, however, can't take out money from the wallets.

For these travel agents, the problem started when the government, on April 17, asked airlines to refund tickets. 

Every time a customer asks for a refund, travel agents have to dip into their own cash reserves to pay. Why? Because even though the airline, say IndiGo, credits the wallet with the refund money, OTAs and agents can't use that. They can use the wallet only for bookings, not for refunds.

And the real pinch is that there is hardly any cash coming in. "We usually book 30,000 tickets a day. Now it is down to about 1,000 tickets a day," said Pitti. As for the credit shell, customers can only use them for bookings.

While EaseMyTrip.com, that claimed to be the only profitable OTA in the country, has enough cash reserves to give refunds to customers, it's not the same story with all the other travel agents.

Nearly 70 percent of air tickets in India are booked on OTA platforms. Wallets are important for the OTAs to get discounts from airlines.

Offline travel agents also have a similar arrangement. While many of them have wallets with airlines, the agents also provide credit to clients to book tickets.

"Depending on the arrangement, a travel agent books tickets for, say a corporate client, and takes payment every 20 or 30 days," said Ajay Prakash, Chief Executive of Nomad Travels.

But now many of these clients are refusing to pay for the tickets. "Clients have declined to make the payment, saying that flights have been suspended and they can't travel. For travel agents, that is a substantial amount of money stuck," adds Prakash.

The squeeze from all fronts has made it difficult for travel agents, both online and offline, to pay salaries. "Very few will be able to keep operating like this," added an executive from the industry.

"Unless there is help from the government, it will be extremely difficult for the industry to survive," Prakash said.