On Holiday Group collapse: Q&A

Thousands of holidaymakers face uncertainty after the collapse of a leading travel company. The On Holiday Group, whose main business was acting as an accommodation wholesaler or “bed bank”, has gone into administration with debts of around £7m. Here's how it could affect you.

What exactly is a bed bank?

Basically, a middle man who strikes deals with hoteliers, predominantly in Mediterranean resorts. The beds are sold on to travel agencies – based on the High Street, or online – who put them together with flights and sell them to customers as bespoke holidays or “dynamic packages”.

The value a bed bank brings to the transaction is to provide a much wider range of choice than an individual agent can hope to muster, and to negotiate better rates by buying in bulk.

The On Holiday Group was the UK’s largest independent “bed bank”.

Why did it collapse?

For several years a rather arcane row has been rumbling on about where the VAT liability lies on such bookings. During that time the On Holiday Group says £4.5m owed to it by HMRC has been unfairly withheld. Given the very slim margins in the travel industry, that has led the company to declare it can’t pay its bills – mostly money owed to hoteliers – and has no choice but to close, with the loss of 65 staff.

Where does that leave people who have bought hotels from the On Holiday Group?

Many holidaymakers won’t know that they are affected. As far as they’re concerned, they’ve gone through a travel agent and bought flights and accommodation, without getting involved in any complexities about the involvement of a middle man. But anyone in the middle of a holiday could be faced with a demand to pay again for accommodation. On Holiday Group says: “Customers will have to pay their bills in resort and reclaim the funds from our travel agency partners”.

What about forward bookings?

Most customers are likely to remain blissfully unaware that their bookings are involved. The failed company says that “All monies received from agents is held in ring-fenced client accounts and will be returned by the On Holiday Group to agents in the next few days”. More nimble agents are already sourcing alternative accommodation – which is quite likely to be the same hotel, just booked through a different bed bank.

This is not a “normal” travel company failure of the sort that The Independent Traveller has reported on rather too frequently over the years. At this stage the message is “don’t panic” – if you’ve booked a “dynamically packaged” holiday, the travel agent will let you know if anything is different as a result of this failure. But no-one should lose money – except the hoteliers who are owed £7m.

If one big company goes bust – does that mean other failures are likely?

No. In fact the spring is normally a financially optimistic time for travel firms, since it’s a “cash positive” period with bookings and money coming in. So the millions of us with holidays booked can be reasonably confident that the trips will go ahead as planned.