SMALL- and medium-sized travel companies in India are defaulting on their payments to airlines since most carriers have reduced the credit period from 15 to seven days with effect from January 1.
Aerojet Travels, for example, has defaulted on Rs50 million (US$814,750) in payment to airlines last month.
Rakesh Lamba, managing director, Prakriti Holidays, said: “Small companies like us have to abide by IATA norms in terms of bank guarantees and also pay weekly to airlines on all sales while we receive payments from our clients much later, often between two to six weeks. How much cash can we keep to stay afloat, while income from sale of tickets is marginal?”
Under the current system, ticket issuers give bank and insurance guarantees to the airlines, upon which they are allotted limits for issuance of tickets.
Most travel companies issue the bulk of the tickets for corporate companies, which typically demand longer credit terms in a competitive market. As a result, most small- and medium-sized companies borrow heavily to make the payments on time.
While agreeing the short credit term will hurt travel consultants, Iqbal Mulla, president, Travel Agents Association of India, pointed out: “Airlines believe they can manage ticket sales only through a handful of big travel companies, but putting all your eggs in one basket can be risky.”
According to IATA, the weekly settlement is critical in minimising the risk exposure of airlines.