Several tourism companies could soon go bankrupt in Latvia

Three companies in the tourism sector have opened insolvency proceedings, while a total of 20 have been suspended last year. Experts surveyed by Latvian Radio January 11 predict that this year there will be further bankruptcies of companies in the tourism sector.

“The impact of the pandemic in 2021 has been serious for the tourism sector since different services have been limited from time to time,” said Baiba Vītoliņa, head of the Consumer Rights Protection Centre (PTAC), indicating that although the number of insolvent companies is not very large, there are many consumers affected.

Currently, three companies in the tourism sector have an insolvency process. One of them is Mouzenidis travel-Riga. The company had an insurance policy, and consumers are being paid back.

“Most consumers will get back 83% of their money. At the end of the year, there are two other companies that have an insolvency case. Namely, Jēkaba aģentūra and Mārītes A & S Ltd.,” Vītoliņa said.

However, these two companies do not have insurance policies. They expired last year and the merchant had not bought any new ones.

“We PTAC can only suspend the license at this point in accordance with the laws and regulations and remove the license after six months. The merchant can no longer operate but cannot start up the previous insurance if there are no liquidity problems for the company. It's been a year since then and there's no company insurance that could be used, so only insolvency proceedings are left,” said Vītoliņa.

This means that customers should try to recover money for the canceled trips by addressing the insolvency administrators of these companies.

“There's actually no guarantee there. Customers enter the normal line with the insolvency administrator, where many other claims are before consumer claims. If there is a security guarantee, then there is where to take it from. We have a number of other companies like these two that have suspended licenses. The estimated amount of money which could be unsecured to the consumer is about half a million euros. It could be a quite large sum,” said the head of PTAC.

Last year, the license was suspended for 20 companies. Baiba Vītoliņa pointed out that before the pandemic it was rare that someone gave up the license. It was the high cost of the insurance policy that, in her opinion, posed an unbearable burden during the pandemic.

"The pandemic certainly demonstrated many shortcomings in the existing legislation on security guarantees, as this is an overly expensive mechanism for this industry. That, on the one hand, is good for the consumer, but in principle, it is a very expensive service. As a result, we came to the fact that a number of companies are unable to resume operations, so if they cannot resume their jobs, they cannot return money to consumers, because a large part of their money is in hotels that have already been repaid,” explained the head of PTAC.

Baiba Vītoliņa forecasts that further bankruptcies of tourism companies will be expected this year.

On the other hand, Deputy State Secretary for Economic Affairs Raimonds Lapņš, explaining the current arrangements, stressed that guarantees are an EU approach. It was created before the pandemic to equally protect consumers in all countries in the bloc.

President of the Latvian Association of Tourism Agents and Operators, the head of tourism agency Vanilla travel, Inga Kavaca, said that the real picture of how much the pandemic would have affected the tourism sector will be seen in the second half of this year.

“Because we have to take into account that very many companies have not yet resumed operations. For example, the companies that host tourists in Latvia. They haven't resumed operations because of travel restrictions. In 2020, when it was the beginning of the pandemic, it was different, yet the state aid granted in summer and autumn was significant. But we can say that there was no support for the industry in 2021,” Kavaca said.

Similarly, a major loss is the workforce which drifts into other industries during downtime. Kavaca estimated that industry companies are working with very little capacity:

“10% of 2019 volume. Capacity has shrunk very much. The disclaimer is that you are not banned from working, so you don't need support. It is not prohibited, but it is not actually allowed.”

She said that a dialogue with the Ministry of Economics had been taking place since summer 2020, but that there was no progress to correct the legislative gaps. 

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