Kazakh Tour Operator Bankruptcies Force Tighter Industry Regulations

ASTANA – The bankruptcies of Kazakhstan’s major tour operators, such as Travelsystem, GulnarTur and other smaller companies, terminated the existence of many small travel agencies across all regions of the country and created vacation problems for thousands of tourists. As a result, government bodies will begin toughening requirements for businesses involved in tourism activities.

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The law of Kazakhstan determines legal, economic, social and organisational bases of tourist activity as one of the nation’s economic branches. The law was amended and annexed in 2014, but a revision is currently being developed and the tourism industry department of the Ministry of Investment and Development promises amendments will be adopted at the end of the year.

According to the National Chamber of Entrepreneurs, amendments to the law on the introduction of advising procedure for travel agents will increase transparency in their activities, as well as create an authorised body with a unified state register of travel agents, tour guides and tourism instructors and availability of information about travel agents. Implementing tour packages by tour operators of outbound tourism solely via travel agents allows a reduction of risk for tourists and tour operators and eliminates unfair competition between tour operators and travel agents.

The Kazakhstan Tourist Association (KTA), a non-profit, non-governmental organisation, engages in agreement issues with tour operators and travel agents on changes and amendments to the law on tourist activity.

Astana Tourism Association President Rysty Karabayeva answered some of the most topical questions regarding these new regulations in an interview with The Astana Times.

How will introducing new regulations in tourism industry affect Kazakhstan’s entrepreneurs in tourism businesses?

We are talking about the changes to the law “On tourist activities” for outbound tourism beginning December 29, 2014 that separated the functions of the tour operator and the travel agent where a tour operator cannot work directly with tourists, but only through an agent.

The changes introduced partially put the market in order. For example, when GulnarTur “burst” last year, tourists who bought tour vouchers directly from the tour operator were left with nothing and nobody was there to ask. Kazakhstan’s committee for emergency situations of the Ministry of Internal Affairs sent planes for the tourists who stayed in Turkey and had to bring them out at public expense.

Such measures were not necessary, because in a similar situation this year with Travelsystem, the company was selling its tours through travel agencies. Tours were re-bought for tourists or travel agencies and they reimbursed them. All losses fell on the shoulders of the travel agencies to whom insurance companies partially offset losses (the amount of money is very small) and the agencies went bankrupt as a result.

Will new regulations be able to resolve the recent problems of dereliction of duty by tour operators? Will the new rules be efficient?

In order for situations with “bursting” tour operators not to be repeated, new amendments to the law are being planned for administration where concepts like financial guarantee and compensation fund are introduced. These measures must be administered because a tour operator working on outbound tourism in mass direction has a great financial risk (early booking, large turnover) not guaranteed to a sufficient amount with money or an insurance policy. The existing law provides only up to 9 million tenge (US$47,877) in insurance coverage, which is not enough to pay for even one charter flight.

The financial guarantee exposure, where some offer $260,000-300,000 and others ask for a decrease to $100,000, is currently being actively discussed among participants in the tourism business. Newly-adopted changes are planned to be introduced starting in the New Year to bring order and efficient operation to the outbound tourism market.

A Reserve Fund to Guarantee Tourist Satisfaction

The director of the tourism industry department of the Ministry of Investment and Development Timur Duysengaliyev told news.invest.kz about establishing a reserve fund and how it will be financed.

“Recent events have shown that no financial instruments that could secure Kazakhstan’s tourists abroad were involved. We have studied the experience of Russia, the United Kingdom, Denmark and other Nordic countries to establish such a fund,” he said.

A new law on tourism that is expected to be adopted by the end of the year is currently being developed and he spoke about the expected introduction of a three-level system of financial guarantees of tourists’ recreation.

“First of all, the company announcing a charter programme must provide financial guarantee and its amount must be determined depending to what ‘depth’ a company sells its services. Secondly, tour operators will pay a small fee for each package sold which will be included in the price and simultaneously allocated to a reserve fund,” said Duysengaliyev. “Thirdly, the estimated amount of civil law liability for tour operators and travel agents is planned to increase and this system will allow all participants of the market to bear a responsibility on their own level.”

Following the bankruptcy of the travel agencies, insurance companies are now attempting to refuse a license for tourism business insurance, which does not help the development of the business, Duysengaliyev continued. Thus, insurance companies are refusing to make an agreement, without which it is impossible to obtain a license to engage in tourism activities for newly-opening tour operators and travel agents.