Layby holidays take off

LayAway Holidays are under scrutiny after a complaint about their advertising. Photo / Glenn Jeffrey

Kiwis are apparently flocking to sign up for online layby holidays with a new travel company, even though their dream trip could cost them thousands of dollars more than if they paid up front.

Auckland-based LayAway Holidays, launched with great fanfare last month, offers customers a website full of holiday packages ranging from resort stays and cruises to tours of Europe.

Customers can make regular layby payments for up to 18 months to pay off their holiday before taking it. But calculations showed Layaway's holiday offers cost up to 80 per cent more than similar packages quoted by other travel agents.

The newcomer on the travel turf has attracted flak from sceptics in the industry who doubt Layaway's business model can work, and the Commerce Commission is investigating a complaint over its advertising.

Brushing aside the industry scepticism and the investigation, LayAway founder Aaron Panapa said the company's website was attracting 1000 hits a day and that his company would change the face of the travel industry. Panapa dismissed the complaint, saying incorrect wording on the website had been amended.

A commission spokeswoman confirmed an investigation into an alleged breach of the Fair Trading Act was underway, following a complaint last month involving claims Layaway Holidays had made on their website and in advertising.

The Herald on Sunday understands part of the complaint centred round assurances that customers' payments were "safe" because the money was kept in a "TAANZ-bonded" trust account. (TAANZ is the Travel Agents' Association of New Zealand). The site also claimed that LayAway was in partnership with TAANZ. TAANZ chief executive Paul Yeo said there was no such thing as a TAANZ-bonded account.

"We don't operate these accounts. It's their bank account, not our bank account."

TAANZ insisted that its members set up trust accounts for clients' funds, he said. "That's not protection in itself, because the company who sets up the trust account can use it."

The wording on the website has since been amended, but in an interview with the Herald on Sunday Panapa again said funds were held in a "TAANZ-bonded trust account".

He later agreed that was not correct, but said the funds were kept in a trust account and that LayAway was a "fully-bonded member of TAANZ". His company had agreed to a TAANZ audit of the accounts every two months.

"Obviously we are a new model in the industry and we want to be as careful about it as they do." Only staff responsible for paying for travel bookings would have access to the trust accounts, he said.

Some in the travel industry question whether people realise how much more they are paying for a holiday using a LayAway layby scheme compared with taking advantage of cheap deals and paying upfront.

One travel industry source described LayAway as "Chrisco (Hampers) 10 times over".

Panapa acknowledged LayAway Holidays could not offer the cheapest option because it was not able to take advantage of "short-life specials" that usually needed to be paid for within a week of booking.

Instead, LayAway use higher-priced airfares which can be booked with a deposit and paid for in full closer to departure date.

Panapa said surveys done by the company showed many people paid for their holidays on a credit card and took two years to pay it off, attracting high interest rates.

"We have made it that we are not as expensive as a credit card."

While LayAway Holiday was entitled to earn interest on clients' money that accumulated, he said, the company faced additional costs for the multiple payment transactions used in the scheme. In addition, LayAway had to cover any shortfall in price fluctuations because it offered a fixed-price guarantee up to 18 months ahead.

Panapa said he was "flabbergasted" by the response to the website, which had received more than 30,000 hits since the company launched in early November.

The company had hired seven new staff in the past fortnight and was planning to hire up to five more this week. " You don't get the kind of interest we get if it's not something the public is looking for."

Cost comparison

Online travel magazine Travel Today worked out last month that a five-night Fiji package at the Radisson Hotel would cost a couple $5070, paid off over 18 months.

That compared with travel agent quotes of between $2772 to $3200 for the equivalent package, making LayAway Holidays up to 80 per cent more expensive.

Last week LayAway lowered the price to $4303 - about 55 per cent higher than other packages - and founder Aaron Panapa said prices would drop again in the New Year. Those savings would be passed on to clients who had already signed on at a higher price.

"My goal is to get down to a gold-coin-a-day price range so that makes it affordable for anyone," he said.