Houseboat Cancellation Nine Days Before Departure
Sunrise Trails, a two-person travel agency in Pune, sold a four-day Kerala package to 18 college students at ₹14,500 per person, a total of ₹2,61,000. Nine days before departure, the houseboat operator cancels in writing because its licence renewal is pending, and no equivalent houseboat is available on those dates. The agency's cost sheet per person is: return air ticket ₹4,200 (non-refundable), hotel ₹3,800 (50% refundable if cancelled at least seven days before check-in), houseboat ₹2,500 (80% refundable), local transport ₹2,000 (non-refundable), and agency margin ₹2,000. A replacement plan using a beach resort instead of the houseboat would cost the agency a net ₹2,900 per person extra after applying the houseboat refund, and it would reduce the backwater experience to a two-hour day cruise. The college has paid in full. The owner must decide within 24 hours whether to cancel, substitute, or absorb part of the loss. The principal, who is travelling with the group, has asked for a written options note.
1. Calculate the per-person refund if the agency cancels the entire tour now, and compare it with the net cost of the substitute plan. What is the agency's financial exposure under each option?
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Start with supplier terms, not with the package price.
- Air: ₹4,200 non-refundable, so ₹0 back.
- Hotel: ₹3,800 at 50%, so ₹1,900 back.
- Houseboat: ₹2,500 at 80%, so ₹2,000 back.
- Transport: ₹2,000 non-refundable, so ₹0 back.
Supplier recovery is ₹1,900 + ₹2,000 = ₹3,900 per person. The unrecoverable supplier cost is ₹4,200 + ₹1,900 + ₹500 + ₹2,000 = ₹8,600 per person. If the agency refunds only ₹3,900, it keeps its ₹2,000 margin, but the client loses ₹10,600. If the agency adds its margin and refunds ₹5,900, it breaks even in cash but gives up its profit; the client still loses ₹8,600.
The substitute plan adds a net ₹2,900 per person. Revenue remains ₹14,500 if the college pays nothing extra, while cost rises to ₹15,400, so the agency loses ₹900 per person, or ₹16,200 for the group. If each student pays ₹900 extra, revenue becomes ₹15,400 and the agency makes zero profit instead of ₹2,000; it gives up its margin but avoids a cash loss. Absorbing the full ₹2,900 is the most expensive option and should be treated as a deliberate goodwill decision, not a routine one.
2. Recommend one option to the owner, justifying it with both financial and relationship considerations. State two conditions that must be met before committing.
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Recommend the substitute plan with a ₹900 per student contribution. It is the only option that preserves the trip, and it keeps the agency at cash break-even while giving up its ₹2,000 per-person margin. Cancellation with a ₹5,900 refund also protects cash, but the college loses ₹8,600 per student and the agency gains a reputation for cancelling rather than solving. Absorbing the full ₹2,900 would cost ₹16,200 and reward the agency's supplier problem with a loss, which is difficult to justify for a two-person business.
Two conditions should be met before rebooking. First, obtain written confirmation from the beach resort and airline on dates, names, and any change fee, because an oral promise is not a booking. Second, get the principal's written acceptance of the ₹900 supplement and the changed itinerary, with a clear payment deadline, before the agency commits money. Also confirm the refund credit timeline from the houseboat operator. If the college refuses the supplement, fall back to cancellation with the ₹5,900 refund and a written explanation of the supplier terms.
3. Draft the key points the agency should include in the written options note to the college principal, including how the refund and any extra cost will be explained.
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The note should open with the facts: the houseboat operator cancelled in writing on a stated date, no equivalent vessel is available, and the agency is not waiting for the college to discover the problem. Then give the two options with figures.
- Cancellation: supplier refund of ₹3,900 per person plus the agency's ₹2,000 margin, i.e. ₹5,900 per person, total ₹1,06,200 for 18 students. Explain that air and transport are non-refundable and hotel and houseboat refunds follow supplier terms.
- Substitution: beach resort and two-hour day cruise, with a net extra cost of ₹2,900 per person, of which the agency will absorb ₹2,000 and the college will pay ₹900 per student, total ₹16,200.
The note should state the recommendation, the 24-hour decision deadline, the refund route and expected credit time, and a named contact. Explain the figures in a simple table: amount paid, recoverable amount, non-recoverable amount. This is important because the principal must justify the decision to parents; hiding the ₹8,600 loss in cancellation would destroy trust more than the cancellation itself.