State attorney general’s office says Auto Club did not break any laws by keeping Pleasant Holidays purchase secret.
Los Angeles Times
The Auto Club of Southern California does not appear to have broken the law by keeping secret its ownership of the nation’s leading Hawaiian tour packager, the state attorney general’s office said Tuesday.
“We’ve looked at everything that we could think of, and we can’t find any violation,” said Herschel Elkins, the assistant attorney general in charge of consumer law. Case law on disclosure issues is murky, he said, and although the Auto Club‘s actions may have been questionable, they seem to have been legal.
The club’s two-year silence about its purchase of Pleasant Holidays, revealed in news reports in June, prompted the attorney general’s office to open an inquiry into whether the club violated federal or state business-practices laws by keeping the deal under wraps while steering more than half of its Hawaii-bound members to the tour operator.
“There was a lot of talk of the Auto Club breaking laws, and it’s just important to us that our members know we didn’t,” Auto Club spokeswoman Carol Thorp said. The club has 5 million members.
The Auto Club withheld news of the acquisition because Pleasant Holidays owner Ed Hogan had requested it, Thorp said.
Hogan, who at age 73 continues to run day-to-day operations at Westlake Village-based Pleasant Holidays, which he founded 42 years ago, said he feared the news might upset his customers and employees.
“The only reason that it was kept private was that we didn’t want to upset some of the people that we’ve done business with for years and years,” he said.
The local Auto Club, one of 82 AAA clubs nationwide, bought Pleasant Holidays because the club feared losing the tour company’s services to a competitor, Thorp said.
But where the Auto Club sees synergy, others see duplicity.
Pleasant Holidays has been the club’s only “preferred provider” to Hawaii since January. The arrangement, which gives the Auto Club extra commissions for booking customers with the tour operator, raises the question of whether the club is looking out for its members or the tour company it owns, according to consumer advocates.
The Auto Club “is profiting off its good name,” said Doug Heller, a spokesman for Foundation for Taxpayer and Consumer Rights in Santa Monica.
The Auto Club‘s actions, he said, are tantamount to self-dealing. The attorney general’s office should lobby for stricter laws on such matters if rules are unclear, he said.
Pleasant Holidays is the leading tour packager for Hawaiian vacations. Last year, its Pleasant Hawaiian subsidiary sent about 450,000 travelers to Hawaii, helping the company take in about $450 million in revenue. The company also serves other destinations.
When Hogan quietly put word out several years ago that he wanted to sell, the Automobile Club of Southern California created a joint venture with affiliate Interinsurance Exchange to buy Pleasant Holidays in January 1999, with each owning nearly half.
The partnership borrowed $75 million from a bank and $25 million from Hogan, according to club financial reports and club officials. Last year, the club bought out its affiliate’s stake for $13.3 million and took over payments for the entire loan.
Other large travel agencies, including American Express and Carlson Wagonlit, also refer customers to subsidiaries without disclosing their ownership, Assistant Atty. Gen. Elkins said. “It seems that this is pretty standard in the industry,” he said.
However, Elkins acknowledged that unlike those companies, which must issue financial statements to its stakeholders, the Auto Club is a nonprofit mutual organization that its members pay to join.
“Maybe there should be some requirement for disclosure, but we can’t find one at the moment,” he said.
