Travel bonds explained in five minutes
As a leading independent surety bond broker, in addition to our Construction offering, PSS are also able to procure surety bonds for the travel industry.
The travel industry is a dynamic and ever-changing landscape, but it is not without its challenges. One of the key concerns in the travel sector is the financial stability of travel operators. In the event that a travel operator enters administration, the consequences can be far reaching, not only for the travellers but also for organisations such as the Association of British Travel Agents (ABTA), the Air Travel Organisers Licence (ATOL), the Association of Bonded Travel Organisers Trust (ABTOT), the International Air Transport Association (IATA) and other similar schemes worldwide. In this blog we shall explore the crucial role that surety bonds play in protecting travel schemes such as those listed above when travel operators face financial difficulties.
What is a Surety Bond?
A surety bond is a tripartite agreement that guarantees the performance of a travel operator to a travel scheme by using the financial strength of a surety provider. In the event that the travel operator experiences financial difficulties or becomes insolvent, the surety provider will pay damages to the travel scheme who then use the funds to compensate travellers. These bonds act as a safety net to ensure that travellers are protected by the financial strength of a rated surety in the event of travel operator insolvency.
Why are Surety Bonds needed in Travel?
ABTA is a prominent example of an organisation that safeguards travellers’ interests by providing support and protection, however travel schemes such as ABTA aren’t structured to shoulder the financial burden and risk of the protection that they provide to consumers. ABTA will therefore require for travel operators to provide them with a form of security such as cash collateral, a bank guarantee or a surety bond in order to secure membership to their scheme.
Not only do bonds reduce the need for travel operators to provide tangible security such as cash, but they also allow ABTA and similar travel schemes to remain solvent during turbulent times for the benefit of the consumer.
Travel operators are then able to utilise working capital to grow instead of placing it on deposit.
The impact of travel operator insolvency.
Travel operator insolvency can be a catastrophic event for travellers, often ruining their holiday plans and finances. It is important that travel operators can prove that they are registered to a scheme such as ABTA to provide peace of mind to their customers but also to prevent any potential insolvency from harming consumers of their travel products.
The recent failure of Thomas Cook highlighted the potential impact of insolvency in the travel sector with thousands of travellers left without a holiday or stranded abroad with no way home. If travel schemes and surety bonds had not existed and the surety market had not stepped in and honoured the guarantees that they had provided, the situations would have been much worse.
Many countries have regulatory requirements relating to travel schemes in order to protect travellers. These are based on the location of the travel provider rather than the end holiday destination. PSS are focused on the UK market.
How much does a Surety Bond for travel cost?
The premium rate charged by a surety for a surety bond will depend on the financial strength of the travel provider. The premium rate payable can vary between 0.4% of the bond value for global brands to 10% of the bond value for boutique providers and some surety providers will ask for additional security from the travel operator if they deem that the risk demands it.
Who pays for a Surety Bond in the travel industry?
Surety bonds in travel are paid for by the travel operator. The travel operator is also responsible for obtaining the surety bond in favour of the travel scheme so it is worthwhile using a surety broker in order to simplify the process and avoid any potential pitfalls or bad actors.
Can PS Surety help?
PS Surety is a dedicated surety bond brokerage and we would be delighted to assist any travel provider with placing surety bonds. We are fully regulated by the FCA and we guarantee that we provide our clients with:
The best possible terms available in the market
An honest, open and joint approach to our client's Surety needs
Detailed client dashboard providing information on every bond ever placed by the client with PSS
Communication when bonds become overdue in order to help our clients to avoid or reduce additional premium charges
A single touch point within our organisation for wording reviews, quotes and queries
That Sounds expensive!
Our service is completely free to travel providers. We are paid a commission by the surety providers on each bond that we place with them on behalf of our clients, the details of which are fully disclosed in our client dashboard. The surety providers are happy to pay our commission because we specialise in bringing them business which fits their ever changing underwriting criteria. We also deal with frequent queries, wording issues, bond drafting and general administration. The price that you pay PS Surety for a bond is the same price that you would pay any Surety if going direct.
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PSS specialise in long-term relationships that are built on trust and we prefer to chat to our clients directly so please call Henry Robbins on 07944883053 or Henry Baird on 07901043444 or email email@example.com or