21 Nov
2022

Businesses hoping to renew their bonds by March should start the process now

This column was first published in Travel Weekly on 21 November 2022.

Winter is fast approaching and so are the next round of bond renewals at ABTA, which start in December, complete in March, and coincide with the Civil Aviation Authority’s (CAA) Air Travel Organisers’ Licence (ATOL) March renewals. 

The past two years have proven very challenging for businesses who want or need financial protection. Whereas pre-COVID, businesses were able to obtain financial protection, such as a bond or Financial Failure Insurance (FFI) relatively easily, and renewals were completed largely without issues, we’re now in a much different place. Whilst ABTA has over 70 approved bond providers and six FFI providers, only eight obligors and three FFI providers are providing protection on any real scale. That is a direct result of the impact of COVID on the travel industry. 

With countries locked down and travel essentially at a standstill, travel businesses were – overnight – holding much higher amounts of customer money for much longer due to postponements, re-bookings and Refund Credit Notes (RCNs). RCNs proved invaluable for many businesses during the first 18 months of the pandemic and it is arguable that, had that initiative not been introduced, many would have gone out of business. Instead, the vast majority continued operating with consumers benefiting from knowing their hard-earned cash continued to be protected. 

But this all presented a higher risk of customer claims in the event of a travel business’ insolvency and so the risk appetite of financial services providers towards travel businesses radically changed. Some halted writing new business or declined to provide bonds over a certain level. Many required additional security in the form of cash, escrow accounts, or guarantees. Some withdrew their travel sector offerings altogether. And all of them tightened their risk management methodologies. This made securing financial protection arrangements all the more challenging. 

ABTA is approved to hold bonds from travel businesses by the Department for Business, Enterprise & Industrial Strategy (BEIS). ABTA therefore also needed to manage the increased risks to the scheme of financial protection for Members and, critically, maintain consumer confidence. Due to the far higher levels of customer monies at risk, ABTA revised its bond methodology in efforts to ensure that bond levels remain appropriate to protect the end customer. Businesses are continuing to operate with higher customer monies at risk and future sales are adding to those; whilst this continues to be the case, higher bonds are likely to be required for businesses to continue complying with the Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs). 

The issues around financial security are complex, not least because financial services providers and regulators work in silo, as there is no centralised scheme of protection. That’s why, this summer, ABTA brought together a group of merchant acquirers, banks, insurance providers, brokers and travel businesses, to discuss financial protection challenges, risk management approaches, appetite for writing new business, and the options posed under the CAA’s ATOL Reform consultation. This provided a confidential forum for an open and honest discussion on the many challenges faced by the travel industry in relation to financial protection, and also by those who are keen to continue providing financial services to travel businesses. 

It is very promising that, in the past few months, ABTA has approved a new bond provider, a new FFI provider and has received enquiries from other providers interested in obtaining ABTA’s approval to provide financial protection for Members. That is not something we have seen for at least two years. It is a very positive sign. 

Whilst things will become easier for travel businesses as they continue to recover, they should expect to encounter similar challenges over the next 12 months. It is important that businesses prepare ahead of time. We are seeking to simplify things for Members, and our recent decision to discontinue requiring quarterly returns from Members who don’t provide financial protection through ABTA was part of that. We’ve received very positive feedback from Members on this, particularly some smaller businesses with less resources for whom this is saving invaluable time and costs. 

My advice to any business seeking to renew their bond by March is to start now. Understand your regulatory obligations and your financial projections for the upcoming bonding period. Prepare for detailed discussions with banks, bond and FFI providers, and merchant acquirers – be able to articulate your business model and how you manage your risk. Understand your options; ABTA accepts bonds, FFI and some trust accounts. Speak to your advisers and contact the ABTA team if you have questions. 

Positive and proactive engagement with bank and insurance providers, merchant acquirers and regulators is key. And finally, don’t be afraid to shop around. The market is opening up, and the fact that one provider may previously have said “no” does not mean you’ll get the same answer this time around.  


Rachel Jordan, Director of Membership and Financial Protection, ABTA