by Eric Halsey
As a travel agency owner, you most likely already know that you need to get bonded for your travel agency to operate. If you don’t get bonded and insured before you start operating, you could get into serious legal trouble. Plus, you need to renew your bond regularly to keep your agency in compliance.
But how do you know whether you need an ARC bond, a travel agent bond, or both? If you’re not sure, simply read on to find out.
What’s a Travel Agency Bond and Do I Need One?
A travel agency bond is designed to protect the customers of your agency. It works like this: you pay a percentage of the legally required bond amount to a bonding company and then, that company ensures the full amount is available in case a claim is made.
Claims, in this case, refer to when customers’ payments are not sent to the provider of travel services, or some similar legal violation of the terms of a contract. The bond amount is there to make sure the customer suffers no losses. Of course, you should do everything possible to avoid claims in the first place!
Note: You can think of a travel agency bond as legally mandated insurance for your customers.
Your next question is probably, “Do I need to get a travel agency bond?” This may be followed by, “How large does the bond need to be?” Both answers are going to depend on the state in which you’re legally based. There’s no federal requirement here, so we recommend you check the government requirements section of our travel agency bond guide to see if you need to get this type of bond.
How Are ARC Bonds Different?
Airline Reporting Corporation (ARC) bonds work the same way travel agency bonds do. They protect your customers in case their payments are not forwarded. The key differences lie in who is requiring them and what they cover.
ARC bonds are, unsurprisingly, required by the Airline Reporting Corporation to become an ARC accredited agency and use their electronic settlement services capability. They are a financial guarantee bond ensuring payment to airline carriers for airline travel services.
The required bond amount in the first year is $20,000. After two years, this amount is based on the volume of business produced and can range from $20,000 to $70,000 (don’t worry — again, you only pay a small percentage of the bond amount) depending on the size of your agency. That means when you’re starting out, you can expect a relatively low bonding cost to correspond with your smaller agency size.
Another important distinction is that having an ARC bond allows you to work with the ARC’s e-ticket system.
Do You Need Both?
It depends — you almost certainly need a travel agent bond, and there’s a decent likelihood you will also need an ARC bond based on the popularity of ARC’s services. What it all comes down to for both is being familiar with all of your legal and bonding requirements, keeping track of state law amendments, choosing the right bonding agency, and following all the rules. Take care of all that, and you’ll be in a great position to succeed as a travel agent.
Have you had any troubles or confusion getting bonded as a travel agent? We’d love to hear about your insights and experiences in the comments.
Eric Halsey is a historian by training and disposition who’s been interested in US small businesses since working at the House Committee on Small Business in 2006. Coming from a family with a history of working on industry policy, he has a particular interest in the Surety Bonding industry and loves sharing his knowledge for JW Surety Bonds.