Helping your customers plan their dream vacations or seamlessly plan a stress-free business trip can be very rewarding. This type of job also involves taking on a lot of responsibility as you need to book expensive airline tickets for clients. An Airline Reporting Commission (ARC) bond is designed to ensure that payments travel agents collect are actually sent to the airline companies after making airline ticket transactions in the ARC platform.
Keep reading for more insight into how ARC bonds work, how to get this type of surety bond, what they can cost, and who needs to secure one.
An ARC bond is a type of surety bond that is required by the Airline Reporting Commission in order to financially protect airline companies from not receiving the payments that were collected by travel agents booking airline travel on behalf of their clients.
There are three main parties involved in the creation and management of an ARC bond.
Principal. This is the travel agency who books the airline tickets and who must obtain the ARC bond.
Obligee. The Airlines Reporting Corporation is the obligee, as they are the party that requires the ARC bond.
Surety. The surety is the company that underwrites and issues the ARC bond to the principal. If the principal fails to forward the proper payment to the airline carrier, then a claim can be made on their ARC bond.
It’s worth noting that an ARC bond is not the same thing as a travel agency bond. A travel agency bond guarantees compliance in all bookings, whether or not the booking involves an airline, whereas an ARC bond is only related to airline bookings. Again—an ARC bond is required by the Airlines Reporting Corporation and this is a nationwide requirement. Whereas a travel agency bond is usually required by the state. In some states, you will need to secure both types of bonds in order to book airline travel for clients. Your state may also require that you obtain a seller of travel bond, which protects both the state and your customers if you perform unethical business practices.
If the principal fails to pay an airline company properly, the airline can file a claim against the ARC bond. The surety will investigate the claim and if they find it to be accurate, they will pay out the claim initially. The travel booking service who holds the bond will need to pay the surety back for the claim amount eventually.
Businesses who offer airline transport support to their customers need to have an ARC bond. These types of businesses can include travel agents and travel agencies. In order to be accredited by the Airlines Reporting Corporation to sell airline tickets to their customers, businesses have to hold an ARC bond.
Most surety bond providers allow you to apply for an ARC bond online after completing an application and providing relevant documents. The good news is that ARC bonds are continuous and you can renew it in advance so it never expires. As long as you have an ARC bond, you can keep your ARC accreditation.
The cost of an ARC bond is a percentage of the bond amount—this cost is known as the bond premium. When you initially apply with the Airlines Reporting Corporation, they will require you to post a $20,000 ARC bond. After two years, that requirement will drop to $10,000. After a few years the bond amount set by the Airlines Reporting Corporation will change again and can range between $10,000 and $100,000 and the required bond amount will depend on your average monthly net cash for the last 12 months.
The bond premium is usually only 1% to 5% of the total ARC bond amount. Your personal credit score (the most important factor), business finances, assets and liquidity, and industry experience are all usually taken into account to determine what percentage you’ll pay. Your business credit score may also be taken into consideration.
Having a high personal credit score is one of the best ways to keep ARC bond costs down. Because of this, it can be helpful to work on improving your personal credit score before applying for an ARC bond and to continue improving it over the years as you can apply for a lower bond premium when you renew your ARC bond. If you have a bad credit score, you may struggle to secure an ARC bond at all and if you do, you can expect to pay a much higher price for it.
Get a free quote for an ARC bond with Worldwide Insurance Specialists, Inc today!