The collapse of some large travel firms in recent years will have undoubtedly unsettled many that are still in business.

Scenes of abandoned travellers and holidaymakers standing aimlessly in airports were a common sight on the news for a while and the reputational damage done to those who had failed them was almost as severe as the financial cost.

In the current turbulent economy, it is worth travel firms understanding how to manage financial risks.

What obligations are there to manage financial risks for travel firms?

Managing financial risks is as much about knowing legislation as it is about balancing the books.

When aiming to stay compliant with your legal obligations, the first port of call will always be to consult the Package Travel and Linked Travel Arrangements Regulations 2018.

Therein are the rules that govern what financial protections you need to have in place for packages and linked arrangements.

Given how commonplace these are, it is likely that most travel firms will engage with the selling of packages at some point.

The nature of refunds and obligations to repatriate is covered by the legalisation and it will generally be necessary to do both in the event of bankruptcy.

Your Air Travel Organiser’s Licence (ATOL) is mandated by the legislation and will be the catalyst for ensuring that travellers and holidaymakers are adequately managed in the event of financial collapse.

However, the warning signs of recent collapses show that an inability to effectively manage debt is the largest reason why financial risk becomes unmanageable.

Changeable trends in how people book, compacted by ongoing global uncertainty and the cost of living crisis, can leave many travel firms in vulnerable positions.

While keeping pace with legal obligations is essential, it may be wise for many firms to seek professional financial advice as well to mitigate the risk of needing to fall back on these measures.

Keeping debt under control is a challenge and will require travel firms to have an ongoing discussion around finance and budgeting to ensure that travellers and holidaymakers are not left holding the bag.

How can travel firms stay compliant when managing financial risk?

Above all else, having clearly documented plans in place can be vital should a situation arise.

When financial difficulty occurs, emotions tend to run high among those who have been affected and they may have limited patience for how you handle the situation.

When this happens, having a clear plan in place can help to diffuse the situation and prove that you were aware of the risks and were managing them to the best of your ability.

Insurance policies can help cover some of the costs associated with meeting obligations, such as repatriation and refunds.

It may also be necessary for travel firms to approach matters sensibly with an eye on what is reasonably sustainable going forward.

This is due to the high-debt that has been behind many other firms’ collapsing, being a long-term issue that is unlikely to truly catch a firm off guard.

Instead of ignoring the warning signs and hoping for the best, it may be better to adjust the approach to new bookings if it seems that the financial state of the firm is unable to support them.

Ultimately, travel firms can manage their financial risk through a combination of professional financial and legal insights.

Our team can support you with the financial side so that you stay compliant when implementing any measures advised by legal experts.

Failure to do this may irrevocably damage a firm’s reputation and pose potential legal issues, so it is vital that this is handled well.

To ensure that you are on top of your financial risk management obligations, speak to our team today.