Scheduled airline failure insurance (SAFI) is a type of travel insurance that protects travel businesses from the financial consequences of an airline they sell ceasing operations. Sometimes referred to as end supplier failure, the insurance covers the cost of the booking or repatriating customers stranded abroad.
The need for SAFI has been brought into sharp focus in recent years with the high-profile collapse of major airlines, including Flybe, Monarch and Thomas Cook. The pandemic undoubtedly exacerbated this industry-wide vulnerability. In the three years following the initial COVID-19 outbreak, at least 64 airlines went out of business, while many of the remaining airlines struggled financially.
In this article, we explore what SAFI covers, how it works, how to purchase it and its key benefits.
SAFI covers the financial loss resulting from an airline going out of business, which includes:
SAFI applies in specific circumstances, typically when a scheduled airline becomes insolvent, enters administration or ceases trading. It’s essential to note that most SAFI policies do not cover costs associated with an airline that has already entered administration at the time of booking.
Any business that acts as an intermediary in the sale of flights would benefit from SAFI. When an airline collapses, the financial liability for customer refunds and repatriation falls to the travel company that sold the ticket. As a result, SAFI is recommended for the following travel companies:
SAFI is an essential part of your risk management toolkit as it closes the financial gap between your legal obligations under the Package Travel Regulations (PTRs) and a potential airline failure.
To understand how SAFI works, we’ll provide a high-level overview of the claims process. Please note, however, that the process may differ slightly between SAFI providers:
Please note that the reimbursement timeline varies depending on the complexity of your claim and the insurer. However, a well-documented claim is generally processed within a few months.
You might be wondering: What's the difference between SAFI and other forms of financial protection? To better understand SAFI’s relevance, let’s compare it with the following financial protection methods:
The Air Travel Organisers' Licensing (ATOL) scheme protects customers who have booked a package holiday that includes flights. If a travel company fails, ATOL ensures customers are refunded, complete their holiday with alternative arrangements or return home.
SAFI, on the other hand, protects the travel business when the airline fails, not the customer.
Some travel insurance for consumers may contain scheduled airline failure as a covered event, but it’s not present in every policy.
SAFI protects the travel provider, not the customer.
Financial failure insurance (FFI) is a type of specialised insurance policy that protects against financial loss when a travel company they’ve purchased from becomes insolvent or ceases trading.
SAFI is airline-specific, whereas FFI covers the insolvency of other suppliers in the travel ecosystem, including hotels, accommodation providers and car rental companies.
The dramatic collapse of Monarch Airlines in October 2017 serves as a real-world example of the financial consequences of overlooking SAFI.
When the airline failed, it triggered a crisis that rippled through the entire travel value chain. The main issue was that the financial liability for approximately 300,000 future bookings did not disappear with the airline – it cascaded directly onto the thousands of travel businesses that had sold Monarch flights. Because their legal contract was with the customer, it fell on them to fund immediate refunds or source alternative travel for those abroad.
This created a sudden and severe liquidity crisis for any business without sufficient financial protection. For those businesses caught uninsured, the event threatened their solvency. The Monarch case proves that, for any business selling flights, SAFI is a non-negotiable aspect of a robust risk management strategy.
You can purchase SAFI through specialised insurance providers, such as TMU Management. Whichever SAFI provider you choose, the application process involves a detailed assessment of your business, providing the insurer with the transparency it needs to determine whether it can offer SAFI to your business.
When applying for a policy, you’ll need to provide a wide range of information about your business. This typically includes details about your business model, travel lead time, company accounts, average transaction volume, booking volume, the airlines you use, booking patterns, seasonality information, risk exposure data and more.
Various factors will affect how much you pay for a SAFI policy, including:
An airline failure insurance policy is a central component of a robust risk management strategy for your travel business. There are several key advantages to purchasing a robust SAFI policy:
The main benefit of SAFI for travel businesses is that it prevents the financial turmoil that would engulf your business should an airline you rely on fail. It achieves this by transferring the financial risk to an insurer, who will ensure your customers are refunded or repatriated in the event of a scheduled airline failure.
Without scheduled airline failure cover in place, your business would be legally obligated to absorb the full cost of refunds and repatriation, creating a sudden and potentially fatal liquidity crisis for your travel business. Depending on the size of your business and the ticket values, the cost of airline failure could easily exceed hundreds of thousands of pounds. SAFI removes this existential threat, protecting your business’s capital.
Consumer confidence in airlines has been low, particularly since the pandemic. For example, 39% of consumers who flew in 2022 lack confidence that airlines would treat them fairly if things go wrong in the future.
Offering SAFI-backed protection gives your customers peace of mind that their bookings are secure and that you will be able to deliver the service they’ve paid for, even if the airline they were scheduled to fly with goes under. This positions your business as a trusted travel provider at a time when consumer trust is generally low.
Now that you’re thinking about purchasing a SAFI policy, there are several key factors to consider:
It’s important to make sure the policy covers the airlines you use, from large carriers to local airlines. A policy that leaves out just one of your suppliers opens you up to significant financial risk.
Be clear on the maximum amount that can be claimed from the policy. We recommend asking yourself the question: "If our most-used airline failed during our peak season, would this limit cover our total financial exposure?" Additionally, read the fine print to find out the policy exclusions.
The real value of your insurance policy lies with the insurer itself. Their financial stability is what matters when an airline fails and the time comes to pay out. Taking the time to find a reliable SAFI provider is essential, and an A-rated insurer will ensure that your policy is honoured should the worst happen.
SAFI is a crucial component of a comprehensive risk management strategy for travel businesses that sell flights. In an uncertain environment, SAFI provides you with the peace of mind that if the airlines you work with go under, you’ll be able to provide the services you promised your customers without losing money.
All of us at TMU Management are travel industry specialists – we’ve been serving travel companies for over 15 years. Our SAFI policies are designed to support travel businesses like yours, ensuring you are protected from the financial risks associated with airline failure.
Arrange a live demo today to discover how TMU Management’s SAFI policy protects your business in the event of airline failure.
