It seems that not even the global economic downturn, which has seen the collapse of large travel companies, is going to put off Brits from taking a holiday this year. Although many are concerned about how much protection they have on their travel insurance.

Travel companies hit by crunch

The realisation for many travellers is that more companies are experiencing financial crisis especially in this vulnerable period when major economies are threatened with recession. The financial strain has forced some Brits to cut back on their travel expenditure and equally, travel companies are reducing the number of holidays on offer as a result of increased fuel prices and high licence renewal fees with the Civil Aviation Authority.

The existing compensation scheme that covers the holiday sector, the Air Travel Organisers Licensing scheme has lately been faced with criticism in the wake of the collapse of travel firms such as XL which left 85,000 customers stranded in various parts of the globe.

The sad fact is that this was not the first time a large travel company went bust and according to reports, Court Line, which pioneered “cheap and cheerful” package holidays to Spain collapsed in 1974 and early 1990 saw International Leisure Group which enjoyed a 20% market share in the holiday industry also suffer a similar fate.

Airline failure

However, market experts suggest that travellers pay for their holidays using credit cards because of the protection offered in case a supplier goes out of business. Alternatively, travellers are advised to ensure that their travel insurance covers airline failure although many policies do not exclude such protection on their cover. At the same time, although choosing to pay by debit card means no fee, travellers have no protection against airline failure. Holidaymakers who book direct with an airline have repeatedly been warned that they could lose their money should the company go bust.

Lately, British travellers have turned to package holidays because they offer financial protection in the event of a company collapsing. According to TUI which owns Thomson and First Choice, more than 24 million people took a package holiday in the 12 months to June. Additionally, a study by the Government’s International Passenger Survey (IPS) revealed that annual sales of packages grew from 14.5 million in 1996 to 19 million in 2006. The figures have also remained the same for that last two years.

But package holidays are attracting heavy criticism from industry sources who discount the belief that bonded tour operators are the safest option for travellers saying that the current bonding fund may not be enough to cover further significant failures because CAA may find itself overwhelmed and the Government could be forced to intervene.

Although CAA can draw on funds and Government secured loans of up to £250 million, to protect holiday makers, a collapse of a larger tour operator such as Thomas Cook or TUI would result in a £500 million payout if the collapse happened in low season, however, it would cost double the figure if it occurred in the summer.