Are you covered against collapsing airlines?

12 September 2008
The collapse of XL Leisure, the UK’s third largest packaged holiday provider, highlights a potential hazard facing thousands of holidaymakers.

Because, while travel insurance may cover you for medical treatment overseas or lost or stolen luggage, it is highly unlikely to cover you in the event of an airline going bust.

According to International Passenger Protection, around 20 airlines failed in the first half of 2008, with budget airline Zoom and XL Leisure the latest to fall into administration as a result of direct fuel costs and the general credit crunch.

Experts warn that more airlines are likely to go bust in the months ahead, with tens of thousands of consumers unprotected if they do.

Andy Leadbetter, managing director of insurance and home services at, says holidaymakers should check the small print to see if they are covered for failing airlines.

“Without adequate insurance getting compensation for disrupted travel plans could be incredibly difficult,” he adds. “At a time when consumers are watching every penny, and holidays away are becoming more difficult to afford, it's important to ensure you don't lose out."

However, as Chris Price, head of travel insurance at Direct Line, points out, the vast majority of insurance policies - including its own - do not cover airline failures.

If you are concerned about the financial stability of the airline you have booked your flight with, then there are a few insurance options available to you.

Paul McClean, a director at International Passenger Protection, says that one policy that does cover airlines going bust is ABTASure Travel Insurance Policy. This is the only travel insurance scheme fully endorsed by the Association of British Travel Agents (ABTA) and, as such, is only available through its members.

You can find a ABTA travel agent member via its website.

Karma Insurance also offers holidaymakers cover should their airline, accommodation supplier or other transport provider go into administration.

Managing director Brian Wright says: “The insurance industry is nervous about including this type of financial reimbursement within its travel policies because of the current economic climate and the recent increase of airlines going into administration.

“However, Karma believes travellers should not be out of pocket when a firm fails.”

Another alternative is booking your flight or package holiday through a Air Travel Organisers’ Licensing (ATOL) tour operator. The ATOL schemes means you’ll be covered should your airline or holiday company go bust.

If you buy an airline ticket direct rather than through an ATOL tour operator, then there is another way to ensure your money is protected.

Simeon Linstead, head of personal finance at, says paying by credit card could be the answer.

“Credit card purchases are protected by section 75 of the Consumer Credit Act,” he explains. “This protection means the card company is jointly liable for the purchase and you have a legal right to a refund.”

Paying by Visa debit may also protect you. “Some consumers may not be aware that should you be the owner of a Visa debit card you have similar rights to those with a credit card, in what is known as a chargeback scheme,” says Linstead.

“Unlike the credit card protection there is no minimum or maximum limit on the purchase, however you must apply for compensation within 120 days of the date the goods were due to arrive.”

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