Take cover to avoid getting burnt if company collapses

A SHIVER will have run down the spine of holidaymakers planning a trip abroad this summer at the news that travel firm ScotTravel Holidays and its cruise specialist subsidiary had collapsed as the majority shareholder of Thomas Cook was forced into liquidation.

Following last summer's rash of travel company collapses, including XL and Zoom, combined with a winter of high street bankruptcies, consumers can be forgiven for being afraid to trust any retailers.

Another collapse last week, by investment firm Key Data Investment Services amid revelations that Isa wrappers may not have been set up properly so savings may be liable to tax, delivered another blow.

So, if you are buying a holiday, shopping on the high street, or looking for somewhere safe for your money, how can you pick a company which won't let you down?

Thomas Cook is anxious to allay any fears after German retailer Arcandor filed for bankruptcy after its government refused to guarantee loans. Although Arcandor owns 53 per cent of Thomas Cook shares, the holiday firm is 100 per cent listed on the London Stock Exchange, and the expectation is that the shares will now be sold and acquired by other interests.

Thomas Cook chief executive Manny Fontenla-Novoa said: "Arcandor's insolvency has no impact on Thomas Cook's financial position or its operational performance, nor on its management and staff. We remain as a completely independent and separate business, ring-fenced from Arcandor. There is no impact whatsoever on our aircraft or our hotel relationships, nor on the holidays that we provide to our customers."

Nevertheless, the holiday industry faces some difficult months ahead – and not just this year.

Rochelle Turner, head of research at Which? Holiday, said: "The biggest threat to holiday firms is rising unemployment. This year is going to be difficult, with bookings already down by 15 to 20 per cent, but many of this year's bookings will have been made months ago. Even if people are made redundant, they will often go ahead with the holiday anyway. Next year will be a different matter and the industry is bracing itself for an even more severe downturn when the full force of high unemployment hits."

There are two essential safety nets to protect you when buying your holiday, the Atol (Air Travel Organisers' Licence) protection scheme for flights and air holidays, managed by the Civil Aviation Authority, and the Association of British Travel Agents' (Abta) arrangements which safeguard other aspects of clients' holidays.

Unfortunately, by no means all travel arrangements are protected by these, and knowing whether you will be bailed out in the event of something going wrong is not easy. The soundest advice is to ask the question directly of whether you are insured against firms collapsing, whenever you pay for a trip.

The most comprehensive protections apply to package holidays, under the European Package Travel Regulations of 1992. In the UK, every package holiday bought with a flight has to be covered by the Atol scheme, which refunds all your costs if your holiday company goes bust before you travel. If you are away, it allows you to continue your holiday as planned and be provided with a flight home at no extra cost. It also refunds any other expenses you may have pre-booked, such as car hire.

Abta members can voluntarily sign up for the trade association's bond, which offers added protection and safeguards holidays with no flight element. It is voluntary and not all travel agents may be signed up.

In ScotTravel's circumstances, most holidays were packages including a flight, so a CAA spokesman was confident virtually every traveller would be safeguarded, including the 1,300 currently abroad, who would be allowed to finish their holidays and brought home.

The position of those booked with cruises via its subsidiary, guletcruiseonline.co.uk, is more complex. If they were due to fly to their embarkation then the package is Atol protected. If there is no flight and they booked via a travel agent then hopefully they will be Abta protected. Otherwise, they may have to rely on their credit and debit card protections.

If your holiday company goes bust shortly before you were due to travel, you should contact a travel agent anyway.

A CAA spokesman said: "If you have your holiday booked and the firm goes bust, knowing you will get a refund at some stage in the future doesn't solve your problems. However, travel agents can book you alternative arrangements and get the refund paid directly to them to cover the cost."

The package holiday regulations, however, go further than insisting on financial safeguards. You can also claim compensation if your holiday turns out not to be as described in the brochure, or if the hotel is unfinished, or next to a building site and so forth.

Independent travellers face greater hurdles. While tour operators who sell flight-only arrangements have to provide financial protection through Atol, seats bought direct from an airline do not need to be protected. Flight-only seats brought from travel agents also do not need financial protection, but they may have sold you a flight from a consolidator which would be protected.

It is possible to buy a travel insurance policy which protects against your arrangements collapsing. Following last summer, more travel insurers will offer this protection as an integral part of the holiday cover, or may be prepared to bolt it on for an additional premium. The Post Office and M&S sell independent traveller annual policies which, with Axa Direct contracts, will pay up if an airline goes bust. Swiftcover allows travellers to bolt on the protection for a small additional premium.

A new website, www.protectmyholiday.com, will also allow you to buy cover from just 5.

Alternatively, if you pay by credit card for a booking which costs more than 100, your credit card should refund in the event of a bankruptcy. Similarly, it may be possible to do a "charge back" on Visa debit cards.

Finally, don't over-insure. If your holiday is Atol protected, you do not need to buy additional insurance.

Err on the side of caution

With long-trusted retailers such as Woolworth's disappearing, shoppers need to keep their wits about them.

The two big risks are either when ordering large items, such as kitchens or bathrooms, electricals or furnishing, or planning weddings and where to leave your wedding list.

The cardinal rules are never pay upfront and, when spending more than 100, pay by credit card. If the firm goes bust you have recourse to the credit card company. Similarly, Visa debit cards can reverse the transaction via a charge back, provided certain rules are met. Unlike credit cards, there is no limit but timescales are much tighter as it must be initiated within 120 days of the transaction.

You are also entitled to your money back if you purchase an item which is not as described, or if is not fit for purpose or is faulty when you get it home.

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