Travel Finance: How to make sure you see your cash again if your holiday company bids a sudden farewell

Kiss Flights became the latest travel company to go bust this week when its parent company, Flight Options, went into administration. The news followed the demise of tour operator Goldtrail last month, leaving 16,000 holidaymakers stranded abroad, while fellow operator Sun4u went into administration last week. Some Scots suffered the double whammy of seeing two trips go up in smoke, having booked first with Goldtrail and then with Kiss.

And with more firms expected to go to the wall in the coming months, travellers need to be fully covered in the event of their holiday plans being wrecked. The Scottish Passenger Agents Association said a lack of advance winter bookings was causing cash-flow problems for many travel firms, particularly those without sufficient profile to attract high business volumes.

Travel companies were already under pressure before a series of events in recent months, including severe weather, the volcanic ash cloud, BA strikes and government austerity measures, took many closer to the brink.

The Civil Aviation Authority (CAA) said travel firm failures typically occurred in the autumn, suggesting that either this month's collapses were merely ahead of schedule or that we can expect an acceleration in failures over the coming weeks. Travel experts believe the latter is more likely, particularly as this month's failures will have a knock-on effect on business levels. So far this year 17 firms covered by the CAA's Air Travel Organisers' Licensing (Atol) protection scheme have gone bust, compared with 33 in 2009 and 42 in 2008.

Kiss had taken over some Scottish routes from Edinburgh-based airline Flyglobespan, which collapsed last December, and its demise has affected an estimated 60,000 people. That included 13,000 holidaymakers who are being returned home under Atol. But not all operators are members of Atol, which also covers those who had booked flights and accommodation with Kiss but had yet to embark on their holidays.

Mike Webb, chief executive of Mondial Assistance UK, said: "When paying money, even so much as a deposit, to a UK holiday company for a flight or a holiday package, if the firm is Atol-protected you will be too. If you do decide to book through a firm that is not Atol-protected, it is vital you take this into consideration when buying your travel insurance."

Atol covers package holidays where a tour operator provides at least two of the main services - flights, accommodation, entertainment and care hire. The scheme is the UK's application of the Package Travel Directive 1990, which covers traditional package holidays where flights and accommodation are booked under one price.

But it does not cover the rapidly growing proportion of people using the internet to book flights with one company and accommodation with another, known as dynamic packages, although the European Commission is considering amending the directive to cover independent travellers. Airlines are not covered by the scheme, while only a few travel websites, including Expedia, have Atol cover where flights and accommodation have been booked through them.

Fortunately there are other ways of securing protection against airline failure and other events, including booking trips by credit card. Under the Consumer Protection Act, credit card providers will cancel transactions costing more than 100 where the goods or services haven't been delivered. But if the flights and accommodation have been booked separately only the flight will be covered.

Some debit cards carry the same protection, including Visa, but this varies among providers. This reporter lost a flight booking made by credit card when Flyglobespan went out of business shortly before Christmas last year. The flight costs were repaid by the credit card provider by early February, meaning there was no long and uncertain wait for compensation from the airline.

But the main form of protection is travel insurance, especially where the various holiday elements have been booked separately and may not have Atol cover. Not all travel insurance policies cover airline failure, so it's vital to shop around and pay attention to the small print.

Steve Williams, travel insurance expert at comparison service Confused.com, said most providers now include cover for airline failure or can add it as a bolt-on if requested. "If you find a provider that doesn't include it just shop around because you will find that plenty do," said Williams, who reported a significant rise in the number of people specifically requiring airline failure insurance in recent months.

"Providers that do have airline failure insurance are selling more policies than those without it now - there's definitely been a step-change in the sales of policies promoting failure cover."

This cover is normally described as scheduled airline failure insurance but some policies include end-supplier failure, which pays out if, for example, a hotel or excursion company with which a booking has been made goes bust.

There's also general cancellation cover, but this varies from insurer to insurer, and many will not cover airline failure, so scrutinise the policy within the 14 day cooling off period so you know what you are covered for. If you have any doubt, ask your insurer for advice and cancel the policy if it's not good enough.