Lessons to learn from XL

The travel industry is facing its biggest test since the 9/11 attacks, as the soaring cost of fuel has left major airlines staring at huge losses and several others unable to take the heat.

The most recent, and arguably the highest profile, collapse was that of holiday firm XL Leisure, the country’s third largest tour operator. The firm went into administration leaving around 67,000 customers stranded and around 200,000 who had made bookings with their holidays ruined, after all its flights were grounded.

Unfortunately this isn’t a one-off. Zoom, a no-frills airline, was forced out of business a few weeks ago. It too blamed oil prices for its demise. The likes of Silverjet, Maxjet, Eos and Oasis Hong Kong Airlines have also been grounded with a total of 26 airlines going bust so far this year – compared to just five throughout the whole of 2007. And today (Friday), Italy's national airline Alitalia announced it was cancelling flights amid fears that the airline may go into administration. The airline, meanwhile, cited "technical reasons" for the cancellations.

Understandably, many holidaymakers are beginning to panic and are checking the small print on their insurance policies to see if they will be covered if something happens to their airline.

What happens if you’re left stranded?
For flights booked as part of a package holiday, it becomes the tour operator’s responsibility to make alternative arrangements as part of the Air Travel Organisers’ Licensing (Atol) agreement. The Civil Aviation Authority arranges flights home for people in this position.

Several carriers have also offered goodwill gestures to stranded customers with Virgin and Ryanair helping to bring passengers back and British Airways offering reduced cost one-way flights.

For the holidaymakers yet to travel, the Atol agreement could again be their saving grace. Under its rules, if flights or accommodation were booked as part of a package holiday, money must be refunded. This is because £1 of every package holiday booked goes into an emergency trust fund used to get customers home safely. There is no such protection however, if your flights and accommodation were bought separately.

In this case, it is to be hoped that you paid by credit card. Under section 75 of the Consumer Credit Act, customers are entitled to claim money back for all purchases between £100 and £30,000 by making a claim for breach of contract via their bank. Those who booked their flights using a Visa debit card may also be covered, although there is no legal provision to guarantee this.

Will travel insurance cover you if an airline goes bust?
Chances are that you won’t be covered under your existing travel insurance if an airline or holiday company were to go out of business.

Standard cancellation cover, which is offered by the majority of insurers and covers typical flight cancellations such as if the flight doesn’t occur due to bad weather or you’re forced to cancel due to illness, is not sufficient if an airline collapses. To cover you against a company going out of business you need an option called scheduled airline failure (SAF). Only around 10% of travel insurers include this option in their regular policies, although others do offer it for a separate charge.

The Post Office offers the cover as standard, while Swiftcover and insurefor.com will add it for an additional premium. The likes of Ryanair and easyJet will cover their own flights against this risk as part of their travel insurance policies – but they do not offer the same protection for other airlines.

How can you minimise your risk?
There are several steps to take to minimise your risk of being left out of pocket if a similar incident occurs:

  • Shop around for travel insurance – Don’t simply accept a travel agent’s cover as it may not be sufficient and is likely to be overpriced – instead, shop around using a travel insurance comparison tool to ensure you’re getting a competitive deal with the level of cover you need. For example, a 26-year-old male booking to spend one month in the USA could pick up a policy for as little as £16.42 through Cheaper Travel Insurance, which includes £3,000 of cancellation cover, £3m medical expenses cover, £2m for personal liability and £1,500 for baggage cover. However, the same traveller could pick up a policy with £2,000 cancellation cover, £5m for medical expenses, £2m for personal liability and £1,500 for baggage cover from insurefor.com for £31.84 but have the security of knowing that scheduled airline failure is included.


  • Book with a credit card – The section 75 protection afforded to credit card customers could prove invaluable to holidaymakers hit by a tour operator or airline’s demise.

    If you see this as an expensive option, then search for credit cards online to find a more competitive deal. There are a number of competitive credit cards on the market that offer 0% on purchases giving you a significant amount of time to pay off your holiday expenses without accruing additional interest. For example, the Capital One Balance Transfer Exclusive, offers 0% on both purchases and balance transfers until October 1, 2009 with a typical rate of 14.9% and a 3% balance transfer fee. This is a moneysupermarket.com exclusive. 

    Better still, pay your balance off in full each month to avoid any interest charges.


  • Book a package holiday – All flights booked as part of a package holiday are protected under the Atol agreement.


  • Buy travel insurance straightaway – Don’t wait until the last minute to book travel insurance – book it as soon as you purchase your holiday so the cover is in place immediately. However, don’t accept travel insurance as an add-on to a booking as it may not offer sufficient cover and the price may not be competitive. Use a comparison website to find the best deal for you.


  • Pack with consideration – Always be prepared for the worst-case scenario. Write down emergency phone numbers, such as that of your insurer, and take some extra clothes and toiletries to ensure you are well prepared in case the worst happens.

Have your say: Have you discovered you weren't fully covered by your travel insurance policy? Perhaps you were caught up in the collapse of XL and aren't sure where to turn to next for advice? Click here to discuss your next move with other forum members.


Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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