British government backs off reform of travel insurance program.

Byline: Tracey Boles

Sep. 19--Millions of holidaymakers are at risk of being stranded abroad or left without refunds if their travel company collapses because the UK government refuses to reform a protection scheme to include scheduled services and holidays booked over the internet.

Faced with the prospect of airline bankruptcies in the near future, the government has been consulting on whether to overhaul the Atol (Air Travel Organisers' Licensing) scheme, which gives protection only to those who buy air holidays and flights from tour operators.

But The Business has learnt the government has backed away from introducing legislation to widen the safety net, despite recommendations to do so from the Civil Aviation Authority (CAA) and the parliamentary transport select committee.

Travellers who book direct with scheduled and low-cost airlines via the internet -- about 40 percent of the holiday market -- fall outside financial protection. Only those on package holidays or charter flights are legally entitled to repatriation or refunds through Atol if their travel provider fails. Most travel insurance policies or credit card protection schemes do not cover airline failure.

The looming shake-out in the low-cost airline industry meant a comprehensive financial protection system for air travellers was justified, the select committee said in July.

But it is thought the extension of financial protection to all types of air travel would involve complex issues of cost, practicality and competition. The CAA has admitted a levy of between 50p and UKpound 2 per passenger on air tickets would be needed to build a fund.

In the past 17 years the Atol scheme has managed more than 300 tour operator failures, rescuing almost 190,000 people from being stranded and giving refunds to more than 1m others at a cost of UKpound 160m ($285m, E234m).

MP Gwyneth Dunwoody, who chairs the select committee told The Business: "The government should either mount a campaign to explain to people that they are not covered or bring in alternative cover."

The Birmingham-based cheap carrier Duo collapsed in May with debts of UKpound 14m and around 1,000 stranded travellers had to pay for alternative tickets home. Ryanair chief executive Michael O'Leary warned last month that many no-frills airlines will go bust.

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