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Airline collapse: your rights, refunds and ATOL protection explained

Airline collapse: your rights, refunds and ATOL protection explained

It’s important you know your rights should your airline or travel agent go bust.

lovemoney staff

Rights, Scams and Politics

lovemoney staff
Updated on 5 March 2020

Flybe collapses: what happens next

Flybe has become the latest airline to collapse, leaving many passengers stranded.

The regional airline's entire fleet has been grounded and passengers with upcoming Flybe flights have been told not to bother turning up at the airport. 

The failure is becoming an all-too-familiar story, with both WOW and Monarch airlines going under in recent years.

Flybe passenger? Here's what to do

If you're stranded somewhere or absolutely need to fly today, your only option is to book a flight on another airline, but be prepared to pay an inflated price as many rivals are hiking their fares in response to increased demand.

Once you're home and settled, it's time to set about getting your money back for that Flybe flight.

While a direct refund from the airline is unlikely, there are thankfully various other routes you can try, which we'll run through below.

Contact the airline anyway

If the airline, tour provider or accommodation you’ve booked has collapsed or looks on the verge of doing so, contact them directly.

Whilst this might seem pointless if no one is there to pick up the phone, it’s a prerequisite for many other strategies explained below, such as Section 75 and chargeback.  

Don’t be tempted to cancel any flights before the official confirmation that an airline has gone out of business as you’re unlikely to get your money back.

If the airline cancels your flights and is still in business, you’re entitled to a refund under EU law.

How to claim compensation for delayed and cancelled flights

Don’t rely on ATOL

The ATOL (The Air Travel Organisers License) scheme is often presented as a cure-all for airline collapses.

If an ATOL-protected business folds you’ll be given a refund, if you’ve yet to travel, or allowed to finish your holiday and return home if you are already abroad (call +44 (0) 333 103 6350).

However, there are many exceptions that could leave you out of pocket.

Most importantly, it doesn’t cover flights booked by themselves, where you receive the ticket immediately, i.e. the overwhelming majority of flights. In fact, no airlines are ATOL-protected.

Instead, the law says your holiday must be protected if you book a holiday with a single travel firm that includes:

  • flights and accommodation (including a cruise), or
  • flights and car hire, or
  • flights, accommodation and car hire.

That doesn’t necessarily mean ATOL covers the business: there are European equivalents, but check that they will cover UK residents and don’t have irritating loopholes.

Also beware of businesses falsely claiming to be ATOL-protected: check the business on the Civil Aviation Authority website.

Ultimately, ATOL will be of limited use to independent travellers. So what other options do you have?

Airlines aren't part of the ATOL scheme (image: Shutterstock)

Will travel insurance cover it?

Potentially, provided you picked the right policy (and indeed have any travel insurance).

Look out for provisions covering ‘scheduled airline failure’ and ‘financial failure’: the latter could help you with hotels and tour companies that go under.

If you’re already abroad, you may have to make your own plans to get home but call your insurer to check.

Unfortunately, just 48% of travel insurance policies cover ‘scheduled airline failure’ and just a third cover ‘financial failure’ according to Defaqto, which analysed 1,000 policies.

You can search for travel insurance policies including scheduled airline failure on Defaqto’s website.

Make sure that your travel insurance covers the entire dates of your holiday, including the day flights take off, on the outbound leg, and land back in the UK, if you’re flying overnight.

And, of course, make sure the coverage and excess are both reasonable: £200 worth of cover is unlikely to make up for a ruined holiday.

Have you got travel insurance yet? Compare policies here.

Book direct with a credit card

There are many advantages when booking a holiday with your credit card rather than your debit card.

We’ve got a full list of them here – but the crucial one is Section 75 protection.

If you make a purchase valued between £100 and £30,000, you’ll get your money back if the provider goes bust.

Just – and this is a crucial caveat – make sure you book with the airline directly, not a third-party booking site, which may claim they were only obliged to provide the tickets, not the flight itself.

Remember that the Section 75 rule only covers items actually paid for using the credit card, so if you pay with your credit card for the flight but with your debit card for a hotel, only the former will be covered.

It should cover consequential costs, such as having to buy more expensive flights to get home after an airline failure.

Be sceptical when it comes to insurance included in premium credit cards, which can be loaded with conditions making it close-to-useless.

To make use of Section 75, write to your credit card company stating you’ve tried to contact the airline/holiday company, explain what the response has been, include copies of receipts, and state  “I am making a claim under Section 75 of the Consumer Credit Act”.

Keep a copy of the letter that you’ve sent.

Use a credit card to book your holiday (image: Shutterstock)

Try chargeback

If you paid with a debit card, or paid with credit card but for less than £100, you may be able to get your money back with chargeback.

It could also be useful if you booked through a third party like a travel agent.

Chargeback is a voluntary scheme that Visa, Mastercard, Maestro and American Express have signed up to.

You’ll need to contact your bank and ask them to dispute the transaction, just make sure you contact them within 120 days of the breach of contract.

For flights, the breach of contract would be from when the flight was due to depart. However, if the airline told you earlier on that the flight wouldn’t be going ahead, the breach of contract that allows for chargeback would not apply (instead, cancellation rules would apply).

Don't forget travel insurance - compare policies and quotes here

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