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Financial Protection

What you need to know and what tour operators won't tell you...

We are, no doubt, all aware that there are many different guises of financial protection within the travel industry. With so many options, it can sometimes be difficult to understand which bonds, schemes or trust accounts offer the best protection, and in which situations, as different forms of financial protection will be applicable depending on whether your travel includes flights, ferries, "land only" arrangements and so on. To muddy the waters still further, if you use more than one supplier to make your travel arrangements (for example by booking your flights and ground arrangements with separate companies) then the various elements of a trip are likely to be covered by different forms of financial protection.

With all the elements covered by at least some form of financial protection, "what's the problem?", I hear you say? Well, here's the crunch: even with each element of a trip being individually protected, you are not completely free from financial risk. There are a small number of quite feasible situations where you could be faced with the choice of either losing money, or being forced to pay further significant amounts of it. This is especially true when a large group is involved. These situations can potentially leave you, as organiser, in a very sticky situation - possibly becoming liable for the extra expense or money lost. The risks are primarily associated with the booking of separate flight and tour arrangements (i.e. not a flight inclusive package). Here we look at a number of scenarios in which arranging your travel in this way can have far reaching consequences...

1: Change in FCO Advice:

When the Foreign and Commonwealth Office issues a travel warning about a country, a tour operator can no longer take clients to the region due to issues with their liability insurance. Therefore the tour operator has to cancel the arrangements.

As the tour operator has been forced to cancel the arrangements (rather than the client cancelling them) the operator has to provide a full refund of all monies paid.

However, if you have booked your flights separately through a travel agent, airline wholesaler or directly with an airline, there is no such obligation to refund your money. This could potentially leave you in the situation where thousands of pounds worth of flights are left completely unusable.

Verdict: A distinct possibility. Airlines do, in some circumstances, give full or partial refunds in such situations, but they are not obliged to and you should not rely on it.

2: Operator Insolvency:

If you are using a UK company, non-governmental organisation or charity to arrange the ground element of a trip, it should have some form of financial protection and you should therefore get your money back if they go bankrupt. In this situation, however, you will still be left with your flights which have been booked through a different company and are therefore under a separate contract. If you cancel the trip altogether, you will incur cancellation costs on the flights. If lucky, these might be £100 per person, if unlucky, you will lose everything.

You could of course choose to continue with the trip and get another operator to take the place of the first one. From experience, the replacement services are almost always more expensive, mainly due to reduced availability of good value hotels and other services.

On a similar note, if you make arrangements direct with a company in the country being visited then their insolvency will almost always mean loss of all monies paid to them.

Verdict: Operator insolvency can have disastrous knock on effects for the other elements of a trip and is likely to cause either significant financial loss or extra expense.

3: Airline Insolvency:

Let us take an example: Your ground arrangements in India have been organised through a reputable UK tour operator and your flights have been booked through a travel agency. Both elements of your trip are fully financially protected. At some point before departure, the airline or travel agency you booked with goes bust. It may take a little while to get your money back but you will get a full refund of your money for the flights.

However, you have also paid the tour operator the balance for their services. If you chose to cancel the trip, the tour operator will impose cancellation fees and you will lose, at best your deposit, at worst up to 100% of your money. After all, it's not their fault that you are having to cancel.

As with the operator insolvency scenario, you could, of course, choose to continue with the trip and rebook your flights through another airline. Again, this will almost always be more expensive. Many months may have passed since your original booking and flight prices are likely to have risen significantly. Availability of flights is also likely to be a key issue, especially for a larger group.

Verdict: Booking your flight and ground arrangements through different companies, opens you up to significant financial risk and potential extra expense if one element fails.

The Answer: ATOL

Make flight inclusive travel arrangements through one operator with an "Air Travel Organisers Licence" (or ATOL for short). ATOL protection (in the form of a bond lodged with the Civil Aviation Authority) is currently the only 100% effective means of protecting your money in all situations. Remember, ATOL protection is only applicable if your trip includes international air travel originating in the UK. If you book only ground arrangements with a company that has an ATOL licence, but arrange your flights separately, then the ground arrangements are not covered by their ATOL licence, and all the above scenarios and consequences still apply.

All the tour operators and expedition providers used by the STC are fully ATOL protected, and we will only ever recommend you to travel as part of a flight inclusive package. The only exception to this is travel to short-haul destinations, where it may be more economical and sensible to use coach travel rather than a flight. In such instances, we still recommend the use of just one tour operator for all your travel arrangements, but the financial protection will be provided under a scheme different to ATOL. Because of the need to provide our clients with fully ATOL protected travel arrangements, the STC does not handle any client money. All payments for the travel arrangements we help arrange are made directly to the ATOL holder concerned and you are therefore fully protected by their ATOL licence.

"Surely we would be able to claim on travel insurance if a company or airline went bust?" Sorry, but no. Travel insurance is a red herring in these situations. Very few insurers (if any) will cover any of the above scenarios. Travel insurance tends not cover loss (or consequential loss) where there is (or at least should be) financial protection in place.

Airlines and Low-Cost Flights

No article on financial protection would be complete without mentioning the ever increasing low-cost flights market.

Being able to access vast swathes of Europe so cheaply is becoming increasingly harder to resist. However, before you book the next set of flights, consider the following:

In the past three years more than 30 low-cost † European airlines have gone out of business, affecting tens of thousands of passengers. Booking a flight direct with any airline (and that includes those such as BA, not just "low-cost" airlines) means no financial protection to cover you should they go bust. In addition, if your airline goes bust whilst you are abroad, you will have no choice but to buy an new ticket home with another airline, often at great expense.

Ironically, while ATOL protection is designed to cover flight inclusive travel arrangements, airlines themselves are not required to have an ATOL licence unless they are selling a "package" involving flights and one other element such as accommodation or a tour.

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