We live in unstable economic times. It's a message we're hearing everywhere, but nowhere more than in the travel industry, where XL airlines have recently gone under due to the credit crunch. The prices of fuel, more taxes and a bad economy meant that less people were travelling which forced the company out of business – and it's predicted that many more will follow.



Bad news for the investors but also for the passengers who had already paid up for the trip. Not only would they have their holidays cancelled without warning, but they would also not be guaranteed a refund. Holiday insurance might cover you (more on this later) but otherwise you're in trouble. Fortunately, there are steps you can take to make sure you get your money back when booking holidays, so consider these options as you go along:

Cover from your credit card

The first way to be protected is to book your holiday with a credit card. Yes, you will have to pay a little bit extra in some cases, but if you're paying more than £100 (and in some cases less) you're covered by the Consumer Credit Act which will protect your money in the event of something going wrong. Debit cards are not typically covered but you may be able to work something out with your bank if you're both a good customer and persistent.

Cover from your travel company

The next way is to look for companies that are covered by an association guaranteeing the protection of customers' money. Firstly, holiday companies that have an ATOL (Air Travel Organisers Licence) are worth looking out for – they protect their customers in the event of bankruptcy by having to lodge funds with the Civil Aviation Authority (CAA). In the event of bankruptcy the CAA will refund customers and arrange alternate flights. If the CAA doesn't have enough funds to help everyone, the government backed Air Travel Trust step in and ensure everyone affected is protected. Be careful though – you will not be protected if you book direct with an airline or only buy your ticket within 24 hours of payment.

Other organisations to look out for are ABTA and AITO. Members of these groups are usually bonded to protect you against the company going bankrupt, but be sure to ask them about your specific package to be on the safe side.

Be wary of assuming you are covered if you buy cheap travel insurance from the company you book with – if they provide it themselves then it is likely the policy will go up in smoke the second they do!

Cover from your travel insurance

Finally there's protection from your holiday insurance. Be very careful with this, because a lot of cheap travel insurance companies won't provide cover against cancellation through bankruptcy. The cover you need to look out for is called ‘financial failure cover', so read the small print and make sure it's there. Alternatively, call them up and ask directly. They may charge an extra fee to include it with your holiday insurance, but a few extra pounds is worth the risk in these economic conditions when it seems that every travel company is at risk!

To recap then, it is essential that you are backed up in these uncertain times – as many more holiday companies are expected to struggle through these months of economic downturn. Make sure that you either have financial protection as part of your travel insurance, or that your holiday company are a member of a body that offer their own guarantees or that you book using a credit card that promises reimbursements in such a scenario. Whatever you do though, read the small print of everything to ensure you aren't left out of pocked when you should be enjoying the sunshine!