How to deal with airline and tour operator failure
Unless your primary news source is on another planet, you’re aware that the iconic travel company Thomas Cook folded, leaving some 600,000 travelers stranded at their vacation destinations and many more with worthless tickets for future tours.
Tour operator and airline failures were once a big problem in the United States, but recent years have been relatively trouble-free. However, 19 airlines have folded so far this year in Europe, Asia and Latin America — some of which, like Thomas Cook Airlines, were relatively big. And, in many cases, travelers were either stranded or left holding worthless tickets.
Typically, operators of package tours require advance payment in full months in advance of departure, which means you have a lot of money at risk. Certainly, the vast majority of tours operate as planned, but prudent travelers will still want to minimize risks.
The standard advice cliché is “buy from a reputable supplier,” and that might work with airlines: Recent defaults have all been with either small lines or relative newcomers. But that doesn’t work with package tour operators: Thomas Cook, for example, would have been considered “reputable” or “reliable” right up to the day it failed. Instead, you have to be proactive. Here are my suggestions.
1. Reduce your upfront exposure. Buy airfare separately so that you can still complete your trip even if the land package fails. And you can minimize risk by waiting until shortly before departure to buy the land package. Or forget a land package and instead book refundable hotel accommodations independently.
2. Buy with some protection. Tour operators that belong to the United States Tour Operators Association each have a $1 million reserve against traveler refund claims. California residents who buy tours from an operator in California can take advantage of a state restitution fund if the operator fails. As far as I know, however, the U.S. has nothing like the British and Danish government programs to protect customers of failed suppliers.
3. Buy with a credit card. The Truth in Lending Act requires banks to remove a credit card charge when a supplier fails to deliver a product or service bought with a credit card. This protection is not available for other forms of payment, so using a credit card is vital. Ironically, chargeback requirements may hasten a supplier’s default: At the time of failure, Thomas Cook tried to obtain the 50 million pounds in funds that banks had established as a reserve toward chargebacks — a request denied by the banks.
4. Buy travel insurance. Trip cancellation insurance refunds what you can’t recover from a supplier that fails before you depart, and trip interruption insurance, which is almost always sold in the same package as TCI, covers unrecoverable costs of returning home when a supplier strands you away from home. You have to watch the fine print:
■ Some policies list supplier “bankruptcy” as a covered reason; others say supplier “default.” Default protection is preferable as companies can often fail without ever declaring bankruptcy.
■ You have to buy the insurance within a limited period after you make your initial payment, and a minimum specified time before departure.
■ Insurance isn’t a lastminute bailout. It won’t cover any event that is “foreseen” at the time you buy the policy.
■ Insurance is safest if you buy through an independent third-party travel insurance specialist. Most policies do not cover the default of the company that sells you the insurance.
5. If despite your precautions, you’re stranded, look for reduced one-way repatriation fares that many airlines offer for stranded travelers.