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Coronavirus: UK travel firms warn they'll collapse if forced to give refunds

Travel firms will collapse, leaving taxpayers to face a bill of up to £4.5bn, if refund rules are not amended, Abta has warned. (Getty)

Travel firms have warned that they will collapse and taxpayers will have to foot a multibillion-pound bill if they are forced to give cash refunds to all passengers whose trips were cancelled due to the coronavirus pandemic, a trade association has claimed.

Current EU law states that travel firms must refund travellers within 14 days if their holiday is cancelled.

However, trade association ABTA is calling on the UK government to change the refund rules to allow companies to offer credit notes as a “short-term alternative” to cash refunds because of the overwhelming number of cancellations caused by the coronavirus pandemic.

The UK government acts as the financial backer for the UK’s ATOL protection scheme, which covers most air package holidays sold by travel businesses that are based in the UK and some some flight bookings.

Abta warned that travel firms will collapse if the policy is not amended, leaving taxpayers to face a bill of up to £4.5bn ($5.6bn) to refund customers.

Many travel firms are unable to pay cash refunds immediately without facing bankruptcy, partly due to a delay in them receiving money back from airlines and hotels as these businesses are also struggling with the economic impact of the coronavirus pandemic, according to ABTA.

Read more: Taxpayers to fork out £156m for Thomsas Cook collapse

ABTA wants the government to change the law to allow companies to issue credit notes instead of refunds which could be exchanged for an alternative booking or a full cash refund at a later date.

They would be financially protected, ensuring consumers’ money would be secure.

Several countries, including France, Italy, Belgium, Spain, Germany, the Netherlands, and Denmark have amended their refund rules on a temporary basis, and ABTA is urging the UK to also take action.

Mark Tanzer, ABTA chief executive, said: “We know the government has a lot to manage with the current crisis, but its failure to make these temporary changes to refund rules defies logic and is leaving the consumer in no-man’s land.

“The rules around 14-day refunds were never designed for the mass cancellation of holidays, which we’re now seeing as result of government measures to contain the pandemic.

“It’s in nobody’s interests for normally healthy, viable businesses to be pushed into bankruptcy.

“Hundreds of thousands of jobs are at risk and the UK taxpayer will have to foot the bill for customer refunds if there is an industry-wide collapse of travel businesses.

Read more: Some travel companies refusing to give refunds for coronavirus cancellations

“It’s important to reiterate, this is about supporting businesses through an entirely unforeseeable and short-term cashflow crunch — customers will not lose their right to a refund, and their money is not at risk.”

Taxpayers will foot a bill of £156m for the collapse of travel company Thomas Cook in September last year, a report recently found.

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