Some 110,000 passengers were repatriated by the government in October last year following the collapse of Monarch, leaving taxpayers £60m out of pocket.

The government later tried to recoup some of this outlay from the travel industry, which was widely slammed throughout the sector.

It is thought only a small proportion of Monarch customers were covered by its Atol licence as flight-only bookings are not covered by the scheme, whereas package or flight-plus bookings are.

Abta on Thursday (March 29) welcomed a government announcement outlining its Airline Insolvency Review and called for clarity on the regulatory situation.

Mark Tanzer, Abta chief executive, said reviewing what happens to passengers when an airline goes out of business was a “welcome and necessary” move by the government.

“Abta has long-argued consumer protection hasn’t kept pace with the changing ways in which people can book travel and that there is a need for greater clarity around consumer protection for businesses and consumers alike,” said Tanzer.

“Many travellers are unaware that if you book a flight directly with an airline you are not protected if the company goes out of business, but if the flight is booked as part of a package or flight-plus, you are.

“The current system is not clear for passengers or the industry, and is inconsistent in its application.

“The government will need to put consumers at the heart of the review in order to make sure that the outcome delivers the right protection and clarity for passengers and industry. We look forward to contributing to the review.”

The government is currently consulting on changes to the Atol scheme which will redefine what is meant by a “package” or “flight-plus” booking, with new legislation to enforce the EU’s Package Travel Directive (PTD) due to be implemented on July 1.

However, with the UK committed to leaving the EU on March 29, 2019, there are concerns the system could soon change again, despite the UK having agreed a transition period with the EU until December 2020, during which time nothing will change in practice.

Under the current system, the Package Travel Regulations dictate that if an airline fails, tour operators must arrange for repatriation or a refund.

The Atol scheme, meanwhile, ensures customers who buy flight-based packages or flight-plus arrangements will be repatriated or refunded if their package organiser fails.

Some flight-only sales are also protected when sold through travel agents or other intermediaries. However, it is unclear whether this protection will remain in place following implementation of the revised PTD, Abta has said.

Atol protection, Abta reiterated, does not apply to everything a company sells; it applies only to a particular set of travel arrangements.

Companies must, under current law, advertise themselves as Atol protected even if the majority of travel arrangements they operate are not protected by the scheme.

This, said Abta, can lead to consumers thinking their travel arrangements are protected when they are not.

Travel companies currently pay £.250 per passenger into the Atol scheme. There are fears, however, this pot would not be sufficient if another substantial airline or operator were to go under.