A House of Lords debate was told that work would begin in the next few months to find a better way of dealing with airline collapses. It follows criticism of the estimated £60 million taxpayer bill after the government repatriated all Monarch passengers, despite only 10-15% being Atol-protected.

Lord Callanan, under secretary at the Department for Transport, promised there would be “full consideration” of how the Monarch failure was handled “ to guard against this kind of issue happening again”.

“We need to look at all of the options, not just in Atol, but whether it is possible to enable airlines to wind down in an orderly manner and look after their customers themselves without the need for government to step in,” he said.

“These are complex topics and it is right that we explore these fully before legislating.” Proposals, he said, would be part of a Green Paper on consumer protection to be issued as part of the government’s Aviation Strategy.

Views from the industry would be sought “in the coming months” for publication in 2018, he said.

The government will examine whether instead of organising repatriation flights once the plug is pulled, it could allow the failing airline to bring its own customers home, as Air Berlin did shortly before Monarch’s collapse.

Callanan was speaking in response to a call from Labour peer Lord Rosser, who called for all flights departing the UK to be Atol-protected, which Abta supports.

Callanan said Rosser’s proposal would “not address that” because it could not be enforced on non-UK airlines. Requiring EU airlines to obtain an Atol for flight-only sales “would be inconsistent with current EU law,” he said.

“The UK is not able to extend the Atol scheme without breaching EU law,” he said. “Individual member states do not have discretion to impose additional requirements”.

Rosser said there was a “lack of clarity” at present: “We certainly cannot continue with a situation where nobody is sure whether the government will or will not fly people back home in future at no extra cost in the event of another airline failure.”