Australia has a turbulent history when it comes to domestic airlines. For decades, Australian travellers have faced the consequences of airlines collapsing, often with little to no financial recompense. The collapse of these airlines has left thousands of passengers stranded or out of pocket. Despite the significance of these failures, the industry has largely failed to provide adequate protection for travellers, leaving a gaping hole in consumer rights that has yet to be addressed effectively.
In response to growing concerns, the federal government’s 2024 Aviation White Paper, which is regarded as one of the most consumer-friendly aviation policy documents in the last 30 years, introduced several key proposals designed to improve passenger protections. These included ensuring airlines would honour refunds in the case of cancellations or significant delays. While these proposals represent progress in terms of addressing common issues faced by air passengers, one crucial aspect of consumer protection was conspicuously absent from the 156-page report: insolvency protection for airline passengers.
The absence of insolvency protection is a significant oversight, especially given the history of airline collapses in Australia. Currently, there are no comprehensive safeguards to protect travellers in the event that a domestic or international airline ceases operations due to financial insolvency. This lack of protection means that passengers who have already paid for tickets are often left with little hope of receiving a refund if an airline suddenly goes under.
The collapse of airlines is not a hypothetical concern. Australia has witnessed the rise and fall of numerous domestic carriers since 1990, leaving travellers stranded and out of pocket. Notable examples include Compass Airlines (Mark 1 and Mark 2), Ansett Airlines, Impulse Air, and Aussie Air. More recently, the collapse of Bonza Airlines in May 2024 sent shockwaves through the industry, particularly because it happened less than a year after the airline’s launch. Bonza’s bankruptcy affected thousands of passengers, most of whom were unable to recover their money because no other airlines operated on many of the same routes.
This troubling pattern continued when Regional Express Airlines (REX) halted its services between capital cities and scaled back its regional services, leaving many travellers uncertain about their bookings. While Virgin Australia and Qantas stepped in to honour some of the inter-city bookings made by REX customers, the impact of these collapses on passenger confidence is profound. The passengers who booked with Bonza, in particular, had no such safety net.
Domestic vs International Insurance Habits: A Cause for Concern
A major reason why Australian travellers are so vulnerable to airline insolvencies is their low uptake of domestic travel insurance. Fewer than 20% of Australian domestic travellers opt for insurance, compared to over 90% of Australians who purchase travel insurance when flying internationally. This disparity leaves the majority of domestic passengers unprotected in the event of airline insolvencies, a worrying trend that reflects a deeper issue within the country’s travel protection framework.
By contrast, international travellers are significantly more insulated from financial risk thanks to the widespread purchase of insurance, but even this is not a complete solution. Insurance policies typically cover cancellations, delays, and baggage loss, but they often exclude protections in the event of airline insolvencies, leaving passengers vulnerable unless specific provisions are included in their policies.
UK and Europe: ATOL and Package Travel Directive Models
While Australia continues to grapple with the issue of protecting air passengers from airline collapses, other regions have developed effective models that offer important lessons. The United Kingdom has had a robust insolvency protection scheme in place since 1973, known as the Air Travel Organiser’s Licence (ATOL). This system is designed to protect British travellers who purchase package holidays that include flights, ensuring they are refunded or returned to their original departure point if the tour operator or airline goes bankrupt.
The ATOL scheme is a user-pays model, meaning that travellers are required to contribute a small fee—around A$5 per person—which guarantees them full protection in the event of a collapse. Importantly, this government-guaranteed insurance is compulsory for all British travellers who book package tours, ensuring a high level of protection across the board. When the famous UK-based tour operator Thomas Cook collapsed in 2019, more than 600,000 British and European passengers were protected by the ATOL scheme. Passengers received full refunds for their tours, and those stranded abroad were flown back to their original departure points at no extra cost.
Similarly, the European Union has implemented the European Package Travel Directive, a system that offers similar protections to those under ATOL. The success of these schemes demonstrates the value of a well-designed, government-backed insolvency protection model that ensures passengers are not left stranded or financially devastated when an airline or tour operator collapses.
Australian Experiences: A Patchwork of Protection
By comparison, Australia’s approach to insolvency protection has been inconsistent and incomplete. The collapse of Australian tour operators Tempo Holidays and Bentours in September 2019 highlighted the shortcomings of the country’s current system. Fewer than 1,000 passengers were affected, yet not all of them were able to secure refunds. The limited protection offered by the insolvency scheme run by the Australian Federation of Travel Agents (AFTA) failed to cover those who had paid for their tours by cheque or cash, as the scheme relied on banks to refund payments made via credit or debit cards.
This highlights a key vulnerability in Australia’s travel industry: consumers are only protected in certain cases, and there is no uniform or comprehensive system in place to guarantee refunds for all travellers. This patchwork approach leaves many passengers at risk, especially when airlines collapse.
Business Insolvency Affecting Travellers
To address the issue of insolvency protection for travellers, it is essential to understand the three main types of insolvencies that can impact consumers:
- Airline Insolvency: When an airline collapses, passengers who have already paid for their flights face the risk of losing their money. This is the most direct and obvious impact of airline insolvency, and the one that affects the greatest number of people.
- Tour Operator Insolvency: When a tour operator that bundles flights with accommodation or other services collapses, travellers not only lose their flights but also the additional components of their holiday packages.
- Travel Agent Insolvency: In cases where travel agents collapse, passengers who have booked their trips through these agents may lose both the flights and the associated travel arrangements, leaving them with no recourse to recover their funds.
Each of these types of insolvencies presents a unique set of challenges, but they share the common issue of leaving passengers vulnerable in the absence of a comprehensive protection system.
A User-Pays, Government-Guaranteed Scheme for Australia
Australia’s aviation industry is in dire need of a structured and reliable insolvency protection system that mirrors the successful models seen in the UK and Europe. A user-pays, government-backed scheme, similar to ATOL, could provide an ideal safety net for consumers. The costs to implement such a scheme would be minimal, especially considering the potential financial devastation faced by passengers when airlines collapse. By introducing a small, compulsory fee—similar to the £2.50 (A$5) ATOL charge—travellers could be assured that their investments in air travel are protected, regardless of the financial stability of the airline or tour operator.
The introduction of such a scheme would benefit not only consumers but also the broader travel industry. By boosting consumer confidence, more people would be likely to book flights and holiday packages, knowing that they are financially protected even in the event of an airline collapse. Moreover, the costs of implementing and maintaining such a scheme would be negligible compared to the potential costs of government bailouts or compensation in the aftermath of airline bankruptcies.
Australia’s long history of airline collapses, including the recent failures of Bonza and the scaling back of REX services, has made it clear that the current system is inadequate. Travellers are left exposed to significant financial risks, and without insolvency protection, they have little hope of recovering their money when airlines or tour operators go bust.
The federal government’s Aviation White Paper has made strides in addressing some of the concerns of air passengers, but the omission of insolvency protection is a glaring oversight. By looking to successful models like the UK’s ATOL scheme and the European Package Travel Directive, Australia has the opportunity to implement a cost-effective, user-pays, government-guaranteed system that would protect consumers and strengthen the travel industry. The time for change is now, and such a scheme is not just desirable—it is essential for the future stability of air travel in Australia.
