The CAA says airlines can pass on any increased cost to passengers

The Air Travel Organisers' Licensing scheme protects package holidaymakers from airlines or tour firms which collapse or defraud them of money.

But in 2003 only 70% of UK leisure travellers were protected by Atol, down from a peak of 98% in 1997.

And 12 million trips by individuals from the UK in 2003 had no protection.

Many passengers mistakenly believe their holiday insurance covers them, or that all bookings made on credit or debit cards are protected.

People expect to be protected. We want the government to give us an agreement in principle, to legislate in the UK Helen Simpson, CAA Who's protected, and who isn't

"The big change is largely due to the growth of the internet, and the number of new low-cost airlines, " Helen Simpson, director of the CAA's consumer protection unit, told BBC News Online.

"The Atol system is becoming less effective because of a tendency for people to buy separate holiday components through the internet; flights are often with no-frills airlines, who often provide links to accommodation suppliers.

"Holidays bought this way are unprotected. Our research shows people are not aware of this."

She said many websites were constructed so those buying separate components mistakenly thought they were buying packages.

Customer levy

The CAA wants to see stronger EU-wide legislation in the long-term, but while this is being formulated it is now calling for the UK government to bring in its own measures.

"The scope of the travel protection should be extended to cover UK-originating international return flights that are sold in the UK and paid in advance," said Helen Simpson.

The CAA wants to take away the worry of being stranded on holiday

"Protection should extend to other facilities where these are sold with a flight, either in a legally-constituted package or by another supplier in conjunction with the flight."

The CAA says the cost of providing protection could be passed on to customers. It believes a contribution of �2 per person would build up in five years to a sum that would provide for a failure of one of the largest airlines or tour operators.

After five years contributions could then be reduced.

'Flat rate'

Consumer group the Air Passenger Users Council said it believed "there was a continuing need for financial protection for all air travellers".

A spokesman said the scheme "should be based on a common fund financed by a flat rate per-passenger-levy."

But low-cost carrier Ryanair said the levy would mean "ordinary consumers being punished".

The CAA said it understood that it might take some time to introduce legislation in the UK.

It is advising that the government should consider interim measures which could be implemented by airlines on a voluntary basis.

These could include agreeing to repatriate stranded passengers and arranging for their packages to be sold through an Atol holder.

Consumer support

The CAA has passed on its recommendations to Transport Secretary Alistair Darling, and the Department of Trade and Industry, and hopes to have a government response in the autumn.

It also called on the government to make a quick decision on its advice "since delay will only increase the risk to passengers".

"People expect to be protected. We want the government to give us an agreement in principle, to legislate in the UK," said Ms Simpson.

"Airlines are not greatly keen but we do not believe they will be picking up the cost, but will be able to pass it on to the customer, as they have with things like increased fuel costs.

"We have the support of the travel industry, consumer groups, and MPs."