Most tourists buy flights and holidays from companies which are members of ATOL (Air Travel Organisers' Licensing) system.

What is an ATOL?

A licence, which ensures the company has lodged a bond - a financial guarantee provided by a bank or insurance company. This ensure you will be covered if your firm goes bust.

But some companies are not required to be members of the scheme, making holidaymakers incredibly vulnerable if that business folds.

The biggest problem, according to the Civil Aviation Authority (CAA), which runs the ATOL system, is from "split contract" holiday deals.

This is where separate accommodation and air deals are sold together as packages.

While a holidaymaker may believe the holiday is protected, individual components of the holiday may not be covered by the scheme.

For example, they may be compensated if the airline folds, but not covered for their accommodation.

Bonded travel?

Most people assume that if they buy a holiday through an ATOL agent, it will ensure that their holiday will be covered if the company goes bust or, if they have not left the UK, ensure they get their money back.

However, because of a mismatch between the Package Travel Regulations and the ATOL Regulations, some firms selling holidays under these "split contracts" are not at present required to hold an ATOL.

Helen Simpson, Civil Aviation Authority's consumer protection director, said: "Even where all the items in the package are separately bonded, customers can find themselves with a flight and nowhere to stay or a villa and no way of getting to it."

The CAA has proposed tighter regulation, so that agents who sell air package holidays in this way will need to hold an ATOL.

If agreed, the CAA will make recommendations to the government for a change in the law with a view to introducing new regulations by April 2003.

In the past 16 years, ATOL has managed 330 tour operator failures, rescuing almost 190,000 people from being stranded and giving refunds to more than a million others at a total cost of �159m.

In the last year alone, 7,000 people were rescued and 13,000 refunded, at a cost of �3.7m.