Holidaymakers who have paid for air travel could be left stranded without flights or a refund if their scheduled airline fails, because they are not covered by their travel insurance.

Several airlines are under threat of bankruptcy after the events of September 11 led to dwindling passenger numbers.

Tens of thousands of passengers could be left out of pocket, as airlines who sell direct to the public are not obliged to repay customers in the event of their collapse and the majority of travel insurers do not cover this.

According to the Association of British Travel Agents (ABTA), many travel agents and tour operators are bound under the Air Travel Organiser's Licensing Agreement (Atol) to refund passengers or switch them to alternative carriers if their airline fails.

But an ABTA spokesman said: "The two biggest areas where customers will lose out are non-Atol sales and direct sales.

"There are lots of non-Atol members and customers could receive no refund unless they used a credit card."

Travel insurers Boots, Direct Line and Club Direct all confirmed that airline failure was not included in their policy wording.

A Direct Line spokeswoman said: "There is an exclusion in our policies which relates to the default of any transport or accommodation provider or their agent."

Lunn Poly is one of the few companies that does offer cover in the event of airline collapse - last week it introduced airline failure insurance at £2 per person.

The Air Transport Users Council criticised airlines and travel insurers for failing to have safeguards in place for passengers.

"Some people think if they buy a fully flexible ticket, other airlines are obliged to carry them should their airline fold. In reality, you've got little chance of getting a free flight home from any airline and no back-up from your insurer," said a spokeswoman.

The European Commission last week ruled it would allow member states to prop up carriers such as BA, Air France and Lufthansa, but several airlines are already heading for collapse, including Swissair and Belgium's Sabena.