Abta is due to meet representatives of the Departments for Transport (DfT) and Business (BEIS) on Thursday to discuss urgent changes to the rules on refunding consumers for cancelled holiday bookings.

The current requirement to refund customers within 14 days of cancellation threatens to put many firms out of business after the Foreign Office advised on Tuesday against all overseas travel.

However, a decision on relief for the sector may be delayed despite the extraordinary circumstances of the Covid-19 crisis.

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Abta will stress the urgency of the issue for many businesses and the heightened risks to consumers if multiple companies are forced into insolvency by the size of the refunds’ bill.

The association is working with the CAA and explained the action it’s seeking on Monday, urging “the 14-day window for refund payments be removed” and cash refunds be replaced by “refund credits”.

The Package Travel Regulations (PTRs) require the organiser of a ‘package’ – or a combination of two or more travel products – must reimburse payments “not later than 14 days” after cancellation.

Several EU states have introduced vouchers to replace cash refunds for cancelled travel arrangements.

However, this may not work in the UK for legal reasons. Instead, Abta is proposing a “delayed refund” scheme.

An industry source said: “The problem is that refunds need to be made within 14 days [and] vouchers have never been covered by any financial protection scheme [in the UK].”

However, the source pointed out: “Where a refund is due for a routine cancellation and a company fails before the refund is paid, the refunds have always been protected by Atol.”

The legality of the proposal “matters a lot, as this has to work legally for the Air Travel Trust [ATT] fund” which pays out when an Atol-holder fails.

The source said: “People are trying to find a way through this. I’m sure it seems ridiculous to many people in the industry, but it’s legally important. It has to work for the ATT.

“The CAA is looking to help. It is in no one’s interest to have a further crisis of confidence. This is an extraordinary crisis. Everyone is looking for something that works.”

DfT and BEIS officials are not expected to agree to the proposal at Thursday’s meeting, meaning a decision may not come until Friday or early next week.

In the meantime, travel businesses are advised to pause making refunds so as “not to go bust”.

Abta is also seeking a return to normal practice on refunds of airline bookings.

The Association of Atol Companies (AAC) hit out yesterday at airlines refusing to refund customers or their agents for flights cancelled due to coronavirus restrictions.

Alan Bowen, legal advisor to the AAC, said: “Some airlines expect customers to accept vouchers which can be used to purchase alternative flights at some point in the future, which may be a much higher [price] than the original flight.”

Abta is hoping to see the requirement to pay refunds tied to an aid package the government is drawing up for airlines,

The source said: “Airlines are giving credit notes [in place of refunds].

“Abta is saying to government, ‘Special measures to help airlines must go hand in hand with normalising refunds to consumers and their agents’.”

Which? travel editor Rory Boland said: “Which? is increasingly hearing about travel providers refusing to give refunds when customers cancel their holidays due to the coronavirus crisis.

“While consumers may choose to show flexibility by rebooking their holiday for a later date or accepting a voucher, under the package travel regulations providers are obliged to provide refunds.

“This is a challenging time for the travel industry and Which? believes the government should consider all options to support the sector.

“It is vital that any measures, such as credit notes replacing refunds, include strong guarantees or protections so consumers know they are not at risk of losing their money if a travel firm fails.”