Industry leaders slammed the government for not extending the £1 ATOL Protection Contribution on package holiday bookings to all flights.

It was this that left 10,000 XL Airways passengers to pay for flights home and tens of thousands more without refunds for advance bookings after the collapse of XL Leisure Group.

“The blame belongs squarely at the feet of the government,” said Sunvil managing director Noel Josephides.

The industry lobbied hard for the levy to apply across the board, but lost out to leading airlines which claimed they would never go bust.

John Cox, chairman of the Air Insolvency Protection Advisory Committee warned a year ago: “Most major airlines oppose consumer protection. But the failures of Pan American, Swissair, Sabena, Dan Air should persuade them they are wrong. All businesses can fail.”

The Civil Aviation Authority estimated six million consumers bought self-packaged summer holidays last year wrongly believing their purchases were protected in the event of a failure.

In August this year, Cox warned again of “significant concern over the lack of financial protection for travellers booked direct with scheduled airlines”.

He said: “Anyone who thinks airlines do not go bust is an idiot. But there is absolutely no chance [of extending protection] with this government.”

More on the collapse of XL

Timeline: Consumer protection

1971: Civil Aviation Act establishes the Civil Aviation Authority and proposes an air travel organiser’s licence (ATOL) to repatriate travellers stranded abroad by a company failure

1973: ATOL Regulations introduced. Oil price quadruples in a year

1974: Uproar when collapse of charter carrier Court Line and UK’s second largest tour operator Clarksons Holidays exposes lack of compensation for consumers with advance bookings. Under pressure, government pledges refunds to consumers who paid in advance

1975: Levy on tour operators sets up fund for ATOL system, charged at 2% (later 1%) of holiday price

1977: Levy ends as considered no longer necessary

1986: CAA’s power to impose a levy ends. Air Travel Trust fund set up as safety net for ATOL-bonding system

1991: Collapse of International Leisure Group in March with 600,000 advance bookings

1996: Air Travel Trust fund goes into deficit, where it remains today, following succession of smaller failures

2005:Collapse of no-frills carrier EUJet with 12,000 abroad and 27,000 bookings. Two-thirds believe they are protected, but only 130 covered by ATOL-holders

2006: Government agrees need to replenish Air Travel Trust fund, but rejects industry and CAA case for bringing scheduled airlines into ATOL scheme

2007: Air Travel Trust Fund £18.4 million in debt and paying £1 million in annual interest. Plans finalised for £1 ATOL Protection Contribution on bookings to replenish fund and remove bonding requirements

2008:APC introduced on April 1