The collapse of Thomas Cook offered travelers a costly reminder that how they pay for a vacation can matter when plans go wrong. When the 178-year-old travel company ceased operations, hundreds of thousands of travelers were affected, including many who found themselves stranded overseas. Although no payment method can prevent a travel provider from failing, using a credit card for travel purchases can provide important protections that may not be available with other payment methods. From travel insurance benefits to the ability to dispute charges for services that were never provided, credit cards can offer travelers an additional financial safety net when the unexpected happens.
If you are on holiday with 178-year-old British travel company, I hope you paid for the trip with a credit card; else you may be stuck in Spain or Turkey for a while, as CNBC reports.
- An estimated 600,000 travelers on vacation around the world got some bad news today: Their travel company was bankrupt and they were stranded. Thomas Cook, the 178-year-old British travel company specializing in packaged vacations, ceased operations in the early hours on Monday.
- The collapse of Thomas Cook stranded about 50,000 travelers in Greece, up to 30,000 in the Canary Islands in Spain, while 21,000 vacationers are left in Turkey and another 15,000 in Cyprus, ABC News reports. Not to mention the approximately 1 million travelers authorities estimate had future travel plans with the defunct company.
- While no one wants to think about their vacation becoming a disaster, it pays to be prepared. Here are two ways to protect yourself from having to spend big bucks if your travel company goes dark.
Safety’s in your credit card.
- “Many credit cards automatically carry travel insurance and protections to provide compensation if your trip is disrupted, as long as you used that credit card to purchase your airfare,” Keyes says. It’s best not to use your debit card when paying for your travel plans.
- Credit card purchases are protected under the federal Fair Credit Billing Act, which grants consumers the right to dispute a charge when service is not provided.
- If the travel company that went out of business, such as an airline, isn’t being cooperative with refunding your ticket or providing alternate transport, you can contest the charge directly with your credit card company. “The bank will typically erase your purchase so you’re not liable and then go to bat [directly] with the defunct airline to recoup the lost money,” Keyes says.
CNN wonders: Is this the first Brexit fallout?
- Thomas Cook’s dramatic collapse follows years of mismanagement at the tour operator and a failure to keep pace with online rivals. Brexit didn’t help either.
- Analysts say it was one of several factors that led to the 178-year old travel company’s demise, which has left 150,000 UK holidaymakers stranded abroad and cost thousands of employees their jobs.
- Thomas Cook said Monday that it had been forced into liquidation after failing to reach an agreement with banks and its major shareholder, China’s Fosun Tourism, on a £1.1 billion ($1.4 billion) rescue plan. Before being suspended, the company’s shares were down 90% this year.
Next time, take your credit card.
And, as they say, don’t leave home without it.
Thomas Cook’s collapse demonstrates that even a company with nearly two centuries of history can suddenly cease operations, leaving travelers scrambling for alternative transportation, accommodations, and refunds. Consumers may not be able to predict which travel companies will encounter financial trouble, but they can take steps to limit their own exposure.
Paying for major travel expenses with a credit card can be one of those precautions. Depending on the card, travelers may receive insurance or other protections when a trip is disrupted. Credit card purchases also carry protections under the Fair Credit Billing Act, giving consumers the ability to dispute charges when purchased services are not delivered.
That distinction can become especially important when an airline, tour operator, or other travel provider goes out of business. Instead of relying exclusively on a failed company to provide a refund, credit card customers may have another avenue for recovering their money through their issuer.
Travelers should still understand the specific protections and limitations associated with their cards before booking a trip. However, the Thomas Cook experience illustrates why the payment method itself deserves consideration alongside airfare, hotels, and other travel arrangements. When significant amounts of money are at stake, the protections associated with credit cards can provide an important layer of financial security if a long-awaited vacation unexpectedly falls apart.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group