Trip protection in tough times

These are perilous times for customers of airlines, cruise lines and tour companies that may be financially wobbly.

When Aloha Airlines, ATA and GrandLuxe Rail Journeys this year stopped operations, thousands of travelers were stranded -- and collectively lost millions of dollars.

Although still rare, industry bankruptcies are growing in a tough economy that has driven Americans to cut back on travel. How do you protect yourself?

The single best step is to pay with a credit card. Never use cash, a check or a debit card to buy or make deposits on a flight, tour, hotel, cruise or vacation package.

Other strategies, such as buying trip insurance, booking with a group and researching the travel provider, may help, but each has pitfalls. A look at your options:

Credit cards: If you buy a product or service with a credit card and fail to receive it, you are entitled to have the charge removed from your bill. It’s that simple -- almost.

Details about the relevant law, called the Fair Credit Billing Act, are on the Federal Trade Commission website ( www.ftc.gov/bcp/edu /pubs/consumer/credit/cre28.shtm).

Debit cards fall under the Electronic Fund Transfer Act and have limited protections. As a result, the FTC website says, “you may not be able to dispute a debit and get a refund for nondelivery or late delivery.”

Trip insurance: Policies that cover financial default of a travel supplier can be smart purchases, even though they typically require that you first try to collect from your credit-card issuer.

But if you want this coverage, don’t buy the policy from the tour operator, cruise company or airline you’re using. Such policies generally exclude default of the travel supplier that sold you the policy. Instead, buy directly from the insurer.

Bill and Katie Miller of Plandome, N.Y., are among many travelers who learned this lesson the hard way.

Bill said they deposited more than $14,000, including $1,240 in trip-insurance premiums, with GrandLuxe Rail Journeys for a nine-night train trip. Eight days before the Sept. 3 departure, they learned the Colorado-based company, citing financial reasons, had stopped operating.

“I was dumbfounded,” Bill said.

Even more so when he learned his trip insurance wouldn’t help. Although the policy didn’t list financial default as a covered reason, it also didn’t list it under exclusions. In fact, it didn’t refer to default at all.

Judy Sutton, spokeswoman for Travel Insured International, the East Hartford, Conn., company that administered the GrandLuxe policy, confirmed that it didn’t cover default. Although premiums are nonrefundable, she said, Travel Insured was allowing hundreds of customers who bought certain policies through GrandLuxe to apply their premiums to future trips.

But not the Millers. The offer applies only to policies bought after January, Sutton said. The Millers bought theirs last year.

The couple is pursuing tour refunds through their credit-card issuer.

Group bookings: If you work with a reputable organization, you may be protected from default. Or not.

When GrandLuxe stopped running, Smithsonian Journeys, a division of Smithsonian Institution, had not yet forwarded trip deposits for its Oct. 22 train trip, Journeys director Amy Kotkin said. Fewer than 15 Smithsonian clients had booked the trip, and they will get their money back, she added.

But the 18 travelers who signed up with Audubon Nature Odysseys for three GrandLuxe tours may not be as lucky. They sent deposits directly to GrandLuxe, said Audubon spokeswoman Nancy Severance.

Research: Even industry insiders can’t always tell if a travel supplier is about to fail. Foundering companies often shut down without warning after guarding appearances to the last day.

If travel insurers refuse to cover a company for financial default, that should raise a red flag, but it’s not the last word. Airlines may remain in Chapter 11 bankruptcy protection for years and still fly.

Here’s where a travel agent can be your best friend. Savvy ones watch for signs of financial trouble, such as slow payment of sales commissions, and they often will take steps to protect their clients.

jane.engle@latimes.com