Lessons to be learned from a tour company bankruptcy

How can you shield yourself if your tour operator files for bankruptcy protection? How can you avoid losing the deposit or full payment you made?

Last month, Far & Wide -- which owns such well-known tour companies as Central Holidays, Tourlite, Spanish Heritage Tours, Downunder Direct and others -- filed for Chapter 11 protection from creditors, causing thousands of travelers to face the loss of their deposits and payments.

At least 10 Far & Wide subsidiaries said they would try to perform their obligations under new ownership (Pacific Bestour, Swain Tours, IST Cultural Tours, Journeys Unlimited, Regina Tours, Adventure Center, Lion World Tours, African Travel Inc., Intercontinental Travel Co. and High Country Passage), but the outlook for some others is unclear. Numerous other tour operators announced that they would help stranded or disappointed travelers, but their assistance generally takes the form of partial discounts on new tour arrange- ments. Still other tour operators have offered to honor the initial deposit that travelers made earlier toward the purchase of a Far & Wide tour.

As for any relief in bankruptcy court, experience does not hold out much hope for people who paid in full.

So what are the lessons from this? The first is to consider purchasing protection against tour-operator insolvency from a reputable third-party insurance company (never from the tour company itself) whose policies contain an explicit provision relating to such insolvency.

Better yet, insist on paying for most or all of the tour with a credit card, and make that payment as close as possible to the departure date. Generally speaking, credit card companies will refund the money you have paid on your card to a bankrupt tour company, if not too much time has elapsed since use of the card. Smart travelers make as small a deposit as they can, then make the final payment as close as possible to the actual date of the tour.

Why did Far & Wide file for bankruptcy? The Sept. 11 attacks were one reason, followed by the SARS epidemic, the pronounced slowdown in travel that occurred during the runup to the war in Iraq and a general economic malaise.

Those elements combined to bring down a once reputable company. Though generally the travel industry has a fine record of fulfilling its promises, the Far & Wide situation should instill in us a sense of caution.