Two out of five Britons going on holiday this summer will not be financially protected as more and more risk booking direct on the internet.

The warning comes on the day that Air Turquoise, which operated flights to France from Luton, was declared insolvent leaving hundreds of passengers out of pocket. The carrier has cancelled all flights since July 19 and is appealing for investors in the hope of renewing operations before the end of the month.

Yet the rise of self-booking on the internet is inexorable, while more and more travel companies are planning to abandon financial bonds to remain competitive with rivals.

An estimated 17 million holidaymakers are now at risk, representing 39 per cent of Britons who now travel abroad, according to the Civil Aviation Authority. The figure compares with 95 per cent of Britons whose money was protected in 1976 when package holidays were the most popular type of travel break.

Since then, package holidaymakers have been protected by the CAA's Atol scheme, which ensures that holidaymakers are not stranded or left out of pocket when an airline or hotel goes bust. The scheme has refunded nearly 22,000 holidaymakers in the past year following the failure of 25 travel companies.

But Atol membership is expensive and travel companies, including major tour operators such as Thomas Cook, have threatened to drop out of the scheme because rivals, such as the no-frills airlines, which sell flights and hotels, do not legally have to sign up.

The most recent example of the gaping hole in consumer protection was the failure of Kent-based airline EUjet, which went bust in July last year, leaving 12,000 passengers stranded, and families up to £400 out of pocket. Similarly, the failure of short-breaks operator, Travelscene in 2004 left holidaymakers exposed because while the company was bonded it operated an un-bonded website called Citybedz.com, leaving customers without holiday accommodation.

Last year, the CAA and other regulatory bodies backed a parliamentary bill to levy £1 on all air passengers leaving the UK in order to build up a fund to protect those left out of pocket by airline failures. But the proposal failed. “It has taken us ten years to get to the stage we were at last autumn,” said John Cox, chairman of the Air Travel Insolvency Protection Advisory Committee, which advises the CAA, government and other parties on financial protection for travellers. "I have given up on timescales. What the Government rejected was a simple and sensible solution, but it caved in under pressure from the airlines.”

Until the loophole in consumer protection is closed, it is up to holidaymakers to ensure that they are financially protected – this was the message sent out from the Association of British Travel Agents this week. The body is promoting the slogan: “It’s Never Been Easier to Book a Holiday. It’s never Been More Important to Protect It,” to encourage holidaymakers to think carefully about who they book their holiday with.

How do I know if I’m financially protected?

If you buy a holiday through a travel agent or website that is Atol bonded – it will carry the Atol symbol and a membership number – your holiday should be protected in the event of an airline or hotel going bankrupt. The only incidence where this may not be the case is where the website or company was falsely carrying the Atol logo or was operating fraudulently. The Atol scheme will pay for holidaymakers to be repatriated and refunded in the event of airlines, hotels or travel companies going bankrupt. It is not just high-street travel agents that are members of the scheme – websites such as Lastminute.com and Expedia are Atol-bonded.

How can I protect my holiday if it is not Atol bonded?

Check your travel insurance policy to see if it covers failure of airlines or hotels – many do not but some policies will pay out. Additionally, if the company you book with is UK-based and the transaction is over £100 and you pay by credit card, your credit card provider should issue you with a refund if the company goes bust. Finally, some websites and travel agents offer an option to pay Safi, or Scheduled Airline Failure Insurance on top of your booking, which usually costs less than £5 will protect you in the event of airline insolvency.