Wish you were here again?

IT'S the worst holiday nightmare. Turning up at the airport, kids in tow, for that dream trip of a lifetime only to find that you are not going on holiday at all. On Friday morning it happened to Tom Penman, a 42-year-old youth education manager from Douglas in Lanarkshire. The moment he was told by staff of XL, the failed airline, at Manchester Airport that his family's long-awaited vacation in Florida had been cancelled will be etched on his mind forever.

"It was shocking," he said. "We've saved up for two years and the children were in tears. We didn't go on holiday last year to save up for this one. Now we're scrambling for tickets and we are stuck. We bought all the theme park tickets already and it was meant to be a holiday of a lifetime. I couldn't believe it when I found out."

At the same time, similar heart-rending scenes were played out at Glasgow and Gatwick, the airports also used by XL, Britain's third-largest tour operator, which went into administration early on Friday morning as holidaymakers from across the UK converged on their check-in desks for their well-earned breaks.

It meant the worst forecasts of airline analysts, that the combined effects of punitive rises in fuel prices and the credit crunch would conspire to put even supposedly-safe operators out of business, had come true. XL compounded the sorry tales of budget airline Zoom and bargain package holiday specialist Seguro over the last fortnight, and the misery is not expected to end there.

Transport analyst Gert Zonneveld said the massive rise in the cost of aviation fuel – doubled over the last six months – will prove decisive in the closure of many airlines. "I think we will see more airlines going under and we may also see more tour operators going under," he said. "The current problems facing the airline industry are the worst I can remember."

This weekend, the travel industry was trying to repair the damage to its reputation by trying to ensure that the 75,000 XL customers stranded abroad would get home and the 200,000 with holidays booked got alternatives or were financially compensated. Given the scale and suddenness of the collapse it is a mammoth task of Dunkirk proportions.

But the repercussions of the collapse are expected to travel much further. Will the demise of three holiday companies now signal fundamental changes in the way the market operates? As the industry contracts, will low cost flights and bargain basement holidays become a thing of the past? And will the much-maligned but relatively safe package holiday run by mass-market travel companies – derided by a new generation of budget-conscious, internet-savvy, independent travellers – make an unplanned comeback?

If so, will weary travellers be forced to return to the days of being herded aboard coaches by clipboard-wielding officials on their way to the obligatory "welcome" meeting, where cheap sangria is liberally dispensed to disguise the pain of substandard accommodation on a miles-from-nowhere building site?

Underpinning the recent collapses are the seismic shifts in the British holiday market since the 1970s when the preferred option was to book trips through travel agents and established operators such as Thomas Cook, which pioneered the "package" in the Victorian era.

But the birth of the internet and the rapid expansion of low-cost budget airlines following global airline deregulation led to a different and more precarious model taking its place. Now 60% of holidays are booked by holidaymakers themselves and 40% through the trade, reversing the generations-old balance. Today's travellers – prompted by ludicrously-priced airline tickets – have switched from annual fortnights in the sun to multiple short breaks overseas in which flights and accommodation are booked over the web.

According to Richard Cope, senior travel analyst at data-gathering agency Mintel, the new model was storing up trouble if, as has happened, a global credit crunch was accompanied by soaring fuel prices, which are the airline industry's biggest cost after staffing.

"The big change in recent years has been towards taking multiple trips, fuelled by low-cost airlines. The problem is that various companies have business models that aren't all that robust. They fly to destinations such as Spain, Greece and Turkey where they face a lot of competition. There is over-capacity and price wars. As they cannot pass on rising fuel costs – as they can in the long-haul market – because of the fight for customers, there are casualties."

When airline operators go into administration, the problems mount depending on what and how passengers booked. In the case of XL, Kroll, the administrators, said most people who booked holidays with the troubled tour operator should be eligible for a refund.

Those who paid by credit card or used a tour operator affiliated to the Air Travel Organisers' Licensing (Atol) scheme should get their money back. In some cases travel insurance and payment by Visa debit card also offers protection. But people who booked a flight directly with XL Airways and paid with another kind of debit card will not be protected – and will have to pay again to get a flight home. They can make a claim for their expenses through Kroll, but there is no guarantee this will be successful.

Cope is among the travel experts who believe the series of recent collapses will drive holidaymakers back into the arms of established tour operators. "We will probably return to a more traditional model of holiday taking," he said. "People will no longer be as confident as they were about taking lots of short breaks. XL, which was more of an airline than a tour operator, is a real wake-up for those who book direct with an airline as they are less protected. People will now take fewer holidays of longer duration, going back to where we were a generation ago."

The industry blood-letting is unlikely to be over. Rochelle Turner, head of research at Which? Holidays, the consumer magazine, cites research which forecasts the demise of around 50 airlines worldwide by the end of the year. "It's industry Darwinism at the moment – survival of the fittest," she said.

She agrees that established tour operators of the old school will benefit. "That's likely to be one of the consequences. People will start looking in more detail at who they fly with. The age of buying a ticket from any old travel company and thinking we'll be safe is over. No one wants to be the one arriving at the airport to be told their holiday has been cancelled. XL may turn out to be the turning point."

Both large and small tour operators feel the tide is turning back in their favour. Marion Telsnig, spokeswoman for Thomson Holidays, said: "Its all about feeling safe. People want to know that if something goes wrong they can fall back on an established name with the proper degree of protection."

But can the clock be turned back to the days when package holidays dominated the market? Even the Association of Travel Agents, ABTA, which represents the big tour operators such as Thomson, First Choice and Thomas Cook, is not so sure. It is campaigning for statutory protection to be extended to travellers who book flights only.

"Financial protection for passengers is a statutory requirement only if the arrangements are sold as a package," said ABTA chief executive Mark Tanzer. "The growth of the internet and the low-cost airlines has meant an increasing proportion of travellers are buying travel outside the scheme of protection. We shall renew our call on government to address this issue as a matter of the utmost urgency."

Among those who don't want to return to the golden days of the package holiday, but do want better protection for travellers is Andrew Martin, director of the Scottish Centre for Tourism at Robert Gordon University in Aberdeen. "We have seen a move away from the 1970s model to where we want to be now," he said. "People love the internet and love to do things themselves, and they don't want to go back to the high street to buy their holidays. They want to do it themselves, but with more protection, and that is how it should be."