The UK's biggest travel authority has warned that many holiday firms will collapse if the Government continues to promise travel refunds 'within 14 days'.
Abta said without an extension, hundreds of agents and airlines could go bust on the back of thousands of refund claims.
It said in an alternative scenario, the Government could reimburse consumers who are struggling to get their money back for cancelled holidays.
Mark Tanzer, chief executive of travel trade organisation Abta, told MPs that paying back all the money owed within current legal time limits would "knock over an awful lot of travel companies".
Giving evidence to the Commons Transport Select Committee, he said: "I’m talking to them already; people whose businesses which may have been running for 20 or 30 years are on the point of closing down, others who are literally working 18 hours a day to try and keep thousands of employees in jobs.
"This isn’t crying wolf, this is what will happen because there is no cash there until it comes back from the suppliers."
UK consumers are protected under European laws which state that they should receive full cash refunds within 14 days for cancelled package holidays.
But many travel firms are stalling payouts while they wait for money back from airlines and hotels.
In many cases seen by the Mirror, passengers have been sent credit notes and vouchers, while Ryanair has warned that cash refunds could take up to a year.
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It comes as amid huge employment uncertainty, with households desperately in need of their cash during the coronavirus outbreak.
Tanzer said that if the Government is not going to relax the 14-day rule, then it should step in to pay some of the refunds itself as “it’s in nobody’s interests for travel companies to fail at this point”.
He told the committee: “The way to save travel companies and jobs is for the Government to intervene directly at some point for a properly administered system, to say ‘We will prepay those refunds where the company can’t pay it’.”
Tanzer claimed this would have several advantages over a firm going out of business, such as the company being able to administer the refund and repay the Government at a later date, while it would also ensure customers receive the money they are owed.
Abta estimates that travel firms face paying back UK customers around £4.5billion.
"If the Government walks away from this altogether, and there is a big demand for cash … then that will knock over an awful lot of travel companies," Tanzer concluded.
