Just over £1 billion is being withheld in partial or full refunds from package holiday customers who have asked for their money back, according to estimates from Which?
Despite a 14-day legal time limit for refunds, more than four in 10 holiday cancellations have ended in people waiting over a month to get their money back, it said.
The £1 billion estimate is based on the results of a survey from Which? as well as population figures.
Which? surveyed more than 7,500 people who have had a package holiday cancelled as a result of the pandemic.
Millions of people have had a package holiday cancelled by their provider since the UK went into lockdown in March, with refunds for one in five (21%) holidays where a cash refund was requested still outstanding at the start of October, the consumer group said.
Its research suggests the average cancelled holiday cost £1,784.
Under the Package Travel Regulations 2018, if a package holiday is cancelled by the provider, the customer is legally entitled to a full refund within 14 days, Which? said.
Around 9.4 million people are estimated to have had a package holiday cancelled by their operator since the pandemic hit the UK.
The backlog of refunds means customer service lines have been overwhelmed by travellers trying to contact them to ask about their refunds.
For 43% of the cancelled holidays reported to Which?, customers said they waited longer than a month to get their money back.
During the summer, the Competition and Markets Authority (CMA) launched an investigation into package travel companies’ handling of cancellations and refunds.
Which? wants the Government to introduce a travel guarantee fund to support package holiday providers struggling to fulfil their legal obligations to refund customers. It should also conduct a review of passenger protections following the coronavirus outbreak, the consumer group said.
Rory Boland, editor of Which? Travel, said: “Without meaningful intervention from the Government and the regulators in this space, many people will struggle to get their money back.
“The CMA must take firm action against any operators that are continuing to drag their feet on refunding holidaymakers and the Government must urgently set out how it will support travel companies in fulfilling their legal obligations to passengers.”