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The head of one of the UK's largest travel firms admitted last night the industry knew XL was facing bankruptcy.

Dermot Blastland, managing director of TUI Travel in UK and Ireland, which owns the First Choice and Thompson brands, speaking last night said he had been expecting XL to go under.

"XL was not a very well run company," he said.

"Why did the CAA not see it coming?"

Mr Blastland added while XL was the third largest travel operator on the market, it was well behind the top two – since the merger of First Choice and Thompson – and so was unable to compete.

He went to explain the future of the package holiday market was now split between the major players such as TUI and smaller specialty firms – leaving no room in the middle for firms such as XL.

A spokesman for the CAA explained it does have the power to withdraw an operating licence of a firm that is unsure, but with XL "there was a possibility of the firm refinancing right up to the last moment".

Since the collapse of XL, TUI has been working to bring back stranded holidaymakers – both those protected by the CAA's Atol scheme and those not.

The firm is now calling for all flights out of the UK to have the some protection as that given to package holiday customers.

The failure of XL highlights the different levels of protection available – meaning customers buying seats on the same plane may not be covered equally depending how they buy tickets.

In the case of XL, those buying flights direct from XL.com had no protection, except if their used a Visa debit card or credit card to buy the tickets and only then to get their cash back, while those buying tickets through a travel agent were covered by the Atol scheme.

The admission by TUI of knowing XL would fall leaves greater concerns over controls for the travel industry.

While in the financial world, regulators can step in to aid a failing bank, no such provisions exist in travel.