Companies will be breaking the law if they delay or refuse refunds, warns the competition watchdog.
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Travel companies have been warned they must be ready to refund consumers if foreign holidays are cancelled by the coronavirus pandemic this summer.
The Competition and Markets Authority said it had reminded package holiday firms of their legal obligations.
In 2020, cancelled trips resulted in 23,000 complaints to the competition watchdog.
The CMA said it had taken action against five big firms, which had now refunded a total of £200m.
These included Tui, which the watchdog said had now formally committed to giving clearer information about refunds upfront.
The others were Teletext Holidays, LoveHolidays, Lastminute.com and Virgin Holidays.
The UK government has said people can travel abroad again from 17 May, but destinations will be ranked for safety under a traffic light system and there are fears their status could change unexpectedly.
“We’re calling on package holiday companies to make the refund process less hassle in the future,” said CMA chief executive Andrea Coscelli.
“We expect all firms to give clear cancellation options and will consider appropriate steps if we see companies breaking the law by refusing or delaying refunds this summer.”
Under package holiday rules, cancelled holidays must be refunded within 14 days and customers must be offered a refund, not just a credit note.
Since the start of the pandemic, many people have faced last-minute cancellations of flights and holidays as travel restrictions were imposed.
Some agreed to defer their holidays to a later date and accepted credit notes, but others who wanted their money back found it difficult to get refunds.
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As the pandemic stretched on, others who had initially agreed to put off their holidays changed their minds and decided they did want a refund after all, but experienced reluctance from travel firms.
The CMA said any offer of a refund credit note had to be accompanied by the option of a full refund, while customers should be able to exchange their credit note for a refund at any time.
Following customer complaints, the CMA has stepped in. It said at the end of last month that Teletext faced court action unless it paid more than £7m in refunds.
Lastminute.com had been facing legal action in connection with £1m worth of unpaid refunds, but the CMA said in February that the money had since been repaid.
The watchdog has now secured refund commitments from the other firms.
People will be able to travel for leisure again from Monday, but holidays to most destinations require a period of quarantine when holidaymakers return home.
Portugal is the main holiday destination currently on the “green list”, but the travel industry is worried that countries could be added or withdrawn at short notice.
The government has advised against leisure travel to “amber list” countries, but Tui and EasyJet are still planning to offer holidays to some of those destinations.
An EasyJet Holidays spokeswoman said: “We recognise that many of our customers do still want their holidays to go ahead, so for ‘amber’ list destinations where holidays can be enjoyed safely and legally, which do not have ‘all but essential travel’ warnings and where there is no quarantine requirement in destination, we are providing flexibility and choice so customers can make up their own mind about their holiday.”
She added that EasyJet would not operate any holidays to destinations on the “red” list.
On Wednesday, online travel agent On The Beach said it had stopped selling all holidays for this summer because of Covid uncertainty.
Chief executive Simon Cooper told the BBC that many would-be holidaymakers had been “jaded by the experience” of summer 2020, when many holidays that had been booked failed to take place because of shifting travel restrictions.
Mr Cooper added that if On The Beach did go ahead with summer bookings, its profits risked being outweighed by “administrative costs and loss of goodwill”.