When addressing the issue of scheduled airline passenger protection it is necessary to separate two questions: how to ensure travellers are reimbursed for flights paid for but not taken; and how to get them home if they are already abroad when an airline collapses.
A reader, noting the advantages of scheduled airline insurance in a comment below, prompts me to deal with this distinction. Taking out insurance is one way to make sure you do not lose your fare payments if the carrier fails before you depart. Paying by credit card - provided the amount it over £100 - is another.
The repatriation issue is much trickier. I believe it must be tackled by bringing scheduled passenger into the ATOL protection system which covers package holidaymakers. This, of course, would not provide advance warning that an airline was running into trouble, though the Civil Aviation Authority, which operates it, has a good record of minimising damage to holidaymakers. That is to say it usually ensures that operators do not fail with the maximum number of customers abroad.
But by paying a mere £1 per flight into a recently established fund which protects tour operator customers, scheduled passengers would be assured of getting home without facing unexpected bills for one way fares. They could either return on aircraft chartered especially or on other carriers, which would be able to recoup costs from the fund.
In the aftermath of very big failures, which require immensely complex rescue airlifts, passengers might not get back exactly when they had planned, or even to the right airports. But this would be an enormous improvement on the present situation, in which repatriation of scheduled passengers depends largely on their ability to shell out for a one way ticket and recover the payment from an insurer - or on the availability of seats on other carriers at arbitrarily fixed single fares.