May 24, 2006
Should I be Concerned if my Airline has Declared Bankruptcy?
With virtually all the major airlines having declared themselves bankrupt, it is a question that you, your company or someone you know may have asked yourself recently. Most passengers are blissfully unaware that their airline is strapped for cash or simply don’t care – they are more concerned about the things that we all consider important – an on-time departure, a comfortable seat, a tolerable meal, affordable tickets and those all-important frequent flyer miles. And indeed, if you are flying on a bankrupt airline in the near future, you probably won’t notice anything different.
Bankruptcy – which is also known as ‘Chapter 11’ or ‘reorganization’ doesn’t necessarily mean the end of business for an airline. However, there are many famous names in aviation that have gone bankrupt and are with us no more – notably Pan-Am, Eastern and Midway. And statistically, most airlines that declare bankruptcy sooner or later do go out of business, although this whole process may take several years. Bankruptcy for an airline generally means a restructuring of its debts and a loss of control over the daily running of the business.
In many cases the airline does not need to pay back all its debts, meaning ironically that even though bankrupt, the airline can offer lower fares than its competitors. This in turn, means that the other competing airlines – which may not be in bankruptcy – generally have to offer those same low fares, often losing money in the process. A bankrupt airline may cut back on non-essential services and extras such as meal choices and other on-board amenities. If you own shares in an airline that declares bankruptcy, those shares may become worthless.
So even though bankruptcy should not be a huge concern, there are some things you can do to protect yourself. Firstly and most obviously, avoid booking tickets on bankrupt airlines, although admittedly that is difficult these days. If you do book on a bankrupt – or struggling – airline, always pay for your plane tickets with a credit card as under the Fair Credit Billing Act, credit card customers have the right to refuse paying for charges for services which were not provided. Consider taking out additional travel insurance, but be sure to check with your travel agent or airline that this would be applicable in the case of your airline going under and ceasing service. Unless it’s a particularly important trip, it probably doesn’t justify doing this.
If you have purchased a ticket on an airline that has ceased operations, you are generally entitled to protection on another airline, under the Aviation and Transportation Security Act, although there is no guarantee that the schedule will be the same, or as convenient as the one you had. Most larger US airlines have ticketing agreements with other airlines, meaning the airlines will accept their tickets in the event of bankruptcy or ceasing operations. Smaller airlines may not have a ticketing agreement with other airlines – passengers holding Independence Air tickets, a small airline which ceased operations at the beginning of 2006, found it difficult to use their tickets on another airline. And of course, you have the option of getting a full refund on your ticket, although this may be a lengthy process,
And what happens to all those frequent flyer miles you have? You know, those miles you get every time you fly, rent a car, stay in a hotel room, and buy flowers. Even though you can never seem to use your miles when you want to, you still don’t want them to be taken away from you because your airline is in the b-word. Airlines assure you that your miles will still be honored and can still be used, and most miles are valid for several years from the date they were earned.
If you are concerned, ask your airline about redeeming your miles on one of their partner airlines, thus giving you added flexibility and insurance. Most airlines have several mileage partners, offering flights to the same destinations as themselves, as well as to places they don’t fly. Airlines also allow you to cash in your miles for anybody you like – it doesn’t necessarily need to be for yourself or even for a family member.
Many frequent flyer miles can also be transferred between different airline accounts, or traded in for hotels and car rentals as well, in order to ‘protect’ them. There are also various companies that offer to ‘insure’ your miles - for a charge, of course. And a final word of advice – just go ahead and use your hard-earned miles for that vacation you have promised yourself – most airlines can book seats up to 11 months ahead of time, so you have no excuse.
