submit to reddit GoNOMAD Travel
Tags: Traveldesk Anywhere
What Airline Bankruptcies Mean to GoNOMAD Travelers

The airlines say that they are in "Chapter 11" or "reorganization." Does this mean they aren't really bankrupt?

No. Reorganization under Chapter 11 of the U.S. Bankruptcy Code is a form of bankruptcy. It isn't "liquidation", but it's not a joke, either -- it's the last legal step before liquidation. If they weren't in danger of going out of business, they wouldn't be in bankruptcy. A company is "reorganized under Chapter 11" only if it is insolvent: its debts exceed its assets.

The bankrupt airlines say that they will continue to operate, and will honor all tickets. Should I believe them?

No. They hope to reorganize, under the protection and supervision of the Bankruptcy Court. But they might not succeed. If the Bankruptcy Court doesn't think they have a realistic chance of recovery, the court will order them shut down and liquidated. Since the decision of whether to allow them to continue to operate is now in the hands of the bankruptcy courts, not the airlines, the airlines cannot make any promises about continued operations, honoring of tickets, frequent flyer mileage credits, etc.

What will happen next?


We will have wait and see. Eventually, these airlines will either:
  1. Reorganize, return to profitability, settle their debts, and be released from bankruptcy; or:
  2. Go out of business and have their assets auctioned off under court supervision to pay as many of their remaining debts as possible.
How long will this take? When will we know what's going to happen?

The current airline bankruptcy proceedings will probably go on for many months, perhaps for years. Some airlines, such as Continental Airlines and America West, have reorganized under bankruptcy protection, and are still operating. Several others in the USA, and more in other parts of the world, have gone out of business, sometimes after being in and out of bankruptcy repeatedly.

What happens to ticket holders if an airline is still in business but changes its schedule, cancels flights, or discontinues routes?

  1. In almost all such cases, the airline will "protect" ticket holders on other flights, at no additional charge. If necessary, they will "endorse" tickets, at no charge, to other airlines that have space available. These will not necessary be the most convenient or direct alternatives, and they may go by way of different connecting airports. In general, it's first come, first served: if you hear that the flight you have tickets for has been cancelled, contact the airline as soon as possible to have them book you on alternate flights.
  2. If a schedule or flight change is unacceptable to the passenger, the airline must offer a full and unconditional refund -- even if the ticket was otherwise completely nonrefundable. Particularly if you purchased your ticket directly from the airline, this may be your best chance to get out of the risk of holding tickets on a bankrupt airline. (If you purchased the ticket through a travel agency, you are may still have to pay any penalty or refund fee charged by the travel agency, which could be substantial.) If tickets are still available for a similar price on another airline that isn't bankrupt, refuse to accept any schedule changes. Take your tickets back to the airline, and insist on a full refund.

I don't want to fly on a bankrupt airline. Can I get my money back?

Unless there is an unacceptable schedule or flight change (see above), normal refund procedures and penalties still apply. You would have to submit your refund request (with the physical tickets, if you have paper tickets) to the airline or travel agency from which you purchased them, and wait for a refund. As always, refunds could take considerable time, and could be affected by whatever transpires in the meantime.

What happens to tickets holders if an airline goes out of business or is liquidated through bankruptcy?

Ticket holders are considered "unsecured creditors". As such, they are among the last people to get paid, if there is anything left after all the secured creditors (such as aircraft leasing companies) are paid. In most recent airline liquidations, ticket holders have gotten nothing. At most, they would get pennies on the dollar, at least if they bought their tickets in the USA. (The USA has unusually weak, "laissez faire", aviation consumer law. People who bought tickets in other countries such as Canada and the U.K. on an airline that subsequently goes out of business, including an airline based in the USA, may have substantially greater protection than people who bought tickets in the USA.)

If a bankrupt airline in the USA goes out of business, will other airlines have to honor their tickets?

Yes, but only USA-based airlines flying exactly the same routes, only if space is available, and only until 18 November 2004.
  1. Under the USA Aviation and Transportation Security Act of 2001 (Public Law 107-71, 19 November 2001) and the Century of Aviation Reauthorization Act of 2003 (P.L. 108-176, 12 December 2003), other airlines based in the USA are required to provide transportation to holders of tickets on other USA-based airlines that have ceased operations due to insolvency or bankruptcy, "to the extent practicable", provided that the passenger makes arrangements with another airline within 60 days of the shutdown of the ticketed airline. The USA Department of Transportation has interpreted this in a series of guidance letters (administrative rulings) to mean that other USA-based airlines flying the exact same route were required to honor tickets of a USA-based airline that shut down, on a space-available (standby) basis, for no more than US$25 per person per flight, one-way. (See the full ruling from the Department of Transportation in the case of Vanguard Airlines.)
  2. Other airlines have filed a federal lawsuit challenging the $25 per flight limit as exceeding DOT's authority: they want to charge at least their regular $100 per person minimum re-ticketing fee. That lawsuit is pending, but in the meantime DOT has reiterated that other airlines may not charge more than US$25 per flight.
  3. The portion of the law requiring airlines to accommodate passengers holding ticket on insolvent airlines was originally scheduled to expire on 18 May 2003. Congress has extended it twice, most recently through 18 November 2004, but each time with a "sunset" provision that will cause it to expire automatically unless Congress takes new action.

Does this law mean I can still count on getting to my destination?

No. There's no guarantee there will be any space available on another airline, especially since an airline faced with the prospect of having to transport a bankrupt airline's passengers for US$25 each would have a strong reason to lower its prices to fill those seats with its own passengers for US$26 each. Even if seats are available, you might have to travel several days earlier or later than you had planned. On some international routes, there may be no other USA-based airline that serves the route, or only very limited capacity on USA-based airlines. Airlines based in other countries have never had any obligation to help holders of tickets from bankrupt or insolvent airlines.

I already have tickets on an airline that is in bankruptcy. What should I do?

  1. Wait and see. You can't get retroactive insurance, now that they are already in bankruptcy.
  2. Be prepared for schedule changes, flight cancellations, or other disruptions of your plans, before or during your trip, possibly with little or no warning.
  3. If you have electronic tickets, consider going to the airline's ticket counter at an airport, or one of its city ticket offices, and paying to get your tickets converted to paper tickets. (You have a much better chance of getting another airline to accept a paper ticket than of getting them to accept an electronic ticket, especially if the airline has shut down. Paper tickets are verifiable, but e-ticket receipts are easy to forge, and thus don't provide definite proof of payment.)
  4. If you don't want to pay to have your e-tickets converted to paper tickets, you may still be able to get a printout on airline ticket/boarding pass stock of the "passenger receipt" coupon of your e-ticket. (Some travellers need these for expense reimbursement and/or tax purposes, and there should be no charge for a "passenger receipt" coupon.) This isn't a ticket per se, but is much stronger evidence of having a ticket, and more likely to be useable on another airline, than an ordinary itinerary or confirmation notice.

What about tickets on "codeshare" flights that have a flight number of a bankrupt airline, but are operated by another airline, or have another airline's flight number but are operated by a bankrupt airline?

  1. Legal responsibility for tickets on codeshare flights depends on which airline is the "validating" or "issuing" airline -- not which airline operates the flight, which airline's flight number appears on your tickets, or from which airline you bought your tickets.
  2. To determine the validating carrier, look in the "Issued By" box on your tickets. If you have an e-ticket, get a printout of the "passenger receipt" coupon of your e-ticket, and look in the "Issued By" box. Itineraries and Web and e-mail confirmation notices almost never identify the validating carrier. Remember, this is not necessarily the same as the airline that operates the flight, whose name and number appears on the flight, or from which you bought the tickets.
  3. The validating or issuing airline identified on your ticket is the airline with which you have a contract. If the ticket was issued by an airline that is still in business, they have a contractual obligation to arrange transportation -- regardless of whether an airline that was, in effect, their subcontractor to provide the transportation has gone out of business. On the other hand, if the ticket was issued by an airline that has gone out of business, it doesn't matter that the transportation was supposed to be provided by an airline that is still flying. Yes, this is confusing and counterintuitive. Since most ticket sales Web sites don't identify the validating airline before tickets are purchased, it's almost impossible for travellers to make informed decisions about what financial risk they are taking. These are some of the reasons why I think codesharing is inherently fraudulent.

I have frequent flyer mileage credits on a bankrupt airline. Are they safe?

No. You may think of mileage credits as "money in the bank". But they aren't. According to the terms and conditions of these programs, airlines can change or eliminate them at any time, whether or not they are bankrupt. Bankrupt airlines will probably try to keep their frequent flyer programs as long as they are still flying. But some airlines in, or at risk of, bankruptcy are already increasing the numbers of miles required for awards. And of course, if they shut down entirely, mileage credits will be worthless.

If a bankrupt airline is liquidated, will some other airline take over their frequent flyer program?

Maybe. Maybe not. More likely frequent flyer records will be sold to a data mining or direct marketing company. You might think that records about you and your travel and purchasing history belong to you. In Canada or the European Union, that's true -- but not in the USA. Under current law in the USA, "your" frequent flyer and travel records belong to the airline, and are theirs to sell. If the airline is liquidated, those customer records will be sold at the bankruptcy auction. No comparable customer database -- identified by name, computerized, extending back for decades, and with information on tens of millions of people -- has ever been auctioned. But the frequent flyer and customer records of an airline like United or American are probably worth US$50-250 million -- more than any other cash-strapped airline could afford. Only if Congress passes a Federal travel or data privacy law could such a sale of travel records about you be prevented.

What should I do about my current frequent flyer mileage credits on bankrupt airlines?

Use them up as soon as possible, while you still can.

Should I care about accumulating more miles in these programs?

No. Don't waste money paying extra for tickets in order to earn more credits in a frequent flyer program that may disappear or be devalued at any time, without warning.

Should I avoid buying tickets on bankrupt airlines for future travel?

Yes. All else being equal (including price), use another airline that isn't bankrupt.

As long as they are still flying, should I care that they are bankrupt?

Yes. They could stop flying with little or no warning. If they do, it would be a major inconvenience to make alternate arrangements to travel on another airline. You might have to pay more for tickets, or seats might not be available at any price on other airlines. You could lose all the money you paid for tickets. Before you buy tickets on a bankrupt airline, think carefully about how much it is worth to you to avoid those risks and possible expenses.

Are there any circumstances when it would still make sense to buy tickets on a bankrupt airline?

Yes, but only if all of the following are true:
  1. The price or routing is substantially better than any other airline that isn't bankrupt;
  2. You can pay for the tickets with a credit card, and the charge will be made directly by the airline (this rules out almost all consolidator tickets, as discussed below);
  3. You will use all of your tickets within at most 60 days of when you buy them, so you can get your money back from the credit card company if the airline shuts down or cancels the flights;
  4. Your trip is inessential, so it will be won't be a serious problem if you can't take the trip at all because the flights are cancelled and no other airline has space available;
  5. Your plans are very flexible, so you don't really care what time of day, or exactly what day, you fly; and
  6. You haven't made any non-refundable arrangements that require you to be on specific flights, or to fly on a specific day (e.g. you aren't meeting a cruise or tour that departs on a specific date, or connecting to a flight on another airline).

What should I do to protect myself if I'm buying tickets on a bankrupt airline?

  1. Pay for your tickets with a credit card. If you pay by credit card, you may be able to get your money back, eventually, from the credit card company, even if the airline goes out of business. (See "The Practical Nomad Guide to the Online Travel Marketplace" for a detailed discussion of credit card chargeback rights and procedures.)
  2. Make sure the credit card charge will be made, and will appear on your credit card statement, in the name of the airline, not any in the name the travel agency, consolidator, or tour operator. (In general, only tickets at published fares can be charged directly by the airline. If you pay for a consolidator ticket with a credit card, the charge usually has to be made by the travel agency or tour operator, not the airline. This reduces your rights and protections, and can make it difficult, often impossible, to recover the money from your credit card company if the flight is cancelled or discontinued.)
  3. Get paper tickets whenever possible. Consider paying extra, if necessary, for paper tickets. If you buy e-tickets, try to get a printout on airline ticket stock of the "passenger receipt" coupon of your e-ticket. (See above.)

What about other airlines? Will they go bankrupt too?

Maybe.

Which other airlines might go bankrupt?

Almost any of them might. I don't know which ones will. There is no airline that is certain not to go bankrupt, especially if there is more prolonged or widespread war, or more terrorist incidents involving airlines.

I'm buying tickets on another airline that isn't (yet) bankrupt. What can I do to protect myself?

  1. Get travel insurance (trip cancellation and interruption insurance) when you buy your tickets that covers "supplier default", i.e. airline bankruptcy. Read the fine print carefully -- some travel insurance policies only cover certain airlines that the insurers think are less likely to go bankrupt. Note also that you can't usually get insurance for tickets on an airline that is already in bankruptcy, so this won't help you if you already have tickets on as bankrupt airline, and didn't buy insurance before they went into bankruptcy.
  2. Pay for your tickets with a credit card. (See above.)
  3. Get paper tickets whenever possible. Consider paying extra, if necessary, for paper tickets. (See above.)

What will happen to airline ticket prices as a result of these bankruptcies?

No one knows for sure. Most airlines want to reduce the supply of airline seats, in order to be able to raise prices to profitable levels. If bankrupt airlines cut back their flights, other airline will probably try to raise prices. But if people avoid buying tickets on bankrupt airlines, they may have to reduce prices sharply. And other airlines that serve the same routes may feel they have to match those price reductions. The result could well be a more extreme yo-yoing of prices than usual, with a general upward trend in ticket prices punctuated by "fare wars" started by desperate bankrupt airlines.

So what should I do? How do I get the best prices?

  1. Watch for short-lived but potentially extreme discounts, especially on routes served by bankrupt airlines. If you get a good price, buy tickets immediately, as prices are much more volatile than usual, and prices are always subject to change without notice.
  2. If a bankrupt airline offers a tempting deal, try to find an airline that isn't bankrupt that's matching the price.
  3. Airlines are still selling tickets below cost. In the medium to long term, there will be fewer flights per capita, and prices will be higher. Travel now, while you can still afford it.

[Updates and latest news about airlines and airfares from my blog.]


Airline Bankrupcies

What Airline Bankruptcies Mean to GoNOMAD Travelers By Edward Hasbrouck The airlines say
America's Newest Airline: Skybus By Renee Estey [ Editor's note: In April 2008 Skybus stopped all
an airline ticket you have entered into a contract with the airline you are flying. As with any contract
of vacation! {loadposition article-ad} I asked frequent flyer, airline pilot, and author of Cockpit
Primer * Travel Safety and Security * Around the World Airline Tickets * Airline Passenger Rights
their airline, departing airport, and arriving airport, and with the click of a button find everything
slashed the highest fares. For example, the airline reduced the old full walk-up fare to Los
. Consider the following: 1. Eat out often. One of the fastest ways to a free award is to skip airline
or bus safely. Airline Baggage Regulations forA Bikes:A Shipping Your Bike Abroad Our friends at I
in New Jersey Back to Page One of GoNOMAD Galleries Around The World Airline Tickets
on the dashboard pointing left. Around The World Airline Tickets A A A
-Lou Dale Kelly Westhoff Mirdula Dwivedi Around The World Airline Tickets
, a British airline employee had this to say: "None of these people have travel insurance - nutters
thatAs the appropriate size for your dog, and that also meets airline size regulations (typically

New Travel Articles
Follow GoNOMAD.com Travel's board Destination Guides on Pinterest. csa-03 300x250-04


 
 
 


Subscribe to GoNOMAD's monthly enewsletter for all of our new travel articlesGet our free monthly travel newsletter
and help support sustainable and responsible tourism.
No spam, no selling
your email, we promise!

Subscribe to our monthly newsletter!

Related Posts Plugin for WordPress, Blogger...