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Airline bankruptcies
(Travel Watch) -- What does it mean when airlines file for bankruptcy? Will they operate flights on which you have a reservation? What protections do passengers have anyway? And how does bankruptcy affect all those frequent flier miles you've been patiently accumulating?
Media reports about the poor financial condition of some major carriers have prompted passengers to ask: What does all this mean for me?
Here, in Q&A format, are some common questions -- and some answers.
Q. I've read about various airlines filing for bankruptcy, yet they seem to keep flying. What does it mean when an airline files in bankruptcy?
A. Bankruptcy comes in different shapes and sizes, and each one is a little bit different.
The most common is a so-called "Chapter 11" filing, or reorganization, in which the airline tries to reorganize its debt to a more manageable level in order to come out of bankruptcy proceedings as a viable company. United is in Chapter 11 proceedings now.
It sometimes happens that an airline just stops flying and goes out of business. That's called a liquidation. In that situation, you may be out of luck. Other airlines are not required to honor your reservation, although they may do so as a way to win your business in the future. Also, if you did not use a credit card to buy your ticket, you may not be able to recover your money.
Q. So the fact that an airline has filed for bankruptcy may not affect my travel plans?
A. If the airline is still flying, the answer is often "no." The biggest losers in a bankruptcy are typically the airline's stockholders and possibly its bond holders. As far as passengers are concerned, an airline that has filed for Chapter 11 reorganization often tries to maintain service levels to the extent that it can, as a way to keep paying customers.
There are exceptions, of course. An airline trying to reorganize itself may cut back service to some communities as a cost-cutting measure, and that is where passengers may feel the pinch.
Q. What happens if I have a reservation, but the airline stops flying that route?
A. You'll have to make arrangements to fly to or from the nearest city that the airline is still serving. This can be an inconvenience in some situations, but the airline does not have an obligation to switch your reservation to another airline that is still serving that city.
Q. Is there anything I can do to protect myself from losing money if an airline stops serving a route where I have a reservation?
A. Yes. Pay for air travel with a credit card. Under the Fair Credit Billing Act, a credit card customer may be entitled to a credit refund from the credit card issuer to the extent that the customer did not receive a service for which he or she has paid.
Q. If an airline is in bankruptcy proceedings, are my frequent-flier miles protected?
A. This is where the crystal ball gets cloudy, but here are some scenarios.
If the airline files for Chapter 11 protection and is still flying, the airline is working to come out of bankruptcy and keep flying as a viable company. Hopefully, that will happen, in which case your miles are protected.
If it turns out that the airline cannot reorganize and goes under, things get a bit murkier. What has happened in the past is that when a major airline failed, another airline has been willing to accept the failed airline's frequent fliers and their miles into the airline's program. For example, when Pan American failed in the early 1990s, Delta picked up the slack.
Q. Would this happen now?
A. There is no guarantee that this will, although airlines realize that picking up a bankrupt airline's frequent fliers is a good way to build brand loyalty.
Q. What about other scenarios?
A. Sometimes a failing airline may merge into a larger airline, as happened when TWA merged into American in 2001. The acquiring airline is likely to honor frequent-flier miles of the acquired airline, again as a way to build brand loyalty.
Sometimes, generally with smaller, newer airlines, if the company just stops flying, the miles have no value.
Q. What should I do if I'm stocking up miles for a dream trip to Paris, but the airline is in bankruptcy court and suddenly stops flying there?
A. As mentioned above, you will have to use your frequent-flier miles for an alternative destination, such as London or Brussels. The same would be true if your airline fails and your miles are transferred to another airline that doesn't serve Paris. (Actually, it would be true also even if the airline were not in bankruptcy.)
Q. If my airline is in bankruptcy court, should I try to use up my miles, just in case the airline goes out of business?
A. That's a hard one to answer because if your airline is still flying, your miles may be worth something in the scenario that your airline or its program get taken over by another carrier.
That said, if there is a huge trip that you've been planning for years, it might be worth taking, just for peace of mind if nothing else. Keep in mind, though, that as a practical matter, there may be a limit in terms of how many free seats an airline will be offering to popular destinations, particularly at peak times of the year.
Keep in mind that many airlines these days are members of an "alliance." This means that other airlines in the alliance will normally accept your miles for travel on their flights. Whether they will do so if your airline goes out of business is not clear. The other alliance partners may accept your miles, but with limitations. This is an uncharted area.
Q. So what you do for me if I'm holding a reservation on an airline that stops flying or stops serving a route where I have a reservation?
A. We're committed to giving you timely news about changes in airline operating plans.
If you made your reservation with us, we will notify you by e-mail and tell you about your specific options or how to go about getting a refund. We will also work with you to find the alternative that best fits your travel needs.
And keep checking News & Guides for tips on what you can do to protect yourself in these situations.
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