Coping with the unthinkable: An airline's demise
by Bill McGee
5/24/2005
usatoday.com
I've been on both sides of airline shutdowns, and they're not pretty for anyone except attorneys. In a business as cyclical as the airline industry, we're now in a potentially dangerous period for consumers. In the coming months you may wind up having your vacation plans ruined, or find yourself stranded at the wrong end of a hub airport.
Last week's news that US Airways is planning to merge with America West does not guarantee either airline's future. Along with United, US Airways is one of two major domestic carriers operating under Chapter 11 bankruptcy protection, and they're joined by smaller U.S. airlines such as Aloha and Hawaiian. Several others, including Delta, are fighting to avoid such a filing but are near the brink.
Unfortunately, bankruptcy has become a part of doing business since the airline industry was deregulated in 1978. Since then, the Air Transport Association estimates there have been "well over" 100 filings, though not all resulted in liquidation. As a former employee of Pan Am, I can assure you that an airline shutdown is traumatic for workers and passengers alike, and obtaining up-to-the-minute information in the midst of that chaos can be quite challenging for consumers.
The good news is that these hardships have provided lessons, and even a minor dose of government assistance.
Some protection
Late last year, Congress extended a key provision of the Aviation and Transportation Security Act (which you may remember was the bill that provided billions to the airline industry in the wake of the terrorist attacks in 2001). The extension, through Nov. 19 of this year, provides important consumer protections to passengers who have booked tickets on airlines that shut down.
Under Section 145 of the law, airlines operating on the same route will be obligated to transport such passengers, if space is available and "to the extent practicable," at a cost not to exceed $50 on a round-trip basis. Such bookings must be made within 60 days from the cessation of the bankrupt airline's operations.
This means several things: If you're booking an airline in or close to Chapter 11, you should be aware of other options on that route. It may be worth shifting to another carrier. (Of course, Wall Street economists will tell you that you're hastening the demise of the struggling airline when you do this, but then their primary interests are shareholders, not consumers who may end up holding worthless tickets.) If no other carrier operates that exact route, you're probably not protected under Section 145.
The bottom line is that while ATSA is certainly better than no protection at all, it would not offer much assistance in a real-world scenario. After all, it would do little to help the masses of travelers if a major carrier such as United or Delta stopped flying. Available seats in this era of record-high passenger loads would be extremely rare, particularly at a bankrupt major's hub. In the end, many passengers would pay to rebook on another carrier, which is an alternative you should consider in the first place.
What about your miles?
In the past, airline shutdowns have not always devastated members of the dead carrier's frequent flyer program. For example, after Eastern's demise in 1991, membership miles were honored by Continental, and mileage accrued in Pan Am's program was absorbed into Delta's. In 2001, the 14 million members of TWA's Aviators program arguably were much better off after American acquired the struggling carrier and they instantly became members of AAdvantage.
Unfortunately, members of a bankrupt loyalty program are not likely to fare as well today. Tim Winship, editor of FrequentFlier.com, states, "The odds are that future liquidations will not play out so benignly."
He explains there doesn't appear to be a carrier with "the will and the financial resources" to absorb the mileage programs of a United. (In fact, a firm that insured frequent flyer mileage stopped writing new policies in 2003.)
As for US Airways and America West, they've issued a statement that "no immediate merger-related changes" are scheduled to take place with their programs. But after the merger is finalized, the US Airways Dividend Miles and America West FlightFund members will be combined. For now, they're advised by the carriers to "ensure that their current E-mail address is on file with each airline to ensure timely notification of changes to each program."
Winship's advice: Use your miles now, for travel awards. Book sooner rather than later. Also, it may help if you book through a struggling carrier's alliance partner(s), though at this time, it's uncertain if a rival airline would honor a ticket booked as a redemption award (Section 145 doesn't cover this point, but in such a scenario it would certainly pay to ask).
Tips to remember
Here's some practical advice that could help if the state of the airline industry takes yet another turn for the worst:
• Always use a charge card when booking an airline flight. Under the Fair Credit Billing Act, your liability for unauthorized charges is limited to $50 — if you report the billing error to the charge card company in writing within 60 days after the bill was mailed to you. Charge card companies and e-merchants may cover this fee in certain situations.
• Some travel insurance companies provide coverage for airline shutdowns. Unfortunately, the most vulnerable carriers are sometimes placed on a "black list" prohibiting such coverage. Make sure you're truly covered before you buy such a policy.
• If you're traveling on an E-ticket, always ask for a paper receipt (airlines often will provide one via e-mail). If your airline shuts down and all its reservations computers shut down with it, a "paperless" ticket can hurt you if you're seeking to have a booking honored by another carrier.
• Be prepared. If you're traveling on an airline that's on a shutdown watch list, obtain timetables for rival carriers operating the same routes. If you're grounded, be ready to start marathon cell phoning, because most airline reservations lines will be tied up.
• If you've booked through a travel agency, speak to your agent about alternative arrangements in the event of a grounding, and inquire about a 24/7 help desk. If you're booking through an online travel agency site, opaque bidding site, consolidator, or wholesaler, you may not have the same protections, so ask in advance.
• If you're going hat-in-hand seeking another airline to honor your ticket, remember to stay calm, be polite and succinct, and provide all the pertinent details of your trip (airline, flight numbers, dates, times, service classes, fare classes, etc.). As noted, the law is murky on the point of what rival airlines must do for you, so developing a bad attitude with an airline reservations agent or ticket agent is NOT a good strategy.
• In the event you're forced to file a bankruptcy claim for the value of your ticket, check the DOT's Web site for further information. You're going to have to provide as much documentation and paperwork as possible, so start a paper trail in advance. And act quickly!
Other resources
Here are some helpful links for further information:
• The DOT's Aviation Consumer Protection Division provides specific updates — but only on carriers that already have stopped flying. These can be helpful if you're seeking to file a claim or need further information. The updates are available at: airconsumer.ost.dot.gov/cessations.htm.
• The Air Transport Association, the airline industry's largest trade organization, provides what it terms a "loose, unofficial compilation" of airline bankruptcy filings at its Web site: www.airlines.org/econ/print.aspx?nid=6207.
• The Consumer Travel Rights Center offers advice at: www.mytravelrights.com.
• For a detailed and insightful guide to the effects of airline bankruptcies on frequent flyer programs, see "Faltering Airlines Leave Frequent Flyer Miles in Limbo" at FrequentFlier.com: frequentflier.com/bankruptcy.htm.
• A very helpful "FAQ About Airline Bankruptcies" has been updated online by Edward Hasbrouck, author of "The Practical Nomad." It's at: www.hasbrouck.org/articles/bankruptcy.html.
• The American Society of Travel Agents provides advice on "Flying on Bankrupt Airlines" at: www.travelsense.org/consumer/bankruptairlines.asp.
It would be nice to think that we'll all weather this economic cycle without having to experience yet another shutdown of a major domestic airline. But the historical record says otherwise.
Read previous columns
Bill McGee, a contributing editor to Consumer Reports and the former editor of Consumer Reports Travel Letter, is an FAA-licensed aircraft dispatcher who worked in airline operations and management for several years. Tell him what you think of his latest column by sending him an e-mail at USATODAY.com at travel@usatoday.com. Include your name, hometown and daytime phone number, and he may use your feedback in a future column.
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