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Four Things to Know About Flying a Bankrupt Airline

Here's a surprise for business travelers: Service may actually improve.

When an airline files for bankruptcy protection, stockholders, employees and creditors have reason to complain. But business travelers shouldn't.

Under Chapter 11 protection, airline operations continue as they normally world, as corporate management finds a way to cancel debt and get business costs in line with the current operating environment. While the cuts to staffing may be deep as the airline radically changes operations, by the time those cuts filter down to the customer level, the impact is rather subtle.

"I hate to sound flippant, but Chapter 11 is really a nonevent as far as the business traveler is concerned," said Eric Henderson, vice president for supply relations at Rosenbluth International, a corporate travel management agency. "It's a seamless experience, in terms of flying a carrier before Chapter 11 and flying after."

Indeed, both

US Airways

(USALA)

and

UAL

unit United Airlines were flying under bankruptcy over the last year, and the customer experience was virtually unchanged. In fact, United's on-time performance while it's been in Chapter 11, as tracked by the U.S. Department of Transportation's Air Travel Consumer report, was better than that of any other network carrier.

There's simply no reason to be afraid of flying an airline that's filed for bankruptcy, but here are four things travelers should know if

AMR

(AMR)

unit American Airlines, the world's largest carrier, were to join United, the second-largest, in Chapter 11.

Your Frequent Flyer Miles Are Safe

Of all the uncertainties under Chapter 11, the one travelers fear the most is losing their frequent flyer miles. But a better understanding of the programs and how carriers view them makes it clear that the last thing any carrier wants to do is cancel those miles outright.

Under a frequent flyer plan, carriers reward you for your loyalty to their brand, and a bankrupt airline doesn't want to lose its most loyal customers. So while the airline is under Chapter 11, your miles will be honored. But even in a worst-case scenario, when an airline goes Chapter 7 and completely liquidates its operation, as happened with Eastern Airlines a decade ago, chances are that other carriers will want to acquire that lucrative loyal customer base.

"With Eastern, the previous program simply merged with

Continental

(CAL) - Get Report

to form the OnePass program," said David Stempler, president of the Air Travelers Association. "All those miles were usable on Continental."

Some flyers may want to redeem their miles on a partner airline instead of the airline flying under bankruptcy, which is a good idea, provided they're not making their travel plans more awkward in the process. It would be a mistake to accelerate mileage redemptions or radically alter travel plans, out of fear you'll lose miles.

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Check That Flight Schedule. Often

One of the most pressing concerns for airlines, even those outside of Chapter 11, is controlling capacity to meet the reduced travel demand. On a very basic level, this will mean fewer flights and fewer options going in and out of cities.

"In some business markets, that 8 a.m. flight you always took will be sold out two weeks in advance, so you may have to go out at 11 a.m. or even take a flight the night before," said Kevin Mitchell, chairman of the Business Travel Coalition, an advocacy group for large business travel purchasers.

But cutting flights isn't the only way to control capacity. In the wake of the Sept. 11 attacks, nearly every airline has cut back on those jumbo jets that fly hundreds of people over long distances. Chances are that you'll be in a plane that holds fewer people; Henderson said this has enabled some carriers to increase the number of flights between certain cities.

Capacity is a very fluid thing, especially for a company attempting to overhaul its entire business, so while the general trend is toward fewer flights overall, there are no hard and fast rules. In a best-case scenario, you face fewer options, but in a worst-case scenario, you may have a ticket for a canceled flight.

While rebooking a canceled flight is frustrating, you are entitled to a full refund of your money from the airline, and you can try another carrier. Ultimately, no matter what airline you're on, the experts recommend you check the flight schedule more often, because service cancellations aren't out of the realm of possibility nowadays.

Service Will Change and Possibly Improve

Airline employees may be disgruntled with management, but that doesn't mean they'll be disgruntled with customers. In fact, some believe that service on an airline flying under Chapter 11 is actually better, if only because employees believe they must work harder to save their own jobs.

"With some of the airlines that have gone into Chapter 11, the on-time performance has gone up and the number of customer complaints have gone down," said Stempler. "Employees work as if their job depended on it. You may see a positive effect in the short term."

Furthermore, with the older network carriers feeling pressure from low-cost rivals such as

JetBlue

(JBLU) - Get Report

and

Southwest

(LUV) - Get Report

when it comes to price, that leaves service as one of the few areas where they may be able to glean a competitive edge. In the near term, as airlines cut back on food and flights, customers have reason to complain, but once that initial shock wears off, the skies could be friendlier.

"The network carriers can't go along with a product that looks like a low-cost carrier," said Mitchell. "They're going to have to differentiate themselves in a way that's visible, and one way to achieve that is with excellent customer care."

Some evidence of this differentiation is already surfacing at

Delta Air Lines

(DAL) - Get Report

, where the company's new "no lines" marketing campaign promotes computer kiosks that enable customers to check themselves in -- and luggage, too -- using a system that's as easy as buying a ticket from one of those machines at the movie theater.

Business Fares Could Get Cheaper

As capacity falls overall, airlines will regain some of the pricing power they lost when people stopped wanting to fly. That said, cheap fares to boost slumping demand and the rise of Internet travel agencies that allow customers to find those fares have exposed the airline industry's pricing system.

Business travelers have stopped paying 10 times more for flights that can be changed at will in favor of much cheaper fares that cannot. Instead of exclusively flying an airline that their company has contracts with, executives and others are willing to consider any and all options now. And in the years ahead, the network airlines will have to face their reality and adjust.

"I anticipate prices finally rationalizing," said Rosenbluth's Henderson. "Leisure prices should come up a bit, but the 10-to-1 price discrepancy with business fares will hopefully go away, and they'll get less expensive."