A growing list of airlines have found themselves in financial troubles due to high fuel prices, falling demand and even credit card processor worries.
Aloha, ATA, Frontier (FRNT), Maxjet and Skybus have all either stopped service or have filed for bankruptcy protection. Even more airlines are likely to join this list in the months to come. AirTran (AAI) stock plummeted last week on speculation that it may be one of them. (Delta and Northwest reached a deal on a merger. Full story here.)
Many people are surprised to learn that passengers have no government granted rights when an airline cancels a flight or an airline goes bankrupt. People have assumed for a long time that airlines would honor tickets from a bankrupt airline for a small fee or the bankrupt airline would continue to fly. While this was true in the past, it's no longer the case.
Even after deregulation when airlines were no longer required by the government to help passengers out with canceled flights, many airlines honored tickets of competitors that went out of business. That began to change after Sept. 11. Airlines, facing an industry-wide slowdown, began to refuse to honor tickets from airlines that went bankrupt.
In response, Congress wrote a new law in November 2001 that required airlines to rebook passengers from bankrupt airlines for a set handling fee. Originally this fee was $25 one-way, but the Department of Transportation raised the handling fee to $50 one-way in 2005. In addition to requiring airlines to rebook tickets, the law gave ticket holders the right to ride standby for $50 each way for 60 days on their ticket.
Unfortunately, after heavy lobbying from the airline industry, Congress let this law expire in 2006, meaning that there is no longer any law requiring airlines to honor tickets from competitors that go bankrupt. During this recent round of airline bankruptcies, many airlines have refused to accept the tickets of the bankrupt airlines, forcing ticket holders to purchase new ones.
Due to this, consumers need to be much more careful when picking airlines, especially for tickets bought months in advance. If you are planning a trip that involves air travel, here are a few things you can do to help protect yourself.
1. Use a Credit Card (Not a Debit Card)
Buying your ticket with a credit card can give you some protection and the possibility to get a refund if an airline goes bankrupt. The Federal Fair Credit Billing Act can help you get a refund since this act states that when consumers purchase something by credit card and then fail to receive it, the consumer can contest the charge with their credit card company. To do this, the consumer must contest the charge in writing within 60 days of the billing date which shows the charge. If you meet these requirements and the airline you had tickets on goes bankrupt, you should get a refund from your credit card company for the amount you paid for the ticket.
2. Don't Buy Too Far in Advance
Just because you pay for your airline tickets with a credit card, don't assume that you will be able to get a refund if the airline goes bankrupt . The important issue to remember is that you can make a claim with your credit card company if it's made within 60 days of when the charge shows up on the credit card bill.
This can be a difficult time limit to abide by for peak season travel which often requires booking far in advance. In these cases, you need to realize that even if you purchase your tickets with a credit card, you will likely not be able to get a refund from your credit card company if the airline goes bankrupt. If you want the protection that a credit card offers, you need to book your tickets within 60 days of your trip's return flight.
3. Consider Travel Insurance
While your credit card may protect your airline ticket, it won't protect your entire trip if you can't make it to your destination. If you are planning a costly or lengthy trip, it may be worthwhile to consider travel insurance to protect you from an airline bankruptcy in addition to other situations that may arise. If you choose to do so, make sure you understand exactly what the travel insurance covers as travel insurance coverage can vary from company to company.
4. Go With a Larger Airline
What many people fail to take into account is that while a credit card can get you a refund for the ticket you purchased when an airline goes bankrupt, you may very well end up having to pay for a premium priced, last minute fare to make it to your destination. Therefore it's in your interest to choose an airline that has a much less chance of going into bankruptcy in the first place. While larger airline are not immune to bankruptcy, they are in a much better position to remain flying if they do declare bankruptcy than smaller airlines.
While smaller airlines may entice you with low fares, if you absolutely need to make it to the destination for a wedding, funeral or an important meeting, paying a bit more for a ticket with a larger airline can make a lot of sense with the current air travel conditions.
5. Don't Buy Tickets on a Bankrupt Carrier
If you are purchasing tickets, don't buy tickets on an airline that is already under bankruptcy protection even if they are still flying.
Once under bankruptcy protection, an airline can be shut down at any time by the bankruptcy court even when they claim they will continue to operate and honor all tickets. It ultimately is not their decision and you can easily be stranded. Even when the airline offers a lower price or a better flight schedule, the added risk of not getting to your destination or back home isn't usually worth it.
There is no guarantee that any airline won't go bankrupt, but you can look at how the carrier is doing to determine if they are in good financial shape. With the current conditions making it tough on all airlines, being extra cautious when purchasing airline tickets makes sense and realizing that getting the lowest airline fare is no longer the only consideration that you need to take into account.