Friday, 10 September 2004

Another airline bankruptcy may be imminent

Rumors of an immiment major airline bankrupcy once again abound, with the New York Times reporting this morning that “US Airways appears all but certain to seek bankruptcy protection on Sunday”.

I’ve once again updated my FAQ on Airline Bankruptcies with the details on what this means for travellers, and what you can do if, like me (in circumstances fitting one of the exceptions I explain in my FAQ) you already have tickets on US Airways, or on other airlines like United that are already bankrupt.

The renewed risk of bankruptcy and liquidation of major airlines raises several consumer issues for Congress:

  • As discussed in my FAQ, the law imposing a (very limited) obligation on some USA-based airlines to transport holders of tickets on other USA-based airlines that cease all service (for a fee, if they fly the exact same routes, and if they have space available after selling as many of their own tickets as they can), is currently scheduled, after two extensions, to expire automatically after 18 November 2004. No bill to extend it is pending in Congress.
  • Even if that law is extended, it probably won’t help most ticket holders. In addition to the limitations I’ve just mentioned, an airline faced with the prospect of having to transport a bankrupt airline’s passengers for US$25 each would have every reason to lower its prices to fill as many of those seats as possible with its own passengers for US$26 each instead.
  • Tiicket holders actually provide a large an essential part of the financing without which most airlines couldn’t keep flying: When you buy a ticket for future travel, you are making an interest-free loan to the airline, since most of their costs of transportating you aren’t incurred until the time that you actually fly. At any given time, billions of dollars of these loans from travellers to airlines are outstanding. But those loans are considered “unsecured”, and ticket holders are last in line to receive any compensation when an airline is liquidated. Congress should recognize the importance to airline financial stability of these ongoing loans from travellers, and require that airlines and bankruptcy courts treat ticket holders as preferred creditors.
  • As I’ve previously pointed out, liquidation of US Airways (or another airline) would mean the court-supervised auction of its assets, including its archives of reservation records and all its data about anyone who has ever been a member of its frequent flyer program (including, for example, transactuion records of their frequent flyer affiliate credit cards). Congress needs to act fast to enact a Federal travel data privacy law before that happens.
Link | Posted by Edward on Friday, 10 September 2004, 11:46 (11:46 AM)

Great article.


Posted by: Mike Smith, 19 July 2007, 11:52 (11:52 AM)
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