Tuesday, 29 November 2011

American Airlines and American Eagle are bankrupt

American Airlines, American Eagle, and their parent holding company AMR Corporation filed for bankruptcy this morning.

What does this mean for travellers? See my updated FAQ about Airline Bankruptcies.

American Airlines’ initial press releases and statements to customers today have carefully avoided the fraudulent claims most of their competitors have made when they have gone bankrupt. (I know their p.r. department has read my FAQ and this blog, so maybe they’ve learned from my criticisms of other bankrupt airlines.) Rather than making false “promises” about what it “will” do, AA has — thus far — talked only about what it “expects” to do. Qualified kudos.

[Update: After I first published this article, AA posted an FAQ on Flights and Tickets including the following: “Will my American Airlines tickets be honored during the entire Chapter 11 process? Yes.” A similar Letter to AAdvantage Members claims (in bold) that “Your AAdvantage miles are secure.” In fact, neither of these claims are true. It’s worth noting that, like many other companies, AMR carefully qualifies its “forward-looking statements” to investors and potential investors, but not the equally-uncertain forward-looking statements it makes to customers and potential customers. That’s because the SEC is much more vigilant in policing truth in investment solicitations than is the Department of Transportation in policing truth in airline advertising.]

By filing for bankruptcy protection, AA has admitted that it is insolvent, and has placed its future in the hands of the bankruptcy court. Whether it will be allowed to continue to operate flights, honor tickets, pay refunds, or redeem frequent flyer mileage credits is now up to the bankruptcy court, not AA management. AA can make no promises about what the court will do.

The most important thing for travellers to understand is that the bankruptcy court will make its decisions on the basis of what it thinks is most likely to pay off as large a fraction of the airline’s debts as possible, not on the basis of what is in the interests of travellers.

When you buy tickets for future travel, you are making an unsecured interest-free loan to the airline, in exchange for the promise of future transportation. Airlines rely on advance ticket purchases as a significant source of financing. Ticket holders should therefore be considered creditors: They should be represented on the “creditors committee” in the bankruptcy proceedings, and their interests should be considered by the court. Unfortunately, this rarely if ever happens.

The bankruptcy also places the world’s largest airline databases of reservation and frequent flyer records at risk. If the bankruptcy court decides at any point that selling the airline’s assets would generate more money for its creditors than allowing it to continue to operate, the court’s non-discretionary duty will be to auction those records of everywhere you and every other AA passenger has ever travelled, and everything that has earned you AAdvantage miles, to the highest-bidding data mining or marketing company. No law in the USA protects this data from sale. And since nothing in AA’s tariff or contractual conditions of carriage protects the privacy of this data, the court would not be allowed to consider traveller privacy in conducting the bankruptcy auction of AA’s customer data.

If you don’t like that idea, tell Congress to enact a privacy law applicable to commercial travel records.

Link | Posted by Edward on Tuesday, 29 November 2011, 09:11 ( 9:11 AM)
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