Be in the know - protect yourself from airline bankruptcies
October 2010
When airlines cease operations, not only are many passengers left stranded; they also become the unfortunate owners of worthless tickets. The provisions of bankruptcy filings protect airlines, not passengers, so it is best to know what you're up against if an airline fails.
All hope is not lost when an airline goes bankrupt. What matters is the priority typically given to passengers seeking refunds. Basically it's "go to the back of the line." Airlines that seek protection from creditors still owe money to them, but who gets paid first depends on how much money is left, if at all. Based on the type of bankruptcy filing, airlines usually have to submit a plan to a court on how it will emerge from bankruptcy and become viable again. Debts owed to creditors are negotiated down or forgiven entirely depending on what the judge rules. A judge can also determine whether an airline can emerge from bankruptcy or be forced into liquidation. This is why the refund process for affected passengers can be so arduous when an airline declares bankruptcy. It's as if someone suddenly hits the "pause" button and everything gets suspended. So what is your best course of action?
There are few consumer protection laws that deal directly with airline bankruptcies. The two best ways to defend your money is to pay with a credit card and/or purchase insurance that specifically protects against such losses. Some travel agencies also offer insurance but you must read the fine print and be aware of the terms and conditions. Not all insurance protects you from an airline failure.
If you paid a travel agency directly without using a credit card, airline bankruptcies could pose a problem. At best, you may have to wait a while for any refund. At worst, there is no guarantee that you will receive anything at all. Travel agents are beholden to authorizations from the airlines for refunds since the agents sell tickets on the airlines' behalf. Once the money has reached the airline, it is up to the airline to honor any requests for reimbursements and this could get tangled up in a web of bankruptcy court proceedings. This includes transactions using debit cards as these are processed like instant check transactions rather than credit card purchases. In many cases, debit cards bearing the logo of a major credit card issuer can be used just like a credit card and may offer more protection as a result. It is best to check with your bank and read your agreement before facing any reason to dispute a charge. /P>
Why is a credit card a safer bet? The transactions can be disputed as a service not rendered in most cases. There may be limitations on the amount charged or the timeframe in which to dispute a charge, but it often is your best recourse in these situations. For example, the Consumer Credit Act in the UK states that if a purchase is more than £100 you should be able to obtain a refund from the credit card company.
The Civil Aviation Authority (CAA) looks after airline consumer issues in the UK. According to the CAA, all travel companies selling air holiday packages and flights in the UK are required by law to hold a license called an Air Travel Organizer's License ("ATOL"), which is granted after the company has met the CAA's licensing requirements. Each ATOL holder is issued with a unique ATOL number, which can be checked on the ATOL website, and must contribute to a protection fund called the Air Travel Trust (ATT). In the event of an ATOL holder's failure, the ATOL Scheme ensures customers who paid and contracted with the ATOL holder for an air holiday package or a flight, do not lose the money paid over or are not stranded abroad. However, keep in mind that the CAA also warns that the ATOL Scheme does not cover bookings and payments made to airlines, or to airline agents where airline tickets or a similar airline booking confirmation has been issued. In other words, if you book directly with an airline, you may be out of luck if the carrier ceases operations.
In the U.S., the Fair Credit Billing Act (FCBA) protects credit card consumers who wish to dispute a charge. The Federal Trade Commission (FTC) offers this advice for general disputes:
- Write to the credit card issuer at the address for "billing inquiries," not the address for sending your payments (the address for billing inquiries is often found on the back of your most recent monthly statement); include your name, address, account number and a description of the billing error.
- Send your letter so that it reaches the credit card issuer within 60 days after the first bill containing the error [or disputed charge] was mailed to you.
- Send your letter by certified mail, return receipt requested, so you have proof of what the credit card issuer received. Include copies (not originals) of sales slips or other documents that support your position. Keep a copy of your dispute letter.
- It is important to send the letter to the correct company. In the case of Visa and MasterCard, you should send it to the bank that issued the card.
The credit card issuer must acknowledge your complaint in writing within 30 days after receiving it, unless the problem has already been resolved. And the credit card issuer must resolve the dispute within two billing cycles (but not more than 90 days) after receiving your letter.
In the case of airline bankruptcies, it is best to include in your letter that you are disputing a charge for services not rendered because your airline has declared bankruptcy. Include copies of your tickets, receipts, date of purchase and other supporting material. Always keep the originals. This may prove more difficult if you were charged and billed for your tickets more than 60 days before your airline stopped flying.
Airline insolvency is a reality that we hope to never face. Carriers in dire financial straits may offer deals of a lifetime and fares that can't be beat. They may even offer guarantees that they will continue flying after declaring bankruptcy. Though this may be likelier for larger, well-established carriers with deeper (albeit porous) pockets, nothing is certain. Airlines that make such claims may be exuberant with their promises, but misguided nonetheless. Once in the hands of the courts, anything can happen.
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