WHAT IF YOUR AIRLINE GOES BUST?
Airline Closings- What you can do to protect yourself
Eos, the all-premium airline that flew between the New York and London metro areas, folded its wings on Sunday, the last in a recent spate of airline closings that has included ATA, Aloha, Skybus, Oasis and MaxJet. So what does this portend for its fellow airlines in general, and your future travel plans in particular?
Yes, oil prices are having a severe impact on all the airlines, and those without deep pockets may not survive. As Frontier, which filed for bankruptcy but is still operating, found out, the credit card companies are also getting squirrelly. Because an airline folding leaves the credit card companies with a lot of exposure, they require what is called â€œholdbacksâ€ from the airlines, i.e. upfront money the airline escrows with the credit card company to mitigate against loss. Because Frontierâ€™s financial picture looked wobbly, at least one credit card provider asked them to put more money â€œdown,â€ and to make a long story short, they didnâ€™t have the cash to do it.
Are the bigger airlines a safer bet? Probably. However, as seen with the recent equipment-related delays, problems with a big airline can snowball. If you have a ticket on a smaller airline that goes under, itâ€™s more likely that another airline will have the room and the graciousness to accommodate you, though you might have to use a different airport. But one of the advantages to the big airlines is that they are almost all publicly held companies, so you can read their financial statements (or read what the analysts are saying about them) and be less likely to be caught by surprise by sudden failure.
Paying for your ticket by credit card is a must, since if you pay by cash or check, youâ€™ll wind up getting pennies on the dollar after waiting in the bankruptcy-court queue. Travel insurance plans are also a good idea if they cover the cost of replacement transportation and any extra nights waiting for an available flight at a reasonable cost.
Expect ticket prices to keep going up as low-cost carriers get knocked out of some markets; current price hikes donâ€™t come close to covering the rising cost of fuel to the airlines. And one more piece of advice: Use your miles, and look into the rules of your â€œmileage bank.â€ In addition to more bankruptcies, mergers and consolidations are in the wind and all your miles may not survive intact.