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Flying Into Chapter 11: What Fliers Need To Know

(August 18, 2001)

Midway Airlines filed for Chapter 11 bankruptcy protection this week citing a "calamitous drop" in business travel. Sadly, Midway will not be the last airline to walk the bankruptcy tightrope as airline industry profits continue to nosedive.

What is Chapter 11 and what does it mean to consumers? In a nutshell, Chapter 11 gives airlines (or other companies) time to come up with a plan to handle its business debt. In the meantime, most airlines continue to operate a full or reduced schedule. If not, the carrier usually has reciprocal arrangements with other carriers to accommodate customers. However, sometimes that is not the case.

Options

Fortunately for Midway’s ticketed passengers, the company is still flying and contends it will continue to fly even though it halved its workforce, cut its fleet by 17 aircraft, and discontinued service to nine destinations: Buffalo, Dayton, Pittsburgh, Rochester, Washington Dulles, Birmingham, Los Angeles, Providence, and San Jose. Whether the airline can keep flying remains to be seen.

Similarly, Las Vegas based National Airlines filed for Chapter 11 last November, and continues to fly "business as usual" while it works on its business plan. Other airlines, like Continental and TWA (now owned by American Airlines), have successfully navigated through Chapter 11—twice! Nevertheless, Chapter 11 is no guarantee the airline will make it.

No Guarantees

Last November, customers holding tickets on former Dallas-based Legend Airlines, which filed for Chapter 11, ran into turbulence trying to get other airlines to honor them. Legend told customers that six other airlines would accept its tickets; however, numerous passengers had tickets denied by several carriers that refused to accept Legend's tickets. The reason cited by other carriers is that Legend could not afford to give each of its customers a flight interrupt manifest, a document that would require Legend to pay another airline 17 percent of the other airline’s highest coach fare ticket.

Your Rights

What are consumers' rights if a carrier shuts down and does not deliver? Surprisingly, few rights exist, as there are no statutes, regulations, or industry guidelines calling for defaulting airlines to make refunds. Equally, other airlines have no responsibility to honor a bankrupt carrier's reservations or tickets—even on a standby basis.

The best protection is to always pay by credit card. Consumers are protected under the federal Fair Credit Billing Act. If a customer did not get the flight they paid for, it's considered a billing error and is disputable with the customer's credit card company. According to the Fair Credit Billing Act, consumers have the right to reverse the charge if:

  • They tried unsuccessfully to get a refund from the airline.
  • They purchased the ticket in their home state or within 100 miles of their billing address.
  • The fare was more than $50.
Most importantly, consumers need to document the complaint in a letter to their credit card company; otherwise, they will not be protected legally. The letter must reach the creditor within 60 days after the first credit card statement containing the billing error was mailed. Understand this rule does not apply to corporate cards.

If you paid by cash, it could be years before you get a refund—if any—as the case is played out in bankruptcy court.

Related Links:

Midway Airlines
Department of Transportations Air Travel Consumer Report


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