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
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.
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
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.
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
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.
- They tried unsuccessfully to get a refund from the
- They purchased the ticket in their home state or within 100
miles of their billing address.
- The fare was more than $50.
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.
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