Sky High Fuel Costs Are Grounding Airlines
High fuel costs are causing severe turbulence in the
skies. Last week, Dallas based Legend Airlines, which has
only been operating since April, ceased operations because it simply
ran out of money. On Wednesday evening (December 6), Las Vegas based
National
Airlines surprised many by filing for Chapter 11 bankruptcy
protection.
Faltering airlines have long had a tendency to
file for bankruptcy or cease operations prior to the beginning of
the New Year, particularly when they feel they won’t have enough
cash to endure the slow bookings that are typical for the first
quarter.
For Airlines, Every Penny Counts
So,
what’s happening as the year 2000 closes? Higher than expected fuel
costs have virtually wiped out profits for many major airlines this
year. However, unlike their start-up counterparts, larger airlines
have deeper pockets to ride out the rough times.
For the past
eight years, jet fuel has remained relatively steady around 60 cents
per gallon. It’s currently about $1.09. Legend spokesperson Kimberly
Plaskett told Reuters, “Our business plan was prepared for a rise in
fuel costs, but nothing like this has been seen before. Seven months
ago, fuel cost 38 cents (per gallon) and not long ago it was as high
as $1.15.”
In a Wednesday night news conference, Michael
Conway, President and CEO of National Airlines stated, “Each penny
increase in fuel cost impacts us by $60,000 a month.”
Legend’s Champagne Wishes
Legend Airlines, the
anti-airline that wooed passengers with coach prices and luxury
amenities such as leather seats, champagne, and four feet of
legroom, is trying to get back in the skies. The airline operates
seven 56-passenger DC-9 airplanes, which fly from Dallas to Los
Angeles, Washington, D.C., New York, and Las Vegas.
President
and CEO T. Allan McArtor stated in a company press release, “We are
doing our best to assemble the necessary resources to get our
airline back in the air with service for customers.”
National Still In the Game
National Airlines,
which began service in May of 1999, was marketed as a hometown
airline that could bring more tourists to Las Vegas. The airline
operates 17 Boeing 757 airplanes and offers service to Chicago
(Midway), Dallas, Los Angeles, Miami, Newark, New York,
Philadelphia, San Francisco, and Washington D.C. Service to Chicago
(O’Hare) is scheduled to begin on January 25, 2001.
Things
appeared to be going well for National. The casino-backed airline
carried its two-millionth passenger in September. It showed a profit
for six consecutive months this year (March through August), and
recently has been ranked second among U.S. carriers in Conde’
Nast Travelers 2000 Readers Survey.
Apparently, the good
news was not enough to make Harrah’s Entertainment, which owns 47.6
percent of National, want to fund the carrier any further. In a
company press release, National’s CEO Michael Conway said, “The
decision to file for Chapter 11 protection was difficult, but
necessary in order to protect our ability to meet our obligations to
our customers.” He goes on to say, “Once we have completed the
reorganization process, we expect National Airlines to emerge as a
stronger company with a sound financial structure that is
appropriate, not only for today’s level of business activity, but
also for the future.”
Conway speaks from experience, as this
is not the first time he has been through the bankruptcy mill. In
1991, while CEO of America West Airlines, Conway filed for Chapter
11. America West, along with fellow Chapter 11 alumni, Continental
and TWA, has been able to successfully reorganize without
inconveniencing its passengers.
Consumer
Protection
What can consumers do to protect themselves if
the airline they are ticketed on stops flying? Hopefully, the
airline will make sure you are accommodated on another airline.
However, sometimes that’s not the case.
Fortunately for
National’s ticketed passengers, the company is still flying and
contends it will continue to fly its normal schedule. National
spokesperson Dik Shimizu said, “We are continuing our operations as
normal. Every flight, everyday, all normal
reservations/ticketing/refund rules apply . . . basically, nothing
changes.”
However, for Legend Airlines, the situation isn’t
as promising. Although Legend claims that passengers holding tickets
are being accommodated on other carriers, a report in yesterday’s Dallas
Morning News said that some customers couldn’t use their Legend
tickets on other carriers because they weren’t being honored. The
reason cited by other carriers is that Legend cannot 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.
So, what can you
do to protect yourself in case your airline doesn’t come through? No
matter what, it’s highly recommended that you always pay by credit
card. Consumers are protected under the federal Fair Credit Billing
Act. If you did not get the flight you paid for, it’s considered a
billing error and is disputable with your credit card company.
You’ll need to send a letter to your credit card company about the
complaint; otherwise, you won’t be protected legally. The letter
must reach the creditor within 60 days after the first credit card
statement containing the billing error was mailed.
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