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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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