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United Files Chapter 11: What Fliers Need To Know

(December 9, 2002)

United Airlines filed for Chapter 11 bankruptcy protection today citing "continued losses and staggering debt payments". Sadly, United and US Airways, which filed Chapter 11 late last summer, may not be the only airlines 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 United's ticketed passengers, the company is still flying and contends it will continue to fly even though it will more than likely furlough workers, downsize the fleet, and perhaps discontinue service to some destinations.

Similarly, US Airways filed for Chapter 11 last August, 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.

Few Guarantees

In the past, customers holding tickets on bankrupt airlines that ceased operations ran into turbulence trying to get other airlines to honor them. After the tragedies on September 11, Congress passed of the Aviation and Transportation Security Act; Section 145 of this act requires air carriers to provide service on routes they operate, to the extent practicable, to passengers who hold tickets for those routes from carriers who have ceased service. Furthermore, Section 145 states that passengers holding valid paper or electronic tickets from insolvent or bankrupt carriers for a particular route are entitled, at minimum, to transportation on a space-available basis on any airline currently serving that route. Airlines may recover costs of providing the transportation, such as the direct cost of rewriting a ticket and meal costs. The department does not foresee those costs exceeding $25 each way. Click here to view the entire text of Section 145 (in PDF format).

Your Rights

Even with Section 145, which is only valid until May 19, 2003, there are surprisingly, few rights, 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:

United Airlines
Department of Transportations Air Travel Consumer Report


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