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
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
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).
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
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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