Will US Airways Survive?
(May 24, 2002)
have been receiving numerous e-mails asking if I thought US Airways
would survive and what customers can do to protect themselves. These
questions are very prudent as travel providers like US Airways
struggle to survive the post-September 11 climate. Among those that
filed for bankruptcy or reorganization since September 11 are
Renaissance Cruises, American Classic Voyages, Swissair, Sabena, Sun
Country Airlines, Alamo, and National car rental. Of those
mentioned, only Swissair, Sun Country, National, and Alamo continue
to operate today.
The US Airways story
Airways is seeking more than $1 billion a year in savings from
employee concessions and other cost cuts. In addition, the airline
plans to apply for a $1 billion loan guarantee from the federal
government to qualify for additional credit.
"We have to
significantly reduce our operating costs to compete more
effectively," says US Airways spokesperson David Castelveter. "Our
preferred path is to reach an agreement plan to restructure the
airline, not a bankruptcy filing. We had to announce the possibility
of bankruptcy reorganization because of legal obligations."
Several of US Airways' largest stakeholders, Airbus
Industrie and Mesa Air Group, announced they do expect the airline
to avoid bankruptcy. Castelveter states that the loan would be used
to restructure the airline, and to bring a significant number of
regional jets into the fleet, anywhere between 300 and 500 aircraft.
Furthermore, US Airways plans to add new destinations such as Mexico
City; Portland, OR; San Jose, CA; Salt Lake City; and San Antonio,
The airline is also looking for a codeshare and alliance
partner to boost revenues, but refused to give specifics about
ongoing codeshare talks with other carriers. It did, however,
concede that one major airline not being considered is Delta,
because of a substantial overlap in routes.
other airlines would give US Airways access to passengers in other
parts of the country, where US Airways doesn't have any routes.
According to a recent announcement, Continental CEO Gordon Bethune says
that financially troubled airlines may need to change their business
models to gain a competitive advantage. He sounded upbeat about the
possibility of a future partnership with US Airways, saying "We've
had a number of talks with US Airways, and I think they've been
What does this all mean for you? The
following are some tips and advice on our most asked US Airways
Already purchased tickets
purchased five tickets in January on US Airways for a cruise we're
talking in December. I'm concerned that if US Airways goes under I
will not be able to get to Ft. Lauderdale to make my cruise," writes
Rich in Sacramento. David Warner from Baltimore shares similar fears
with having five tickets on US Airways to Barbados in
Both want to know what options they have should US
Airways file Chapter 11. US Airways states it will continue to fly.
"If Chapter 11 reorganization is where we go, we would continue to
operate and this would be 'transparent' to the customer," says
Castelveter. Furthermore, if there were indeed adjustments to US
Airways schedules, the company would make arrangements to rebook
travelers on other US Airways flights or flights on other
Still, even with US Airways' reassurances,
consumers need to understand that if an airline declares bankruptcy,
they are not guaranteed a refund by the airline. Airlines are like
any other business that declares bankruptcy: If you paid them by
cash or debit card, you become an unsecured creditor. Your only
option is to join the long list of creditors, and hope at some time
to see part of your money refunded.
If, however, you paid by
credit card and spent more than $50, the good news is you are
covered through the Fair Credit Billing Act. The credit card company
can then initiate a retail dispute on your behalf.
airline that declares bankruptcy can continue service as normal,
work on a limited service schedule, or stop service altogether. Keep
in mind that although other airlines might accept passengers, they
are not required to honor your ticket. If you purchased big ticket
items like a tour or cruise vacation, travel insurance is highly
recommended to protect your travel investment.
"Should I change my e-tickets to
paper tickets?" asks Anne Coffey of Valdese, NC. That might be a
good idea. E-tickets are non-negotiable documents, which could make
changing your ticket to another airline difficult. Should US Airways
shut down or reduce schedules, a paper ticket would easily transfer
to other carriers that choose to accept US Airways tickets.
Unfortunately, US Airways has no interline e-ticketing arrangements
with other airlines that would allow e-ticketing
Frequent flier mileage
If you are
worried about your US Airways Dividend Miles, there are a couple of
strategies that you could use to save your miles. First, you could
redeem all your current miles on partner airlines that are stronger fiscally. You
could use the tickets, or if things return to normal, you can
redeposit your miles back into your Dividend Miles account for a
If you do not want the hassle of redeeming miles on
partner airlines, you might consider PrivilegeFlyer's AwardGuard
program, which acts like frequent flier insurance. AwardGuard has
been in business a little over ten years, protecting frequent flier
members against losing their miles and points due to bankruptcy or
expiring miles. AwardGuard covers most major frequent flier
programs. Protection costs $119 per person for one year and $79 for
each additional family member. For more information, visit
PrivilegeFlyer online. Keep
in mind that depending on how many miles you have in your account,
this insurance may or may not be worth it. I suggest that if you
have at least enough miles for an award ticket (usually, 25,000),
then it makes sense to purchase the protection. If you have much
below that, the price of the insurance will likely outweigh the
value of your miles.
It's now up to the airlines to fight for
survival. "Winning in this business right now is not making the most
but losing the least," says Continental Airlines CEO Gordon Bethune.
Bethune's remarks illustrate the frustration with the rapidly
changing industry standards, which include the following issues:
Simply put, the
economics of the industry are out of whack and something must give.
There is talk of a mass airline industry consolidation where there
would only be two or three large carriers. Today, you have the
option that if you don't like the quality and price of Airline A,
take your business to Airline B, or Airline C, D, and so on. Can you
imagine only choosing between airline A and B? I can't. The more
airlines in business, the more consistent, dynamic, and competitive
the airline market will be. And, that's best for the
- The leisure traveler now rules the skies; whereas, the
business traveler—who once subsidized leisure travel by paying
higher fares—may not return until fare pricing become less skewed
- Fuel prices remain high due to the continuing fear of supply
disruptions related to the Middle East conflict.
- Distribution costs may be lower due to travel agent commission
cuts and online bookings; however, today's savvy consumers using
online bookings have made revenue yields lower.
- Insurance and security costs are escalating to new
- Raising fares have failed.
- Low fare airlines have greater market share, further
deteriorating revenue yields.
- Employee expenses continue to grow.
This story hits too close to home for me. I spent
eleven years of my life as a US Airways flight attendant, and my
husband is a 16-year pilot for them. Starting next month, after five
years as a Captain, he will remove a stripe from his uniform and go
back to First Officer. Even with this setback, he, like the rest of
US Airways' employees, is focused on the job at hand; to provide the
best possible service for their customers. These are truly trying
times for my US Airways friends.
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