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Will US Airways Survive?

(May 24, 2002)

I 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

US 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, TX.

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.

Codeshares with 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 fruitful talks."

What does this all mean for you? The following are some tips and advice on our most asked US Airways questions:

Already purchased tickets

"I 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 June.

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 carriers.

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.

An 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.

E-tickets

"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 transfers.

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 fee.

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.

Real Traveler thoughts

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:

  • 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 and complex.

  • 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 heights.

  • Raising fares have failed.

  • Low fare airlines have greater market share, further deteriorating revenue yields.

  • Employee expenses continue to grow.
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 consumer

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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