When Airlines Go Belly Up

This is taken from today’s Wall Street Journal.


THE MIDDLE SEAT

By SCOTT MCCARTNEY

When Airlines Fail, Fliers Have Few Protections
Law's Lapse Leaves Carriers With Little Incentive to Honor Tickets From Defunct Rivals
April 8, 2008; Page D1

Airlines have a new attitude toward customers of failed carriers: It's your loss, not ours. With more airlines folding these days, the impact on consumers can be severe.

Passenger carriers are no longer required to honor tickets of failed competitors because Congress let a government protection for travelers expire in 2006. So when Aloha Airgroup Inc., ATA Airlines Inc. and Skybus Airlines Inc. all shut down last week, some airlines, including the nation's two biggest, refused to accept stranded ticket-holders.

That is a big change for consumers. They used to be able to buy tickets on struggling airlines with reasonable expectations that either the airline would keep flying if it went bankrupt, or other airlines would honor tickets for a small fee. Now, consumers need to be far more careful in picking airlines, especially for tickets bought months in advance.

AMR Corp.'s American and UAL Corp.'s United, struggling themselves under high oil prices, said they would accommodate Aloha, ATA and Skybus ticket-holders only if they purchased a new ticket for their travel.

The carriers said they did offer tickets at discounted prices rather than full-fare, last-minute purchase prices. United said it offered a one-way fare of $275 from Honolulu or Maui to Los Angeles with no advance-purchase requirements, for example, and $475 from Honolulu to Chicago. American said it waived advance-purchase requirements so Aloha, ATA and Skybus ticket-holders could get discounted inventory if available.

But the reality is that at least some customers paid very steep prices. The Maui News reported several customers at Maui's airport said they had to pay $900 each for one-way tickets from Maui to Los Angeles on American. A spokesman for American, Tim Wagner, says it is possible there was no advance-purchase inventory left when those customers called.

"We didn't have a code-share relationship of any kind with any of these airlines, so anything we do to offer people a discount is basically out of the 'goodness of our hearts,' " Mr. Wagner said. "Any discount we give is revenue lost, and we won't be getting anything out of their bankruptcies. So in a $100-a-barrel oil environment, anything that any airline does is generous."

Other airlines, including Delta Air Lines Inc., Northwest Airlines Corp., Continental Airlines Inc. and US Airways Group Inc., have been offering standby seats to stranded ticket-holders, but only if travelers pay fees that could run up to $400 or more for round-trip travel with connecting flights.

And those standby offers -- $100 per flight segment -- won't be around very long at all. US Airways limited its offer to flights during the first week after ATA's shutdown. For travel after this Thursday, travelers have to buy new tickets.

Hawaiian Airlines offered free standby service for Aloha ticket-holders -- but only for travel over the first four days after Aloha's March 31 shutdown. Hawaiian, a unit of Hawaiian Holdings Inc., didn't make the same offer to ATA customers, largely because it didn't have any empty seats left to offer. The carrier did add some extra flights for ATA customers, but required the purchase of new tickets. For a San Francisco-Honolulu one-way flight, the fare for ATA refugees was about $320, a spokesman said.

The lack of government safeguards, coupled with more-frequent failures, makes struggling airlines riskier for consumers. Carriers that run out of money are finding no new cash is available to keep flying during a restructuring because of the credit crisis and lack of airline investors. So they have to shut down.

Maxjet Airways, Aloha, ATA and Skybus have all folded. Champion Air, a charter carrier, says it will cease operations in late May. Others may be circling the drain as well.

Congress had protected airline passengers against disruptions such as these shutdowns, but that ended in November 2006, according to the Department of Transportation. Now, a DOT spokesman says, "We encourage other airlines to honor tickets when they can."

That's something airlines have historically done. But when tough times threatened to kill that tradition, Congress wrote it into law. In November 2001, after the Sept. 11 terrorist attacks, Congress required airlines to rebook passengers from failed airlines for a handling fee, which the DOT set at $25 one-way and raised to $50 one-way in 2005. The law also gave consumers 60 days to ride standby at $50 each way.

But after lobbying by airlines, Congress let the requirement expire. Airlines argued they shouldn't have to suffer financially from failed competitors. Carriers that accept tickets from failed airlines can file claims in bankruptcy court for reimbursement, but they rarely collect anything on those tickets. And by protecting passengers from risk, Congress propped up dying airlines, hurting competitors who either had to match fire-sale prices or lose customers.

Travelers who bought tickets on now-failed airlines with credit cards do have some protection under the Fair Credit Billing Act. If the airline doesn't deliver the service you bought, your credit-card company has to refund the ticket purchase -- you must dispute the charge within 60 days. Credit-card companies are prepared for refunds -- they require troubled airlines to maintain cash reserves so there is a pool of money available to cover refunds.

Travelers who bought tickets through code-share arrangements have more options -- the airline that sold the ticket should accommodate you. If you bought a United ticket for travel on its partner Aloha, United will rebook you free (but not if you bought the same flight from Aloha). Southwest Airlines Co. sold tickets for flights actually flown by ATA, its code-sharing partner, and promised to re-accommodate customers holding Southwest tickets on Southwest or other airlines.

The Hawaiian islands took a double hit with the recent shutdowns because both Aloha and ATA fly there from the West Coast. Indeed, some of the airline stinginess in accommodating customers results from the fact that most of the routes where ATA and Aloha overlapped with competitors were on long trips to the islands. With limited seats and long flights, airlines were loath to give seats away cheap to bankrupt-airline customers.

Many travelers will undoubtedly pay more as a result of the collapse of two discounters to Hawaii. The cheapest price offered yesterday for a San Francisco-Honolulu non-stop trip this coming weekend was $1,404 round-trip on United, according to Orbitz.com. For the first weekend in May, the cheapest non-stop price available was $789 round-trip on Hawaiian.

Other carriers could eventually add capacity in those markets -- Hawaiian has already said it will begin flying to Oakland from Honolulu on May 1, jumping in on a route flown by both ATA and Aloha. But prices are likely to remain at least marginally higher.

Storrs Warinner, a retired airline captain from Las Vegas, had ATA tickets to Hawaii for December, and now he isn't sure what to do. He did call his credit-card company and was told the ATA charge would never even appear on his bill. As for replacing the tickets, he had hoped other carriers would step in and offer good deals to build new loyalty, or at least cheaper prices to fill new flights. But so far, prices are high, and no carrier has stepped in to replace ATA's non-stop Las Vegas-Honolulu service.

"I'm torn. I think probably people [airlines] will move into the market, but I don't know if I have guts enough to see what's going to happen," Mr. Warinner said.