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When Airlines Go Bankrupt


Lately going bust seems to be airlines' favorite pastime

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Mark Feldman  May 12, 2008

I'm a numbers guy. Loved statistics in college. I ruminate over batting averages and calculate in my head exactly how to add a 15 percent tip.

When I was informed that Delta Airlines reported a $6 billion loss the first quarter of this year, though, I was stunned. I am simply unable to comprehend such a large figure. Its efforts to lessen the damage are also staggering. Seems the figure covered some non-cash charges and the actual loss was "only" $250 million. Small change to such a large airline!

Delta's fervent suitor in a mega merger, Northwest Airlines, recorded a $4 billion loss in the same quarter.

We are all aware of how much the price of oil has risen; cognizant of the fact that airline fares have been increased almost 30% in 2008. The fact that the two airlines are trying so hard to merge makes me simply applaud their moxie.

Recently three low-cost carriers in the United States went bankrupt.

ATA Airlines, at one time one of the Top 10 domestic airlines, along with Aloha Airlines and SkyBus closed their gates overnight. They literally stranded thousands of passengers at airports throughout the US.

These harried travelers were forced to fend for themselves in making alternative arrangements. It was a holiday time though, so locating flights with space was no easy task and resulted in financial loss for them.

They did have one strong advantage if they had paid by a credit card. US law is written in such a manner that consumers are protected if a company goes bankrupt and they have not yet received their product.

Getting refunds for the vast majority of passengers who had not begun their journeys was a fairly simple procedure and while the new tickets may have cost more they were not held responsible for the airline's woes.

Closer to Israel we have the sad tale of Alitalia Airlines. With its headquarters in Italy and owned by a splintered Italian government trying to sell the airline, it has been operating at a daily loss of $1.5 million. Strident unions have forced two potential buyers to walk away from negotiations and now the European Union has approved an additional short-term loan to keep it afloat.

Employees in Israel, while optimistic about its chances, are as frustrated as the management of Alitalia who desperately wish to privatize the airline.

This is the background that led Shimon Tapia to write to me: "I've purchased tickets for my family to fly to Miami this summer on Alitalia Airlines and am getting very concerned that it won't be around.

I asked my travel agent if I could cancel but was told I would incur a $150 cancellation fee per ticket. Moreover, when queried what would happen if they did stop flying to Israel, she gave me no comfort whatsoever when I asked if I would ever see my money returned. Is there anything you can do?"

The sad reality is that nothing can be done. Our consumer laws are so antiquated that there is little protection given to Mr. Tapia in the case of such an occurrence.

Personally, though, I'm of the belief that Alitalia will continue flying throughout the summer. Summer time is the peak travel season and all airlines, no matter how poorly managed, are able to fill their planes and bring in those necessary dollars or euros. If memory serves me, and no doubt a reader will find the exception, airlines tend to go bankrupt in the off-season.

But the question raises a much larger issue: Why is there no protection of the consumer in Israel when payment is made by credit card? Countless times we've had charges queried by clients; usually it's when a child uses a parent's credit card and the card owner has "forgotten."

More often it's when a credit card issued in Israel is used to purchase an airline ticket and said airline charges the customer twice. Inevitably we are forced to get the merchant to make the refund. In fact, arguing with the airlines over their ineptitude in double charging always gets my juices flying.

Why the client cannot simply contest the charge and put the onus on the merchant to prove he had permission escapes my logic. In Israel, the cardholder has little recourse but to beseech the recipient to return the funds to the credit card. This is the opposite of consumer law in North America and most European countries.

Thus Mr. Tapia will find no recourse from his local Israeli credit card if Alitalia ceases to fly. In the past, other airlines did honor tickets from airlines that went bankrupt, be they Swissair, Sabena, TWA and Tower Air, but forced the consumer to add hundreds of dollars.

As mentioned earlier, there is no guarantee of finding space on the dates for which you were originally ticketed.

What travelers must do is ensure they have a strong relationship with their travel agent. Find out what the agent's policy is if an airline on which they have bought tickets goes bankrupt. Responsible offices will state forthright that no matter what occurs, if an airline ceases to fly due to bankruptcy, the customer will get every shekel or dollar or euro that has been paid to the travel agency refunded in full.

This goes hand in hand with the superior service that you should always demand and expect from your travel consultant.

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Lately going bust seems to be airlines' favorite pastime
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