Elise Grossman, a New York student, remembers all too well the inglorious demise of Eastern Airlines in January.
She found herself stranded in West Palm Beach, Fla., her Eastern ticket worthless. ”I ended up spending an extra $350 to get home,” she said. ”I was furious.”
In the not-too-distant past, passengers chose an airline based on its schedule or its service.
Today, an airline`s balance sheet factors into the reservation equation.
”You have to take into consideration not only flight schedules and amenities, but whether the airline will be around three months from now,”
said David Perelman, president of DMS Travel Group in New York.
A combination of higher fuel costs, the recession and wartime jitters means empty seats and record losses for the industry.
Two airlines, Pan Am and Continental, recently filed for Chapter 11 bankruptcy protection. One other, Trans World Airlines, has failed to make a timely payment to its creditors.
And, of course, Eastern Airlines stopped flying altogether in January after 63 years in business, the last two spent under the cloud of a crippling strike.
Once an airline files for Chapter 11 protection, ticket holders become creditors, along with fuel suppliers and aircraft leasing companies.
Should the airline cancel all flights, your refund depends on how you paid for the ticket, what safeguards have been arranged by the bankruptcy court and what`s left of the airline.
Granted, just because an airline files for bankruptcy protection doesn`t necessarily mean it`s about to stop flying. Continental, for one, has actually added flights since it filed.
But a wise traveler will take precautions before making a reservation on a financially precarious airline.
Refund not guaranteed
The surest way to protect yourself is to pay for a ticket with a credit card. A refund is not guaranteed, but most card companies will suspend that charge on your account while they go after the bankrupt airline themselves.
At the very least, using a credit card buys you some time, since credit companies are legally required to suspend a questionable charge while they investigate it.
Credit cards, like Visa and MasterCard, have policies similar to charge cards like American Express, but the precise rules may vary with the bank that issued the card. Amex will suspend a charge with only a phone call, but many bank cards require written notification.
If you do pay cash for a ticket, you have to file for a refund with the bankruptcy court, a potentially time-consuming task.
Another form of protection is trip-cancellation insurance.
Such policies, available from a number of insurance companies, cover all kinds of reasons for a canceled trip, such as sudden illness.
If an airline or charter company should go out of business after you`ve bought a ticket, the policies will make up the difference between the amount of your original ticket and a more expensive substitute one.
A typical policy costs $5.50 for each $100 of coverage.
But travel insurance has some major drawbacks.
Some policies must be bought several weeks before the departure date and, of course, they won`t compensate for the inconvenience of being stranded in Jakarta while you frantically search for another flight home.
And just as medical insurance rarely covers a ”pre-existing condition”
most travel policies aren`t valid if an airline had already filed for bankruptcy protection when you bought the ticket.
In hope of winning a loyal customer, other carriers may honor tickets of a recently defunct competitor.
Confusion was rule
After Eastern shut down, confusion was the rule at many airports. Some passengers simply handed their Eastern tickets to another airline`s gate agent and boarded the plane, while others had to buy a higher-priced ticket and then file for a refund from Eastern.
”It was pot luck,” said Nathan Devore, vice president of Rich Worldwide Travel in New York. ”It depended on the ticket agents` mood, their attitude, their knowledge of the situation.”
Still, most Eastern passengers were simply inconvenienced.
Hoping to reassure travel agents and consumers, Eastern had set up a $50 million escrow account that guaranteed tickets.
”The net result is that very few people lost money with Eastern,” said Ed Perkins, editor of Consumer Reports Travel Letter.
A traveler`s money may be protected, but his frequent-flier miles probably aren`t. The airlines have gone to great lengths to ensure that the miles are viewed in court as their property, not the passengers`.
”The miles go down with the airline,” said Jeff Miller, a travel lawyer.
He recommends people with bonus miles on a shaky airline use them or, if possible, transfer them to a participating foreign airline.
Some industry experts recommend that passengers avoid booking far in advance on financially shaky airlines.
Offer is matched
For instance, America West, a struggling midsize carrier, recently announced a two-for-one special for travel as far in advance as next year. But other, stronger airlines have already matched America West`s offer with similar promotions.
(Of course, such a strategy may ultimately prove counterproductive, since shunning a weak airline may help lead to its demise, leaving the bigger carriers even more freedom to charge whatever fare they like.)
In today`s imploding airline business, the stronger carriers sometimes have a vested interest in prolonging the lives of their weaker competitors.
Sometimes, the consumer can benefit. For instance, when United Airlines bought Pan Am`s routes to Heathrow Airport in London it agreed to guarantee up to $100 million worth of Pan Am`s tickets should the airline stop flying.
In addition, Pan Am frequent-flier miles could be redeemed on United.
(The sale of Pan Am`s London routes to United Airlines and TWA`s routes to American Airlines were approved last week by the British and U.S. governments after prolonged negotiations.)
Seeking the counsel of a reliable travel agent is always a good idea. But agents are caught in a bind between their desire to support a troubled airline-and thus promote healthy competition-and their obligation to steer consumers away from an airline that may evaporate at any moment.
Some agents were still recommending that consumers fly Eastern right up to the day it shut down.
The American Society of Travel Agents, which represents about half the nation`s agents, doesn`t discourage its members from booking passengers on troubled airlines because doing so ”would become a self-fulfilling prophecy,” said Phil Davidoff, president of the group.
”We`re strong believers in the importance of competition.”
Still, many travel agents are now advising passengers if an airline is flying under bankruptcy protection, and some are even requiring clients to sign a waiver, absolving the agent of any financial responsibility should the airline stop flying.
