Your Rights with Bankrupt Airlines
On Wednesday night National Airlines abruptly ceased operations, leaving stranded passengers, and many other future passengers, with potentially worthless tickets.
New legislation obliges airlines to help out if your carrier goes bankrupt. Know your rights and insist on them.
The last time there was an airline bankruptcy, some airlines failed to follow the obligations imposed on them by the Aviation and Transportation Security Act of 2001.
Here's an explanation of their obligations - and your rights - in such situations.
The Law - in Theory
The Aviation and Transportation Security Act, rushed into law shortly after 9/11, contains an interesting provision to require other airlines to assist passengers stranded by airlines that go bankrupt. Probably this was included to recognize both the increased likelihood of airlines going bankrupt after 9/11 and also to impose some obligations on remaining carriers, all of whom were given massive public handouts of cash immediately after 9/11.
This is important to remember. The government isn't saying to the airlines 'you have to do these things for free'. It is saying 'because we gave you hundreds of millions of dollars, you have certain obligations in return'.
The law states
SEC. 145. AIR CARRIERS REQUIRED TO HONOR TICKETS FOR SUSPENDED SERVICE.
(a) IN GENERAL.—Each air carrier that provides scheduled air transportation on a route shall provide, to the extent practicable, air transportation to passengers ticketed for air transportation on that route by any other air carrier that suspends, interrupts, or discontinues air passenger service on the route by reason of insolvency or bankruptcy of the other air carrier.
(b) PASSENGER OBLIGATION.—An air carrier is not required to provide air transportation under subsection (a) to a passenger unless that passenger makes alternative arrangements with the air carrier for such transportation within 60 days after the date on which that passenger’s air transportation was suspended, interrupted, or discontinued (without regard to the originally scheduled travel date on the ticket).
(c) SUNSET.—This section does not apply to air transportation the suspension, interruption, or discontinuance of which occurs more than 18 months after the date of enactment of this Act.
The sunset provision means that any airline bankruptcies after 19 May 2003 will not be covered, unless the act is extended prior to that time.
UPDATE 18 Feb 2003 : The act was extended and now expires on 19 November 2004.
UPDATE 9 Dec 2004 : After a brief period with the act expired, it was again extended and now expires on 19 November 2005.
UPDATE 10 June 2005 : The $50 (roundtrip) fee that airlines can charge to accommodate passengers from a failed airline has been increased to $100 (ie $50 one way).
UPDATE 14 Dec 2005 : The act has been extended and now expires on 30 November 2006.
The key term here, of course, is the phrase 'to the extent practicable'. What does this mean? Does this mean that other airlines have to add extra flights? Does it mean they have to carry you for free?
The word practicable is defined by Merriam-Webster as 'capable of being put into practice or of being done or accomplished'. So, potentially, the law could require airlines to do all these things. The law makes no reference to airlines recovering their costs, and neither does it say that the other airlines can charge any amounts they choose to the disrupted passengers.
A less extremist view, and what the law most likely would be interpreted in a court as meaning, is that other airlines are expected to allow distressed passengers to fly on their already scheduled flights if they have seats that they reasonably expect to otherwise remain unsold, and that they are expected to make these seats available to such people 'at cost' rather than at a profit.
The Law - in Practice
The law got its first test in August, following the July bankruptcies of Vanguard and Midway Airlines. Would you be surprised to learn that not all airlines had a consistent view of what 'to the extent practicable' meant? Some airlines offered to take passengers on a space available basis, for $100 a flight (potentially a higher cost than some of their confirmed space passengers had already paid!). Other airlines 'generously' offered to waive advance purchase requirements on some of their fares - again causing these extra passengers to pay as much or more than some of the already ticketed passengers on the flights!
Some airlines also refused to allow passengers the full 60 days that the law clearly entitles them to, during which they can make such other travel arrangements as they need. While the meaning of the phrase 'to the extent practicable' might be unclear, the 60 day provision is crystal clear and refusing to observe that requirement has to be considered as plain willful disobedience on the part of the airlines.
These actions provoked an unusually strongly worded note from the Department of Transportation. They said that, 'at a minimum', other airlines were required to transport displaced passengers (from the bankrupt airline) on a space available basis on the same day as their cancelled flights had been booked, and without 'significant extra charges'.
Now you might be wondering what a 'significant extra charge' is! Fortunately, the DoT spelled this out, too. They said that other airlines should not charge more than $25 each way (now, as of June 2005, increased to $50).
Still Unresolved Issues
Although the DoT note clarified what it thought the minimum airline obligations were - in terms of extending space available travel on the same date that the travel was booked with the bankrupt carrier, it did not clarify what the maximum obligations were, or what the airlines should do to cater for people that ended up being forced to travel on different dates, or who wanted confirmed travel arrangements rather than risking the uncertainties of space available travel. All in all, it was a very unsatisfactory note.
In the case of the National Airlines bankruptcy, several carriers have responded by offering same day space available travel for $25, but they are generally silent about any type of confirmed/positive space option. For example, Alaska Airlines limit their offer to space available travel, but only on the day you were originally booked, or - if you can't get on a flight that day - the immediately following day. If you still haven't got a flight at the end of the next day, their policy seems to be that they'll then refuse to help you any further!
And, as shown on their website, their 'offer' of confirmed space travel is absolutely nothing - you simply buy any ticket that they have for sale, at its normal price and subject to the normal terms and conditions!
By no stretch of the imagination can Alaska Airlines' (and the other carriers) limited response to the National Airlines bankruptcy accordingly be described as providing air transportation 'to the extent practicable'. But, as in some other issues, the airlines seem willing to gamble that no-one is going to take them to court over the matter. Let's hope that some aggressive attorney with time on his hands is one of the stranded passengers.....
Electronic Ticket Problems
National Airlines closed down everything, including its website and its reservation system on Wednesday night. Other airlines are insisting on proof of your National Airlines ticket before they'll allow you to fly on their various 'special offers' for National Airlines customers.
If you only have an electronic ticket. and didn't print out some sort of acceptable proof of this (which is rather counter-intuitive - what is the point of a paperless e-ticket if you still need to carry paperwork with you!) then you are probably out of luck! For this reason, you should always be certain to obtain as much proof of your e-tickets as possible.
Credit Card Refunds
Under the Federal Fair Credit Billing Act, you can dispute a charge if the goods or services weren't delivered as agreed. This probably extends to failure of a bankrupt airline to operate the flights you paid for. For this - and other marketing type reasons - credit card issuers will generally refund you the cost of tickets and travel items that you purchased but were unable to use due to airline or other supplier bankruptcy.
In theory, you need to dispute such charges no more than 60 days after the first bill (ie credit card statement) was delivered to you; in practice, most credit card companies tend to be fairly generous in the case of supplier bankruptcies. Of course, when buying airline tickets a long time in advance of travel, the 60 day period often expires between when you bought the tickets and when you plan to travel.
You almost certainly have more rights - in law - than the airlines are acknowledging or responding to. But this knowledge is cold comfort when you find yourself stranded at the airport, and confronted by an unhelpful gate agent.
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written 8 Nov 2002, last update
26 Jun 2019