What to do when your airline goes bankrupt

Christopher Elliott Travel columnist • Profile • E-mail

First it was Aloha Airlines. Then it was charter carrier Champion Air. Today it’s ATA. Within a week, three airlines have been grounded, leaving thousands of passengers stranded.

What’s next?

Well, there’s bad news — and more bad news. You don’t have the same legal protections you used to. And an air carrier that says it will accept your ticket may not be as helpful as it sounds. Worse, the wave of bankruptcies may be far from over.

“I am in a panic,” says Anita Fancon, who held 16 tickets worth a total of $6,500 on ATA at the time of its demise. “We are celebrating our 50th wedding anniversary this year, and we planned to take the whole family to Maui for one week. What happens now?”

Don’t look to the government for help. Federal law — specifically, Section 145 of the Aviation and Transportation Security Act of 2001 — required airlines to accept stranded passengers on a space-available basis. But the law quietly expired in late 2006.

As a practical matter, some airlines are coming to the aid of travelers. For example, United Airlines is helping Aloha Airlines passengers get to their destination. Some firsthand reports suggest there’s some confusion about the terms of its agreement, though.

“I talked to three different agents and I was getting a different story every time,” said Magdalena Platte, a passenger from Reno, Nev. “One of the options was to rebook the ticket at discounted price of $994 — which was laughable, since Expedia offers those same tickets at $945.”

But that’s not the worst of it. If you paid for your ticket with anything other than a credit card, your chances of seeing your money are slim to none.

For example, in ATA’s case, travelers who paid by cash or check are ineligible for refunds, according to a statement on its Web site. “These customers may be able to obtain a full or partial refund for their unused tickets by submitting a claim in ATA’s Chapter 11 proceedings,” it says. “Information about submitting a claim will be available at the following website.”

Note the use of the term “may.” In fact, passengers are usually at the bottom of the list of claimants in a bankruptcy court. Chances are, you’ll see pennies on the dollar — if that — after the carrier liquidates.

And what if you paid by credit card? Don’t listen to the talking heads on TV who assure you that you’ll be protected if you paid by plastic. Maybe you will. Maybe you won’t.

What these so-called “experts” often fail to mention is that when it comes to these kinds of disputes, the Fair Credit Billing Act technically only protects consumers who have made purchases in their home state or within 100 miles of their current billing address. (Some credit card companies regard these issues as “quality of goods and services” disputes rather than billing errors, so they refuse to reverse the charges.)

If you paid by credit card, initiate a dispute immediately. You’ll probably get all of your money back, but don’t count on it. If you’re working with a reputable card, have made the reservation recently, and contest the charges right away, you’re likely to see a full refund.

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