What to Do if Your Airline Goes Bankrupt

What to Do if Your Airline Goes Bankrupt

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In the wake of the coronavirus pandemic and Americans halting all travel, airlines are strapped for cash. The COVID-19 crisis has put some airlines into bankruptcy and others on the brink of going bankrupt, leaving consumers scrambling for answers as they try to plan their trips.

If you have upcoming travels and fear your airline may enter bankruptcy, here are a few things to know ahead of time.

What to do if your airline goes bankrupt

First, do not panic. There are steps you can follow to complete your travels as needed.

Search for rescue fares

The first step is to find a replacement ticket. Once an airline declares bankruptcy and ceases operations, competitors will likely offer rescue fares. These fares are typically discounted for those with valid tickets for the now defunct airline.

Dispute the charges

Next, begin the recourse process of getting your money back from the bankrupt airline. To start, give your card issuer a call and dispute the charge based on the fact that the services were not provided to you. They will likely investigate the dispute, which will take a few weeks. The advantage of paying with a credit card in this case, is that you are not required to pay for any charges that are in dispute.

Look at your travel insurance

If the airline bankruptcy causes you to incur additional costs or lose nonrefundable costs such as hotels, a travel insurance policy will likely cover these costs. Many travel rewards credit cards come with complimentary travel insurance, so look into the benefits of the card you used to pay your airfare.

The airline may be required to refund you

Unfortunately, the United States doesn’t have any passenger rights in the case of bankruptcies. But if your flight is to/from/within the 27 countries of the European Union, you are likely entitled to compensation.

Airlines bankruptcies in 2020

In the past few years, there have been a plethora of airline bankruptcies. Each airline has their own reasons for halting operations, with the most recent airlines citing the coronavirus pandemic led to the ultimate demise of their businesses.

AirlineDate of bankruptcy
FlybeMarch 5, 2020
Trans States Airlines (contract airline for United Airlines)Halted operations on April 1, 2020
AviancaMay 10, 2020
Compass Airlines (contract airline for American Airlines)Halted operations on April 7, 2020
Virgin AustraliaApril 21, 2020
LATAMMay 26, 2020

How to protect yourself from an airline bankruptcy

Airline bankruptcies can sometimes come out of nowhere. The unprecedented bankruptcy of Thomas Cook in the United Kingdom in 2019 stranded hundreds of thousands of travelers. However, the British government launched Operation Matterhorn to get people home. Unfortunately, Americans do not have those same protections. As a matter of precaution, you can do the following to protect yourself from an airline bankruptcy:

Get travel insurance

As mentioned above, travel insurance can protect you if an airline bankruptcy interrupts your travels. Before you begin planning your next adventure, consider purchasing a travel insurance policy or signing up for a travel rewards credit card with travel insurance like the Chase Sapphire Preferred® Card or The Platinum Card® from American Express.

Do research before booking

Some airline bankruptcies come as no surprise. For example, the WOW Air bankruptcy in early 2019 was anticipated, as the airline was transparent about their financial instability.

Before you book, do a simple online search for news around the airline. It can give you some insight into the company to see if there is any financial instability or if a bankruptcy is on the horizon.

Pay with a credit card, not debit

As a rule of thumb, you should always pay for flights with a credit card. You can earn valuable credit card points, and you don’t need to pay until the statement is due. If you pay with a debit card, the money is immediately taken out of your checking account. Also, if you need to dispute a charge on your credit card, your issuer will not require you to pay for the charge during the investigation period.

In addition, most credit card products come with more consumer protections than debit cards, including $0 fraud liability in case your card is lost or stolen.

What lies ahead for the airlines

For now, the airlines have received bailout funds from the U.S. government to help recover from a $252 billion loss from the pandemic, according to Forbes.

The airlines face a tough road ahead in 2020. Not only will they need the spread of COVID-19 to decline before they can return to normal operations, but they also need to gain many consumers' trust back. In the meantime, airlines are racing to become the ‘cleanest’ airline by advertising new initiatives to ensure and prioritize customer health and safety.

As for which airlines survive the impact of the coronavirus pandemic, only time will tell.

Brett Holzhauer

Brett Holzhauer is ValuePenguin’s travel rewards expert, focusing on credit card rewards maximization, consumer travel trends, and personal finance news. He has earned and burned over 5 million points and miles throughout his travels, saving him roughly $75,000 in travel expenses.

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