Airlines are on the verge of bankruptcy – what happens to your voucher, travel miles, and airline credit card if they break down?

The financial horizon looks uncertain for the airline industry.

Air travel has largely come to a halt as people are wary of potentially exposing themselves to the coronavirus. Many airlines have resorted to mostly empty flights – although in some cases passengers have complained of crowded planes, as in the case of a recent United Airlines UAL,
-0.85%
flight.

Carrier shares have been on a roller coaster ride in recent weeks in response. Warren Buffett recently revealed that Berkshire BRK.A,
+ 1.00%
had sold all of its stakes in the air transport sector, including the shares of Delta DAL,
-1.07%,
American Airlines AAL,
-0.58%
and South-West LUV,
-0.20%.


“If one of the biggest airlines in the country were to go bankrupt, it would create an absolute tidal wave of refund requests, and it is unrealistic to think that the banks would grant them all.”


– Matt Schulz, Chief Credit Analyst at LendingTree

Boeing BA,
-0.87%
CEO David Calhoun suggested that a major airline would “very likely” go bankrupt due to the coronavirus pandemic during a recent appearance on NBC’s “Today” show. He added that it could take three to five years for the industry to return to passenger levels seen before the pandemic.

Read more: Airlines issue billions of dollars in vouchers – but can you still get cash refund for coronavirus-related flight cancellations?

A recent study estimated that airlines have distributed $ 10 billion in vouchers since the coronavirus hit U.S. shores.

Depending on how bankruptcy is handled, ticket holders may or may not be in the clear. Often times, companies use bankruptcy as a legal tool to restructure their debt – in other words, an airline that goes bankrupt will not necessarily be liquidated.

“Alitalia, for example, has been at some stage in bankruptcy proceedings since 2017, but has continued to steal,” Ted Rossman, industry analyst at CreditCards.com said Tuesday. Colombian airline Avianca, one of Latin America’s largest airlines, filed for bankruptcy on Monday. But he added: “Avianca is hoping to get back into the air once the coronavirus pandemic subsides. “

Here’s what consumers need to know:

No money back guarantee

There is no guarantee that a liquidated airline will reimburse potential passengers directly for the cost of their plane ticket.

Investors who hold corporate debt and stocks would be paid off first, said Sara Rathner, travel and credit card expert at NerdWallet. In other words. This, she added, “means you’re out of luck.”

Customers, on the other hand, are considered “unsecured creditors,” said Paul Hudson, president of consumer advocacy group FlyersRights.org. The FAA requires airlines to have insurance for this, he said, but a payment could take some time if it occurs.

Vouchers have no cash value

Instead of refunds, the vast majority of airlines have provided travelers who proactively cancel trips because of the coronavirus with vouchers or credits. “They would lose their money”, Chris Elliot, a consumer advocate, mentionned.

Travel vouchers have no real cash value. As a result, if a traveler is concerned that their airline will go bankrupt before all is said and done, it may be best to book a trip using their voucher and then take out an insurance policy. trip covering bankruptcy for this trip, Rathner said.

Your credit card company could bail you out

You can request a refund or chargeback from your credit card company if the airline goes bankrupt, experts said. (Debit cards can also offer some protection in these cases, but the claims process with credit cards is generally smoother, Rossman said.)

These requests can be made online or by phone. Making a request does not guarantee you will receive a refund, warned Matt Schulz, chief credit analyst at LendingTree TREE,
-1.53%.

“It sure doesn’t hurt to ask, but you shouldn’t think of it as a slam dunk that you’ll get,” he said. “If one of the biggest airlines in the country were to go bankrupt, it would create an absolute tidal wave of refund requests, and it is unrealistic to think that the banks would grant them all.”

Timing is another critical issue. Under the Fair Credit Billing Act, consumers only have 90 days after your purchase to file a claim, Elliott said. “Banks will give you more time sometimes, but technically you only have three months,” Elliott said.

Also see:Nearly one in 3 Americans plans to take a road trip this summer as low gas prices outweigh coronavirus fears

Your travel insurance policy may not protect you

If an airline liquidation hinders your travel plans, your travel insurance policy may cover some of the costs. The key is in the fine print.

“Check the terms and conditions of the policy to make sure it covers defaults and make sure the airline you’re flying is a covered supplier,” Rathner said.

Loyalty miles may be unnecessary

“If an airline goes bankrupt it would be bad for its elite members and loyalty mile holders, but they could still derive some value from it,” Rossman said.

If the airline ends up merging with a surviving carrier through the bankruptcy process, those miles would likely be converted into the new airline’s program.


If the airline ends up merging with a surviving carrier through the bankruptcy process, those miles would likely be converted into the new airline’s program.

Some airlines have split their loyalty program into separate companies, Rossman said, which could survive bankruptcy. Many carriers also have “status match” programs to attract frequent flyer members of other airlines. These programs will give you equivalent status, and surviving airlines could use these programs to attract elite members of the deceased carrier.

But retaining miles or frequent flyer status is far from guaranteed. “Rewards are not considered property and may be waived by the airline’s program at their discretion,” said Brett Holzhauer, travel and credit card expert at LendingTree.

If an airline looks set to shut down, people with frequent flyer miles should consider using them for flights or converting them to other purchases such as merchandise or gift cards, Holzhauer said.

Read also:Vacation property markets ‘burned’ due to pandemic as Airbnb owners rush to unload their homes, says Redfin CEO

You need to pay your airline credit card

Many people sign up for co-branded airline credit cards to get attractive perks, including travel credit rewards, but just because an airline goes bankrupt doesn’t mean you can avoid paying your travel bill. credit card.

“Retail card failures increased a few years ago with store closings, with the theory that some customers thought they no longer owed a closed store like Toys ‘R’ Us,” Rossman said. . “Unfortunately for those with credit card debt, you still owe the card company if the airline / store closes, and there can be major consequences for your credit score if you don’t pay. . “

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