Image: Eastern Air Lines
Airbus S.A.S.
One of America's biggest airline liquidations of past years was that of Eastern Air Lines, in 1991. When Eastern entered Chapter 7 bankruptcy, its frequent-flier program was sold to another airline.
By
Aviation.com
updated 6/30/2008 1:17:49 PM ET 2008-06-30T17:17:49

We’ve become familiar with Chapter 11 in recent years, as airline after airline has gone into bankruptcy protection to reorganize its operations. Soon, we may become familiar with an even darker chapter in the airline story: Chapter 7.

That's liquidation, which some airline experts think is coming, thanks mainly to historically high oil prices, which are still hovering north of $140 for a barrel of crude.

In a report released, appropriately, on Friday the 13th, the Business Travel Coalition flatly predicted several unnamed major U.S. carriers will be forced to liquidate late this year or early next.

When an airline liquidates — as ATA, Aloha and SkyBus have done this year — it stops flying and sells its assets to pay creditors. That can leave small, unsecured creditors such as the airline’s passengers in the lurch.

Experts are sharply split on whether liquidation is going to happen to major U.S. carriers. But even airline optimists allow it’s a good idea to prepare should your carrier be forced to fly into Chapter 7.

Industry analyst Robert Mann, principal of R.W. Mann & Co., thinks major U.S. airlines have enough cash to stay aloft, giving them wiggle room to eliminate money-losing routes and raise fares by 20 percent to boost revenues. But should Chapter 7 happen, he said, plastic is a traveler’s best friend.

“Only buy travel on a credit card. You will get a refund if the carrier fails. The most you can lose is the cost of replacing your ticket on a failed carrier at what will likely be a significantly higher price," said Mann.

In addition to cost, there are frequent-flier miles to consider.

“If you are concerned about frequency program balances, redeem for partner airline travel or combine miles with another program," Mann suggested.

In previous airline failures going back to the early 1990s, frequent-flier-miles programs at name-brand carriers such as Pan American, TWA, Eastern and Braniff, were sold to other carriers. TWA’s program, for example, went to American Airlines.

Some analysts think all this fretting and planning is unnecessary.

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“The shock reports predicting demise and disaster assume that carriers will not adjust materially to the challenge of $4 jet-A (fuel)," said analyst Michael Boyd, principal of the Boyd Aviation Group. “They will. It’s like a ship captain seeing an iceberg 30 miles ahead, and assuming he won’t alter course."

But other aviation-watchers think the captains of the nation’s airline industry are fast running out of maneuverability.

Robert Crandall, the former head of American and widely considered the father of frequent-flier programs, predicted this month that every major U.S. carrier will be driven into Chapter 11 bankruptcy.

Kevin Mitchell, head of the Business Travel Coalition, predicts Chapter 11 for most U.S. majors, promptly followed by Chapter 7 for some.

With the experts so dramatically divided, the consumer has to buckle up and wait for an announcement from the cockpit about what is going on. Frustrating, but we’ve become familiar with that, too, right?

© 2013 Imaginova Corp.

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