What to do when an airline goes bankrupt

By Brett Snyder, Special to CNNUpdated 14th October 2011
Even if American Airlines were to go bankrupt, flights wouldn't be affected, Brett Snyder says.
For the first time in a few years, talk about airline bankruptcies has ramped up once again, with concerns expressed this week about a certain carrier based in Texas.
Whether the reports about American Airlines are true or not doesn't really matter -- it's enough to make people anxious.
I've received a fair bit of e-mail this last week asking what happens if bankruptcy becomes a reality. In short, there's nothing to worry about with an airline like American, but I thought it would be a good idea to devote this week's column to the issue since it's at the top of mind for many travelers.
Will American go bankrupt? I'm certainly not qualified to answer that question. Only the airline itself knows its plans, but the balance sheet certainly doesn't point to bankruptcy being necessary in the short to medium term.
Yes, American has been losing money recently while others have profited, but at the end of June, it had more than $5 billion in the bank and it has been able to arrange financing since then. That doesn't sound like a company that would be filing for bankruptcy protection, which should be a last resort. Even if it does for some strategic reason, flights wouldn't be affected.
Still, it's worth talking about what to do when an airline goes bankrupt, because airlines around the world shut down every year. It's always good to know what you can do. Here is some advice.
Always pay with a credit card
When you buy a ticket, you might be paying for something (a flight, presumably) that you won't use for another year. That's a long time for an airline to hold on to your money, and that's why you should pay with a credit card.
If you buy a ticket with a credit card, then you won't be on the hook if your airline goes under. In fact, when airlines start to find themselves in financial trouble, credit card processors hold back a larger and larger percentage of the money until the flight occurs. That way, if the airline doesn't perform, the credit card company still has your money and can give it right back to you.
Periodically check in on your airline
It sounds silly when you're talking about an airline like American, because you would know instantly if it filed for bankruptcy protection. But what if you bought a ticket on Kuwait-based Wataniya Airways? Would you even know that it shut down in March of this year? Probably not.
So if you do find yourself booked on an airline that might not be very well known here in the U.S., it can't hurt to check in every so often to make sure it's still flying. Most airlines with websites are very good at letting you know when they go out of business.
Even better, you can set up an alert via Google that will send you a note anytime an airline's name pops up in the news. This is hardly necessary for the better-known airlines around the world, of course, but it's a good idea for smaller airlines that you want to keep an eye on.
Have a backup plan
If you're worried about an airline going out of business for one reason or another, have a mental backup plan waiting in case you need to spring into action. Find out what other airlines fly where you need to go, and be ready to try to pounce if something happens. If you're prepared, you'll be able to get that last seat on your alternate before someone else who was unprepared even knows what's happening. But you'll still have to pay for it.
Don't expect help from other airlines
There used to be a rule in the U.S. that other airlines had to honor tickets on failed airlines for a nominal fee. That doesn't exist anymore, so don't go looking for charity from other airlines if yours goes under. Elsewhere in the world, there can be varying levels of assistance, but it's best to just assume that you'll get none. At best, you'll be lucky to find an airline that will take you on standby, but that's not necessarily helpful for people with set plans.
Ultimately, the best advice is to just be alert. If your airline stops flying, act quickly to find the best alternate options, and you'll still get where you need to go. But if you're worried about a big airline failing here in the U.S., I wouldn't get too worked up about it. The chances of that are incredibly slim, even if bankruptcy is involved.