Bankruptcies likely to have little effect on air travelers

Employees, shareholders to face biggest losses

September 15, 2005|By Meredith Cohn | Meredith Cohn,SUN STAFF

With four major U.S. airlines in bankruptcy, travel experts say there will be hardship to go around. But passengers may have the least to fear.

Airlines are expected to continue honoring all tickets and frequent-flier programs. There may be some shifts in service as airlines seek the most profitable routes, but those moves aren't limited to bankrupt carriers, industry experts said. In recent years, some travelers haven't even realized they were flying a bankrupt airline.

"It's been relatively seamless," Jay Ellenby, chief executive of Baltimore travel agency Safe Harbors Travel Group, said of recent bankruptcies. "Everyone should still take precautions, like use a credit card to buy tickets."

Credit cards usually allow for refunds, he said. He and others also suggest using up frequent-flier miles in case of changes to programs. If passengers can't use them, they can consider donating them to charity.

Airline workers, vendors, shareholders and other creditors have the most to lose from bankruptcies. Shares are likely to become worthless, and airlines say they are likely to miss some payments to their pension funds and other debts. Airlines say they will continue to pay their suppliers in bankruptcy.

Many airlines recently raised fares to offset rising fuel costs, and some increases are likely to continue. But with the Internet allowing passengers to easily comparison shop, the most competitive routes will still offer low ticket prices, analysts said.

"There really isn't room for all these carriers in the market, not at $98 round trip, coast to coast," said Terry Tripper, an analyst for cheapseats.com, a low-fare finder. "There will have to be reductions in service, some mergers, some out-and-out liquidations. It's hard to say who it will be."

Delta Air Lines Inc. and Northwest Airlines Corp. filed for federal bankruptcy protection in New York yesterday. They would join US Airways Group Inc. and UAL Corp.'s United Airlines among the large so-called legacy carriers operating in bankruptcy. Smaller airlines, including ATA Airlines Inc. and Aloha, also operate under Chapter 11.

Employees at Delta and Northwest, totaling more than 100,000, face the prospect of cuts in pay and benefits, as has happened in other industry bankruptcies. Their stresses may be felt by passengers, some say.

"There is only so much an employee is willing or able to give in terms of cuts," said New York bankruptcy lawyer Lowell Peterson, a partner at Meyer, Suozzi, English & Klein PC. "Productivity suffers. Morale is going to suffer. I've personally already seen it. You can tell people aren't happy, waiting for the next ax to fall."

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