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Preparing for Immediate Impact of Chapter 7 Airline Bankruptcy on Corporate Travel Management

Description
According to the Air Transport Association, the U.S. airline industry has lost $23 billion the past three years -- despite an infusion of more than $7 billion in federal aid -- and this year is set to lose at least $3 billion more. United Airlines, US Airways, and ATA Airlines are operating under Chapter 11 bankruptcy protection, and other carriers appear to be teetering on the brink.

There are two basic types of corporate bankruptcy in the United States: Chapter 11, which enables a carrier to continue operating while it reorganizes financially, and Chapter 7, which occurs when a carrier ceases operations completely and sells its assets to pay its debts.

By law, airlines are required to honor tickets issued by a carrier that ceased operations. Under the rule, if an airline “suspends, interrupts, or discontinues air passenger service on [a] route by reason of insolvency or bankruptcy,” a carrier servicing that route is required provide transportation on a space-available basis for a maximum $100 roundtrip administration fee. Passengers are required to make arrangements with another carrier on or before the original date of travel or within 60 days of the ticketing airline’s cessation of operations, whichever comes first. Those carrying tickets for travel within three days of the airline ceasing operations, however, have seven days from cessation of operations to make arrangements with another airline.

Corporate travel managers negotiate and manage corporate relationships with airlines, taking into consideration a wide variety of factors, such as price, city pairs served, flight frequency, on-time performance, and more, to ensure the company is able to accomplish its business travel operations. With the current uncertainty in the U.S. airline industry, corporate travel managers are preparing for the possibility of an airline declaring Chapter 7 bankruptcy and evaluating how they can minimize the negative impact on their companies of such a crisis. The purpose of this paper is to provide guidelines to help corporations prepare for the possibility that a U.S. airline liquidates under a Chapter 7 bankruptcy filing. While large U.S. carriers have infrequently filed Chapter 7, NBTA encourages travel managers to prepare for the prospect. The key topics to be addressed in this paper are:

1. Developing a strategy in advance.
2. Communicating with travelers regarding airline bankruptcy.
Resource
PreparingforCarrierCh7.pdfPreparingforCarrierCh7.pdfNew description131 KB
Author
NBTA Aviation Committee
Publisher
NBTA
Publication Year
2004
Topics
Business Travel Index
Resource Type
Whitepaper
Language
English
Subjects
Airlines

Resource Details

Paul Yachnes
Paul Yachnes
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Date Modified: Sep 9, 2010
Date Last Modified: Sep 9, 2010
Category: GBTA Resources