American Airlines Bankruptcy: How Will It Affect Fliers?
NEW YORK — For most of the 240,000 passengers who fly American Airlines each day, the airline's bankruptcy filing should have little noticeable impact.
American continues to operate flights, honor tickets and take reservations. It says its frequent-flier program will be unaffected.
Some travelers may eventually see fewer American flights at their airport. The incoming CEO said American would probably reduce its flight schedule "modestly" while restructuring in bankruptcy court. But that would continue a strategy in place at American and other airlines in response to high jet fuel prices.
The real risk to American's passengers is if the restructuring fails, the airline ultimately liquidates and ceases to fly. Even then, many travelers are protected if they bought tickets with a credit card.
Delta, United, Continental and US Airways have all gone through Chapter 11. Travelers continued to book tickets. Planes still took off and landed and frequent flier miles were still earned and redeemed. In fact, the bankruptcy process is usually more taxing on the airline's shareholders, who tend to get wiped out. Or on workers, who can lose pay and benefits, and even their job. The Chapter 11 filing is likely to dampen the spirits of flights attendants and pilots as their fears about salary and pension cuts become more urgent.
Some American travelers were also nervous on Tuesday.
"I would definitely be less likely to book with them. I would be afraid they'd be less likely to keep their flights," Corina Fallbacher said after landing home in Chicago on an American flight from Orlando.
American is the nation's third-largest airline behind United Continental Holdings Inc. and Delta Air Lines Inc. It operates out of five major hubs in New York, Los Angeles, Dallas/Fort Worth, Chicago, and Miami. It has major international partnerships with British Airways and Japan Airlines.
Steve Varraso, 39, an event planner who had flown from Boston to Chicago's O'Hare, said he was slightly concerned about his frequent-flier miles on American.
But Varraso and other frequent fliers shouldn't worry. Eastern Airlines, Pan Am and Trans World Airlines all ceased flying but miles in their programs were transferred over to other airlines that bought some of their assets. TWA miles actually went into American Airlines' frequent flier program, AAdvantage.
"Miles are safe," said Gary Leff, co-founder of frequent flier site MilePoint. He said the bankruptcies of past airlines "are instructive." He even suggested there might be some promotions to keep loyal travelers.
American has prided itself on having avoided the bankruptcy process. But that left American with higher labor costs than its rivals, a major reason it continues to lose money while they are again earning profits. American spends $3,008 on salary and benefits for every hour each of its 600 planes is in the air, according to Vaughn Cordle, chief analyst with AirlineForecasts. United spends $2,801, Delta $2,587 and US Airways $1,991.
Those labor costs, along with a 40 percent jump in fuel expense, contributed to AMR's $162 million loss in the third quarter despite higher airfares. Delta and United, meanwhile, had a combined profit of $1.2 billion.
Bob Boyd was briefly a pilot for American after getting out of the military. At Dallas/Fort Worth International Airport on Tuesday morning, Boyd was surprised to hear that American hadn't already solved its financial problems.
"I thought the union issues were behind the company. I had heard fares would go up to compensate for lost revenue, so this is extremely surprising," he said.
One way that American and other airlines have controlled costs is by cutting flights. Thomas W. Horton, who was named the new CEO of American's parent company, AMR Corp., said fliers can expect some modest capacity cuts in the future. Passengers whose flight is canceled or moved because of a schedule change will be rebooked.
Many travelers are aware that American was in financial difficulty and that bankruptcy court provides a way for it to get back on its feet.
Bob Rowberry, 59, of Salt Lake City, flew American to Chicago for business Tuesday morning. Waiting for his luggage, he said the bankruptcy filing will help American keep from going under.
"Until they do (go out of business) I'll continue to fly with them."
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Carla K. Johnson in Chicago and Danny Robbins in Dallas contributed to this report.
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Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott
Other major airline bankruptcies since 2000, according to the AP:
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SCOTT MAYEROWITZ 11/29/11 05:02 PM ET Associated Press