When American Airlines filed for bankruptcy on Nov. 29, it was the last of the major United States legacy airlines to do so. The announcement was not much of a surprise to industry analysts – in fact, many wondered why it had not happened sooner. American is expected to post annual losses of $1.2 billion when 2011 ends, while Delta and United/Continental both turned profits in the first three quarters of the year.
How Previous Airline Bankruptcies Have Played Out
What effects do airline bankruptcies have on the consumer searching for the cheapest airline tickets? Usually the effects are minimal. In order to stay competitive, even bankrupt airlines have to have decent fares. To the typical FareCompare reader searching for cheap flights, an airline bankruptcy will have little effect on flight options.
Bankruptcies in the airline industry do not carry the heavy stigma that bankruptcy imparts on other sectors. Many airlines that declare bankruptcy continue operating, though sometimes they shed unprofitable routes or cut the number of flights they operate. The following table lists U.S. airline bankruptcies over the last 10 years. The only airline bankruptcy bigger than American’s was United’s bankruptcy in 2006.
|Airline||Date(s) of Bankruptcy Filing|
|US Airways**||2002, 2004|
* denotes airlines that ceased operations and were not absorbed by merger into other airlines
** denotes airlines that were subsequently acquired by other airlines
How American’s Bankruptcy Will Impact Travel
What can frequent fliers expect from American’s bankruptcy? Most changes will be transparent to travelers. In fact, American shareholders are the ones seeing the biggest differences. American Airline stocks hit a high of $40.66 per share in 2007, but on Nov. 30 (the day after American filed for bankruptcy), share price was only $0.26. However, if American cuts routes, the number of frequent flier seats available on planes will drop, too. It could mean greater difficulty using frequent flier miles or it could mean mile inflation, where it will cost more miles to purchase a seat on a given flight.
A 2003 study by the Massachusetts Institute of Technology (MIT) found that airline bankruptcies affect medium-sized airports more than large and small airports. In the quarter in which an airline files for bankruptcy, service by the affected airline drops by about 46 percent at medium-sized airports. At small airports, a service drop averaging around 24 percent is usually offset quickly by increases in service by competitors. Bankruptcies do not statistically affect operations at large airports significantly more than typical quarter-to-quarter variations.
So far, airline bankruptcies have not affected frequent flier miles. Even when airlines stop operations, arrangements have been made to allow frequent fliers to transfer their miles to other airlines. While bankruptcies may result in more difficulty booking frequent flier trips due to a lower number of overall seats available, the effects have so far not been statistically significant.