Have Tickets on American Airlines? There's No Reason to Worry About Bankruptcy

The caller's voice was shaky with fear. She had tickets for a long-in-the-future flight on American Airlines, she explained in a phone call to this past weekend's broadcast of The Travel Show conducted by my daughter and myself, and had heard about a possible bankruptcy filing by American Airlines. What should she do, she asked?

I acknowledged that I had heard the same rumors. In fact, numerous bloggers have written about the sorry recent financial results of American Airlines, which hasn't had a profitable year for some time. It also has some of the highest fixed costs in the airline industry, and is the only one of the so-called legacy carriers that has not altered or eliminated those costs through a bankruptcy proceeding. If the economy fails to improve, and air traffic remains badly affected by the economy, the possibility is, indeed, there for a bankruptcy filing by American Airlines, I replied.

But such a development will probably have no impact on the rights of persons who have advance reservations on American Airlines. In nearly all the bankruptcy filings of other major airlines, the method chosen was under Chapter XI, which provides for a reorganization of the airline, and not for a termination of its activities. It is totally unlike a Chapter 7 proceeding which actually liquidates a company's business -- and no recent major airline has opted for Chapter 7. Rather, under Chapter XI, it is the airline's stockholders who normally take it on the chin, and find their rights and the value of their stock badly reduced. Some of the airline's contracts with suppliers, with its retired personnel and their pensions, with the airline's collective bargaining agreements, are all revised by the bankruptcy court.

But the airline continues flying. And an airline as important to aviation as American Airlines, which accounts for a hefty percentage of all the flights within the United States, will surely continue flying while the bankruptcy court examines its outstanding obligations. There is no realistic possibility of American Airlines ceasing to do business.

So customers of American Airlines should rest easy. And the best thing they can do for American Airlines is to continue booking it. Those reservations, for flights that will operate regardless of legal proceedings, will almost certainly be honored.