- American Airlines
- United Airlines
- Northwest Airlines
Late last week, Standard & Poors downgraded the debt of these three huge airlines even further into the “junk” category. This is due to high fuel costs, a weakened economy and overall travel industry woes.
S&P analyst Philip Baggaley said that this time the carriers are facing the upcoming risk of bankruptcy liquidation, rather than reorganization.
The risk comes starting at the end of the the year, when most available cash will likely be gone. At present, airlines are generating cash as quickly as possible during the all-important summer travel season.
Prior bankruptcy reorganizations allowed the airlines to streamline operations and cut expenses. That was accomplished by eliminating unsecured debt, reducing pension obligations and labor costs, and reworking of fleets and flights.
There previously existed a strong demand for aircraft. Creditors were apt to accept the return of airplanes the airlines were wanting to dump. The ripple effect in the industry, however, is removing that opportunity.
Therefore, this time, pretty much all of the fat has been cut, which would likely mean liquidation.
What should you do?
For travel starting late fall, we suggest travel insurance with a supplier default clause.
A credit card purchase will afford you a refund in the event a carrier liquidates and is thus not able to meet its contractual obligations. That doesn’t mean that you’ll find a replacement flight for the same time and at a comparable price.
Travel insurance, we believe best bought through a travel insurance agency (and not through the airlines or on-line travel agencies) will provide further protection.
Be sure to compare policies and read each area of coverage that you are buying.
As a reminder, most companies do offer a free look period. Here are our previous suggestions regarding travel insurance.
