Legal News

26-Aug-2022

Why Airlines Keep Filing for Bankruptcy: Things To Know

With the cost of jet fuel continuing to rise and more people flying in response, we’ve seen major carriers like American Airlines and Delta post record losses in their most recent earnings reports. In reality, airlines generate the majority of their revenue during the fall and winter holiday seasons. During these times, airlines operate at near maximum capacity, which drives up the prices of tickets. To maintain profitability and offer low-cost, non-refundable tickets during the off-season, airlines must carefully plan their expenses and investments. With so much competition in the airline industry, you may wonder if these companies are staying afloat because they’re that bad at running businesses. Some airlines have filed for bankruptcy before, but why do they keep doing it? Does it make them look bad? Can they get out of it easily? Are there any downsides to filing for bankruptcy? Let’s take a closer look at why airlines keep filing for bankruptcy and what it means for you as a traveler.

Why do airlines keep filing for bankruptcy?

The short answer is that they’re losing money. If a company’s revenue isn’t enough to cover its expenses, it’s operating at a loss. Airlines experience this a lot, and the main cause is high fuel prices. Fuel is the single biggest expense for airlines, so when fuel prices go up, airlines have to either pass the cost on to their passengers or take a loss. And since travelers are very sensitive to price, airlines are forced to swallow the loss. Fuel prices have risen dramatically in the last decade. In 2008, the average cost of jet fuel was $2.22 a gallon, but it jumped to $3.94 per gallon in 2014 and has stayed high ever since. That increase cost airlines $33 billion in 2018 alone. And since fuel is such a significant cost, even a small increase can cause major problems.

What happens when an airline files for bankruptcy?

If an airline is losing money, one of the ways it can protect itself is by filing for bankruptcy. When an airline files for Chapter 11 bankruptcy, it can continue flying and serving its customers. It can continue to book new flights. The main difference is that an airline in bankruptcy has the option to halt payouts to its vendors. This can be very helpful if the airline is behind on bills and has no expectation of being able to pay them. The airline will lay out a plan for how it will restructure its obligations by either extending payment dates, paying back its creditors less than what they’re owed, or a combination of both. Airlines will file for bankruptcy to break their contracts with their suppliers. A lot of companies depend on airline travel to move their goods around the world, but airlines don’t have to pay them. So when an airline files for bankruptcy, it can break the contract with its suppliers without penalty. That means suppliers don’t get paid, but the airline can pick up the tab instead.

Downsides to filing for bankruptcy

When an airline files for bankruptcy, it’s not good PR. The media likes to pick up on this story, and the general public might see it as a sign of weakness. That said, the public isn’t likely to associate an airline’s bankruptcy with the price of fuel. A lot of people are sensitive to the price of travel, but they don’t have a reason to blame the airline. The main downside is that it isn’t an easy fix. A company can exit bankruptcy quickly if it can turn a profit and pay off its debts, but that isn’t always the case. Airlines are in a very competitive industry, which makes it difficult to turn a profit. This is one of the reasons why we have seen carriers offering significant discounts on their flights. Since they are not making a profit on each ticket, they can afford to reduce the price. In the long term, we expect fuel prices to drop, which will help the airlines. However, given the increase in fuel prices, an increase in the price of jet fuel, and the weak economy, it is likely that we will see airlines offering discounted tickets for a few more months. When you combine that with high fuel prices, it can be hard for airlines to make a quick recovery.

Why don’t airlines just merge instead of filing for bankruptcy?

There are a few reasons why airlines aren’t merging instead of filing for bankruptcy. One of the main reasons is that it’s expensive and difficult to merge two airlines. It would be an expensive, long process that could put even more strain on the airlines’ finances. Mergers are also risky since they involve bringing two companies together. That means two sets of employees with different ideas and ways of doing things. Bringing two companies together also means combining two sets of debts and two sets of obligations. By filing for bankruptcy, airlines can simplify all of that by just breaking everything down and starting over.

How can you protect yourself as a traveler?

While it’s important to understand why airlines file for bankruptcy, it’s even more important to know how you can protect yourself as a traveler. When booking your flight, make sure to research all of your options and look for the best deals. You can also shop around for insurance that will cover trip cancellation or interruption if your airline goes bankrupt. If you have frequent flier miles, make sure to redeem them before the bankruptcy process starts. It’s also important to have the right credit card if you are booking a flight. Many cards offer flexible travel cancellation policies. The best way to do this is by being flexible with your travel dates and destinations. If a carrier files for bankruptcy and you have a non-refundable ticket, you may have to change your plans. If you have the flexibility to change your travel dates or destination, you should try to do that. You also need to be aware of how much you’re spending on travel and how you’re protecting yourself financially. If you have debt, you should be aware of what you will owe if a carrier goes bankrupt.

Conclusion

The airline industry is constantly changing. New airlines are popping up all the time, and established carriers are constantly merging. To avoid the risk of flying on a financially unstable airline, you can look at their financial health status. The U.S. Department of Transportation’s Aviation Consumer Protection Division tracks the financial health of airlines and publishes its findings. You can also search for the status of airlines in your country. Many countries have their version of the Aviation Consumer Protection Division. This can make it difficult to keep track of which airlines are in financial trouble and which are doing well. When it comes to airline bankruptcies, don’t panic. Instead, keep track of which airlines are struggling and do everything you can to protect yourself as a traveler.