Tag Archives for bankruptcy.
According to financial markets, the major U.S. airline most likely to wind up in bankruptcy is American, followed by United.
At this point the big airlines talk about how much cash they have to make it through this year. But that’s not the issue. After $58 billion in subsidies allocated to commercial airlines, airlines will make it through 2020. The question is what happens in 2021.
Velocity Frequent Flyer built cash in a trust and if the program failed it would, in theory, pay out money to members for their accumulated miles. That’s great in theory except… that trust lent AU$200 million [US$129 million] to the airline. Whoops.
While Deloitte, as administrator, seeks to find new money to restart the carrier, it’s also going to be restructuring the airline’s debts. Since Virgin Australia reportedly owes about US$10 million to the Perth airport in unpaid fees, the airport decided to block a Boeing 737-800 from taking off as a way of physically securing their claim – using a bulldozer.
It would be actually be shocking if there haven’t been discussions at each U.S. airline around what a bankruptcy filing might look like. Chapter 11 bankruptcy doesn’t mean ceasing operations. It means freezing obligations and restructuring its debts. And one of the things that would be looked at in any bankruptcy is the airline’s labor contracts.
However the specifics of this rumor are utter nonsense.
Virgin Australia’s Velocity Frequent Flyer program has suspended redemptions even though it is a separate company and not included in the administrative restructuring. The frequent flyer program had been spun off in 2014, but reacquired.
The program’s 10 million members apparently had been redeeming points for “gift cards, electronic goods, and wine,” according to the airline, while members weren’t redeeming for travel. There was a ‘run on the bank’ as members questioned the viability of the program with the airline in trouble.
Virgin Australia is entering ‘voluntary administration’, the Australian equivalent to bankruptcy that envisions continued operation in some form. This follows the country’s government declining to extend a bailout of approximately US$892 million.
A reader asks about the safety of their miles, and if some of the smaller airline currencies they have aren’t as safe whether it would be a good idea to book travel now using those miles to fly on one of their partner airlines (that’ll still be flying)?
Here’s what you need to know.
Members of the machinists union at USAirways approved pay cuts. They were the last union to do so. Coupled with the bankruptcy court’s decision to allow USAirways to draw on the cash behind its federally back load guarantee, the airline has been given a few more months of life. There’s currently no indication that they’ll return to profitability, especially since March is generally their lowpoint in cash for the year. But I don’t see an immediate liquidation threat. In other words, it should be fine to book February flights on the airline.
Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel -- a topic he has covered since 2002.
Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »
