Airline failures – How to be protected from them?
The subject regularly comes up in the news as soon as a new bankruptcy is pronounced against an airline. This time, it is the case of Air Belgium, which will leave 11,000 customers without a solution unless they buy a ticket on another carrier. And even since 2023, a prosperous year if ever there was one in air transport, several dozen airlines have had to cease their activity. This sector of activity is inherently very fragile, and this weakness spares no one, including the very large carriers. It should be remembered that the three largest American and therefore global groups—Delta Air Lines, United Airlines, and American Airlines—have also gone through Chapter 11, which has allowed them to recover at the cost of colossal efforts and the dismissal of tens of thousands of employees. SAS and Avianca, to name but two, owed their salvation only to the use of this same means.
It is clear that each company must take responsibility for itself and that the sanction of failing management or even external circumstances results in its disappearance. This is the rule of the economic game, and every manager is well aware of this risk. In this unfortunate scenario, creditors have little chance of recovering their money, and shareholders lose everything. This is one of the consequences of our capitalist system, which we have not yet found how to replace.
Only air transport has an additional specificity: its relationship with its customers and distributors. It is organized on a global concept with a very powerful association of airlines, IATA, at its head, which has the right to choose its distributors: travel agents. However, in order to be accepted into this group and to have the right to sell the airlines’ tickets, travel agents must provide bank guarantees to ensure the payment of the sums they hold on behalf of the airlines to the carriers via IATA. There is no doubt that this very restrictive procedure has significantly improved the economic reliability of this network, which is nevertheless essential for air transport. It should be remembered that 70% of sales are still made through intermediaries, whether they are physical or virtual travel agents, with the massive use of the possibilities of the Internet.
However, if the funds intended for operators are well protected, the same cannot be said for the latter with regard to their commitments to their customers. The latter buy the right to use their services, but they do not benefit from any protection in the event of the failure of the company they have chosen. However, since the mid-1990s, carriers have been waging a fierce war to display the lowest fares with a simple mechanism: the earlier you buy, the more competitive the fares are. Thus, customers are required to ensure the cash flow of the airlines, without which carriers could not survive. Except that what must be called a cash advance is not protected by the carriers, who, quite rightly, demand that it be protected by their distributors. Thus, the risk of default increases with purchases made often six months before their execution.
So what happens when a company fails? It’s very simple: the customer loses everything. However, the most affected are often the most vulnerable, those who save a whole year to pay for their annual trip, often to join a family from whom they are separated most of the time. The solidarity of the IATA member companies should then be exercised. It is nothing. At best, competing carriers agree to open low-cost fare classes if they have sufficient seat availability.
How can airlines be forced to create a solidarity fund to compensate for shortcomings in their profession? IATA’s response is consistent: “We are an association and we depend on the decisions of our members, and they don’t want to hear about such a solution.” So there is only one way out: that decisions are taken at the political level, in plain English by the European Commission and the American FAA. After all, these same organizations do impose their ecological rules; why don’t they care about the protection of passengers?
A new European Commission is being set up. After the formalities of acceptance of the Commissioners by the European Parliament, it will become operational in 2025. This is a welcome subject that would be widely appreciated by customers and distributors unless the companies finally decide to create real protection for their customers in the meantime.
