I’ve been watching as some weaker European airlines have fallen like dominoes over the last few months, and it’s striking to me how different their insolvencies have been handled thanks to varying bankruptcy laws. Americans are used to seeing nothing change when an airline files for bankruptcy protection. Everything operates as usual while restructuring occurs behind the scenes. In Europe, that’s not the case, and in the UK it’s particularly brutal. For Monarch, it was incredibly dramatic whereas for airberlin it involved more subtle and frustrating changes.
Let’s start with airberlin, the airline that failed to learn proper capitalization rules. It should have shut down years ago, but thanks to Captain Moneybags over at Etihad, airberlin continued to get cash infusion after cash infusion to keep it going despite having no real prospects for success. When Etihad finally gave up, airberlin went into bankruptcy in August to find a way forward. Most people understood that “the way forward” meant selling pieces off to Lufthansa, though easyJet does have an outside shot.
What we’ve seen since August is a systematic dismantling of the network. Airberlin gave little notice as it started to whack away at routes. As lessors started circling like vultures to reclaim their A330s, airberlin had to cut its long-haul destinations with the final ones winding up now. Many short-haul flights continue to operate, but it’s really just a matter of time until the company is wound up and its ashes are fully claimed. (Lufthansa has already announced it will fly from Berlin to New York and on some former Caribbean routes airberlin used to operate.)
So what exactly is different about this company’s insolvency? Well, if you bought your ticket before the airline filed for bankruptcy on August 15, you better hope your credit card company will help you. I’ll let airberlin explain.
All airberlin tickets issued… before August 15th 2017 are no longer refundable due to insolvency regulations.
Your flight canceled but your ticket was purchased before bankruptcy? Sucks for you. Good luck.
Not only that, but any compensation owed to passengers for delays or cancellations under European law from before bankruptcy won’t be paid out. To make matters worse, the airline’s frequent flier program filed for bankruptcy as well, and now you can’t use or earn miles at all in the program. Everything just gets frozen as is while they work things out.
That sounds terrible, but then there’s Monarch, which is far worse.
The nearly 50-year-old English airline failed last week after a long illness. It wasn’t a secret that Monarch was in trouble, but the sudden nature of the shutdown took people off-guard. One evening people were checking in for their flights, the next morning the airline was just gone.
Monarch had been losing money for awhile and it was floundering. It was a package operator that was tiny in comparison to the huge guys like Thomson or Thomas Cook. Yet it also wanted to be a low-cost carrier that could never compete with the likes of Ryanair and easyJet. After years of searching for the right way forward, it ran out of money and time.
The airline was placed into administration, and that was it. It shut down immediately and all that was left was to divvy up the remains. That meant 750,000 people instantly had bookings rendered useless. There were more than 100,000 people in the middle of trips abroad that had to find their way home. Fortunately, the British government was prepared for that.
It put together a tremendous and expensive repatriation effort where aircraft were chartered to run similar schedules to what Monarch was going to run. If that seems like an incredibly pricey endeavor for the British to take on, it is. But some will be reimbursed. There is a scheme in the UK where tour operators pay into an insurance plan that pays out if one fails. Those who were on package holidays are covered, but I believe those who purchased only flights aren’t. Credit card companies will also pay some of the expense back.
Is this really better than allowing a company to reorganize as we do in the US? An airline like Monarch may have struggled to find financing under US law, even if it were allowed to keep operating. It was relatively small (on an airline-industry scale) and it was rudderless and losing money. The end result might actually have been the same in the US even though the law would have allowed otherwise.
In the end, people are being hugely impacted by these bankruptcies in Europe. But this kind of shake-out has been expected for some time. The money that was propping up weak airlines in Europe has been disappearing as of late. That means weaker airlines are going to continue to struggle and fail if nobody else steps up. (I didn’t even mention Alitalia in this entire post…) For travelers, the vagaries of bankruptcy laws in each country are going to continue to lead to confusion and anger.
