This week, the parent company of American Airlines, AMR, filed for bankruptcy protection becoming the latest in the string of legacy U.S. airlines to seek court protection from creditors.
So, what will this mean for travelers?
First, it’s important to understand that bankruptcy and financial default are very different terms in the travel insurance world:
- Financial default means a complete suspension of all business operations due to financial circumstances.
- Bankruptcy, on the other hand, means that the company is seeking legal protection and usually continues business operations to the best of their ability as they work out their financial problems.
American Airlines will likely continue operations for the immediate future as it works through the bankruptcy process. As of today, the American Airline’s website indicates that it will continue normal operations and you can read the official details about the restructuring.
When you’re thinking about travel insurance and upcoming travel plans that involve flights on American Airlines, it’s important to understand the following:
- Coverage for bankruptcy on American Airlines can no longer be purchased as it us now a known event. The company filed for bankruptcy protection, so you won’t be able to get trip insurance protection for cancelled American Airlines’ flights from here on out.
- For travelers currently holding tickets for future American Airlines flights, you had to have purchased your trip protection in advance of the typical 7- to 14-day waiting period required for financial default coverage.
The travel insurance companies will individually determine whether an American Airlines’ flight cancellation is covered by your travel insurance plan or not. This is because some travel insurance plans include bankruptcy with their financial default coverage and some do not.
With this type of coverage, benefits are typically paid only if no alternative transportation can be found. If American Airlines, for example, has to cancel a flight for which you are holding a ticket, that company will likely try to find an alternative seat on another carrier on the same route. In that instance, the travel insurance company will not be required to pay for the cost of canceling your trip. This is true even if you aren’t quite satisfied with the outcome of the situation because the outcome is that you can still get from here to there.
Read all about financial default/bankruptcy coverage with your travel insurance plan, and see which companies and plans offer this type of coverage.