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What you can do when your airline goes belly up

April 23, 2020
6 min read
Floyd Bennett Field
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If the past couple of years have told us anything, it's that airlines come and go. In 2019, we saw the demise of WOW Air, Thomas Cook Airlines, and Adria Airways, and 2020 has already claimed Air Italy. Many of these shutdowns left thousands of customers stranded around the globe and would-be passengers left with a worthless ticket.

Now just a couple of months after Air Italy's demise, we're already seeing airline insolvency take over the news cycle as the coronavirus outbreak puts a huge financial strain on airlines worldwide. Virgin Australia — an Aussie airline based in Brisbane — was the first airline to enter voluntary administration during the coronavirus outbreak, and while it may survive after restructuring, there's no guarantee. And now it looks like Virgin Atlantic might be very close to the same fate.

What happens if you find yourself with a ticket on an airline that's no longer flying? Are you eligible for a refund? Let's take a look at what you can do when your airline goes bankrupt.

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Chargeback your credit card or request a refund

The first thing you should probably do is call your credit card company and ask for a chargeback, which is a reversal of payment due to the now-defunct airline's failed delivery of the goods or services you paid for (in this case a flight). There's no guarantee your issuer will reverse the charge, but it's definitely worth trying.

Related: The best credit cards for airfare purchases

Make sure to cite the Truth in Lending Act when you submit your dispute. This law requires banks to remove a charge when the supplier fails to deliver a product or service, but only covers the credit card holder for 60 days after the original charge was made. Regardless, it's worth submitting a claim even if you're outside of this 60-day window; there's a chance your credit card issuer will still lend a hand.

This is one of the many reasons I always recommend booking airfare with a credit card. In addition to earning lucrative points and miles for your airfare purchase, you have a better shot at getting your money back from a defunct airline due to the Truth in Lending Act. And let's be real: the bank is always more motivated to get its own money back than money deducted right from your checking account.

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Further, you may be able to demand repayment from the air carrier itself. In the case of Air Italy, its website states that it will refund passengers booked after Feb. 25, 2020, though it may not be able to refund your money if funds run low. For example, Danish low-cost carrier Primera Air suspended operations in anticipation of filing for bankruptcy in 2018 and passengers reported problems getting their money back for route and flight cancellations.

Related: Will my credit card issuer refund me if my airline goes bankrupt?

File a claim with your travel insurance company

If you have traditional travel insurance, check your plan's terms and conditions to see if it covers airline insolvency. If it does, open an insurance claim and ask your provider to reimburse you for the now-useless ticket. You may receive a full refund or a new ticket at the insurance company's expense.

Unfortunately, travel insurance included with cards like the Chase Sapphire Reserve, Chase Sapphire Preferred Card, and The Platinum Card® from American Express do not cover airline insolvency at the time of writing this article.

Related: The best credit cards that offer trip cancellation and interruption coverage

UK readers: See if you're eligible for an ATOL claim

U.K. travelers may be able to receive compensation for tickets canceled due to airline insolvency by filing an ATOL claim. The ATOL — short for Air Travel Organiser's License — covers British travelers who have purchased airfare as a part of a larger travel package. All travel packages sold in the U.K. are required to have ATOL coverage, something that proved useful when Thomas Cook Airlines collapsed in 2019.

Always have a backup plan for returning home

Thomas Cook A320
(Photo by Netfalls Remy Musser/Shutterstock.)

It's important to have a backup plan in mind when traveling abroad, especially when we eventually start traveling in a post-coronavirus world. Airlines will be more volatile than ever, so there will be an increased chance of your airline going bust when you're already abroad, leaving you with no return flight home.

Travelers with points and miles can use them as an insurance policy of sorts when traveling abroad. If your airline goes bust and leaves you stranded with no return ticket, you can simply book a new ticket home using points and miles. This will be significantly cheaper than buying a last-minute return ticket in most cases. Plus, you'll have peace of mind that you can always return home when you're traveling.

Related: What should you do with your miles if an airline is going bankrupt?

Bottom line

No one wants their favorite airline to go out of business, but with the coronavirus outbreak continuing to ravage the travel industry, we will likely see more airlines go bankrupt the coming months. Make sure to follow the steps outlined in this article if your airline goes out of business, and always have a backup plan for returning home when you travel abroad.

Mike Cetera and Carissa Rawson contributed to this post.

Featured image by Floyd Bennett Field seen from an airplane landing at JFK (Photo by Albert oRiva/The Points Guy)
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.