This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. For an explanation of our Advertising Policy, visit this page.

“Reader Questions” are answered twice a week by TPG Senior Points & Miles Contributor Ethan Steinberg.

While we might not like to think about the laws of gravity while flying at 38,000 feet, what goes up must come down. We’ve recently seen that logic applied to low-cost carriers. Primera Air collapsed with little warning, WOW Air is teetering on the brink, and Norwegian has shown clear signs of financial distress. TPG reader Robert wants to know what type of protection he’ll have if he books a ticket on Norwegian and the airline ends up filing for bankruptcy.

I have five round-trip tickets from New York to Stockholm booked on Norwegian for July. If the airline goes bankrupt by then will I be reimbursed or am I out of luck?

TPG READER ROBERT

The worrisome news about Norwegian’s financial situation has continued to pile up, and I’m sure Robert isn’t the only one concerned about this possibility. However, right off the bat, it’s important to note that bankruptcy doesn’t necessarily mean that an airline is going to stop flying. We did see that with airberlin, and Alitalia has been bankrupt for some time yet continues to limp along.

That being said, there are a few possible ways Robert might get his money back if Norwegian ceases operations. Let’s start with the most obvious one — Norwegian issuing a direct refund. It’s impossible to say for certain whether this would happen, as this is highly dependent on Norwegian’s debt structure/obligations (i.e. which creditors are entitled to get paid first) and cash on hand at the time of bankruptcy. Obviously this would be the simplest solution, but even if it doesn’t happen, Robert isn’t totally out of luck.

If you purchase a ticket on your credit card and don’t receive the service for which you paid, you can initiate a chargeback or dispute with the issuer. I spoke to representatives from both Chase and American Express on the phone, and while they couldn’t confirm the outcome of any such dispute, they said that paying for a service and not receiving it would give you a very strong case and good odds of getting your money back.

I also asked about travel insurance, which Robert might automatically receive depending on which card he used to book the trip. For example, if he booked with the Chase Sapphire Reserve, which offers one of the most generous and comprehensive travel insurance policies, he might be able to recoup not only the cost of his tickets but any non-refundable hotel or tour bookings made at his destination as well. Again, no representative will guarantee that a “hypothetical” insurance claim will be approved, but the list of covered causes on Chase’s travel insurance page explicitly mentions financial insolvency of the travel company:

Last but not least, Robert might be entitled to compensation of up to 600 Euros (~$680) per person under EU 261, the European Union’s generous passenger bill of rights, given that his itinerary includes flights operated by a carrier based in the EU, and those flights both arrive into and depart from an EU member country. However, there are many gray areas here. Was he able to be reaccommodated with another airline? Did Norwegian prove that the cancellation was due to “extraordinary circumstances” and thus not subject to compensation? Assuming it’s determined that he is due compensation, it once again comes down to available cash, as holders of valid EU 261 claims simply become unsecured creditors, hoping to get paid.

Bottom Line

While an airline bankruptcy is one of the fastest ways to ruin a vacation, Robert should rest easy knowing that he has a good chance of recouping the cost of his tickets in the event that happens. If he’s still worried, he should consider purchasing supplementary travel insurance through a company like Allianz, but he would need to confirm that Norwegian going bankrupt and ceasing operations would be a covered event under the terms of the policy he buys.

Thanks for the question, Robert, and if you’re a TPG reader who’d like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at info@thepointsguy.com.

Featured photo by Francis Dean/Corbis via Getty Images

The Business Platinum® Card from American Express

Aside from the 75,000 points welcome bonus, Amex recently made huge improvements to the Business Platinum Card, including the fact that you will now earn 50% more points on purchases of $5,000 or more, earn 5x on flights and eligible hotels at Amextravel.com and cardholders will receive a $200 airline fee credit each year.

Apply Now
More Things to Know
  • Welcome Offer: Earn up to 75,000 Membership Rewards® points.
  • Earn 50,000 Membership Rewards® points after you spend $10,000 and an extra 25,000 points after you spend an additional $10,000 all on qualifying purchases within your first 3 months of Card Membership.
  • Get 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com.
  • Get 50% more Membership Rewards® points. That's 1.5 points per dollar, on each eligible purchase of $5,000 or more. You can get up to 1 million additional points per year.
  • 35% Airline Bonus: Use Membership Rewards® Pay with Points for all or part of a flight with your selected qualifying airline, and you can get 35% of the points back, up to 500,000 bonus points per calendar year.
  • Enroll to get up to $200 in statement credits annually by getting up to $100 semi-annually for U.S. purchases with Dell. Terms apply.
  • Get one year of Platinum Global Access from WeWork. With this membership, you can access 300+ premium, inspiring workspaces in 75+ cities. To get this exclusive offer, enroll between 2/15/2019 and 12/31/2019.
  • Terms Apply
  • See Rates & Fees
Intro APR on Purchases
N/A
Regular APR
N/A
Annual Fee
$595
Balance Transfer Fee
See Terms
Recommended Credit
Excellent Credit
Terms and restrictions apply. See rates & fees.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.