How Likely Is an Airline Shutdown to Affect You?

October 10, 2017 - Comment

The One Bag Traveler recommends Gear, Destinations and Adventures. Britain’s Monarch Airlines failed abruptly last week, leaving thousands of passengers stranded at resort destinations without a return flight. The British government is helping those travelers return home, but the airline shutdown raises the question of whether a similar collapse could happen elsewhere. The pat answer

The One Bag Traveler recommends Gear, Destinations and Adventures.

Britain’s Monarch Airlines failed abruptly last week, leaving thousands of passengers stranded at resort destinations without a return flight. The British government is helping those travelers return home, but the airline shutdown raises the question of whether a similar collapse could happen elsewhere.

The pat answer is: Of course, some other airline will undoubtedly fail. And yes, it could (in theory) happen in North America. But—realistically, an airline shutdown is more likely to happen in Asia or Europe. Here’s why.

Why an Airline Shutdown Occurs

Monarch emerged 50 years ago as the in-house airline for a large U.K. tour operator. At the time, most British holidaymakers traveled on combined air-hotel packages. Buying air travel as part of a package was the only way European travelers could find low fares due to tight regulations. The tour operators were the primary interface with customers: Some operated their own airline subsidiaries, while others relied on third-party charter airlines. Later, those operator-owned airlines were permitted to sell air-only tickets, but they were a small part of the carriers’ market.

By 2017, several of the former charter-tour lines, including Condor, Thomas Cook, Corsair, and Monarch, transformed themselves into low-fare lines to compete for air-only trips. Monarch failed because it was committed to those once tour-focused destinations where demand suddenly tanked. Spots formerly popular as beach destinations like the Turkish coast, Egypt’s Sharm-el-Sheikh, and Tunisia were suddenly dealing with terrorism and political unrest. Monarch unfortunately couldn’t move quickly enough to avoid the market loss.

Two Europe-serving airlines—Alitalia and Air Berlin—also recently declared bankruptcy, but for more conventional financial reasons. Airline experts currently believe that there are too many start-up airlines and low-fare wannabes in both Asia and Europe, making them vulnerable to money problems. Some of them will not survive the ongoing and inevitable financial squeeze.

Where Airline Shutdowns Are Less Likely

U.S. airlines, however, seem to be past that point. Our air travel system has already gone through several shake-up rounds, and has consolidated into what experts see as four giant competitors, plus some strong niche players. The near-oligopoly allows the Big Four (American, Delta, Southwest, and United) to charge high fares and pile on fees with minimal competitive pressure. This evolution is not necessarily beneficial to consumers, but it provides stability for airlines.

American Airlines’ president recently said that his airline would “never lose money again.” He may be right—at least in the short term. It’s highly unlikely that any of the Big Four airlines will run into severe financial distress or an airline shutdown anytime soon, and the niche players (Alaska, Frontier, Hawaiian, JetBlue, Spirit, and even tiny Sun Country) seem to be ready for the future. So, as a consumer, you shouldn’t be concerned about flying with any of those airlines.

In Asia or Europe, you might want to take a close look before buying a ticket on a smaller low-fare airline—especially for a flight many months in advance. If you do buy with a new or small carrier, use a credit card: If the airline fails, you’re more likely to see a refund.

More from SmarterTravel:

Consumer advocate Ed Perkins has been writing about travel for more than three decades. The founding editor of the Consumer Reports Travel Letter, he continues to inform travelers and fight consumer abuse every day at SmarterTravel.

——————————–

Comments

Write a comment