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Travel and You

Commentary : Airline Bankruptcy Bills Before Congress

June 26, 1988|TONI TAYLOR | Taylor, an authority on the travel industry, lives in Los Angeles.

Congress is still grappling with the wording of bills designed to protect consumers against airline bankruptcies. There are discrepancies among the various versions that must be reconciled, and the House and Senate are working on them.

If one of the proposals pending, or any consolidation of several, does become law, it will be over the objections of the Department of Transportation.

In a recent report to Congress, which took more than a year to produce and was nine months late in arriving, the DOT said in essence that consumers don't deserve federally mandated protection from airline failure.

That finding has led some in Washington to charge that the DOT took an altogether too casual approach to the study, that it lacked enthusiasm for the undertaking. Be that as it may . . . at least the department is consistent.

Since deregulation almost 10 years ago, and its reluctant assumption of oversight functions formerly performed by the Civil Aeronautics Board, the DOT has maintained that airline passengers should take their chances just like other consumers. Caveat emptor.

This, mind you, in the face of some of the biggest air-carrier bankruptcies ever.

In arriving at its latest conclusion, the department considered and rejected possible consumer protection-fund devices. Nevertheless, one or more of them will almost certainly be incorporated into any congressional legislative action.

The DOT's reasoning is interesting.

Some people have suggested, for example, that each airline be forced to post a cash bond so they could repay passengers for useless tickets if the bonded line failed.

No good, says the DOT. Bonding would be expensive and would probably force the airlines to raise their fares. And it would discourage new carriers from entering the marketplace.

Comment: An awful lot of fliers would happily pay a little more for the financial safeguard such a bond would provide. And any new entrant that isn't willing and able to come in and include the cost of a bond in its fare thinking is just the kind of new entrant we don't need right now.

Another suggestion is that we use the money in the Aviation Trust Fund, accruing from taxes we pay on airline tickets, to compensate for consumer losses from airline bankruptcy.

Can't be done, the DOT insists. That money is for safety and airways improvements and expansion, and nothing else.

Comment: Then why isn't it being used for that purpose? It's just lying there, better than $6 billion at last count, doing nothing but reflecting favorably on our federal budget situation.

Whether the fund isn't being properly used may or may not be the DOT's fault. But there's no harm in investigating the possibility of turning it over for consumer protection use.

Why can't the airlines--the surviving airlines, that is--just be made to honor the tickets of their fallen industry colleagues, at least on a standby basis? That's a proposal that has some support on Capitol Hill and elsewhere.

Nix on that idea, says the DOT. Such a rule might be unconstitutional.

Comment: Isn't that why we have courts of law? There are a lot of people out there, including lawyers and legislators, who don't believe there's anything unconstitutional about the suggestion.

Another idea whose time has come, in the opinion of many, is the imposition of a small surcharge, just a nickel or a dime, on every ticket sold, to be collected in one gigantic industry "pot" to cover passengers' bankruptcy losses.

The DOT doesn't care for that one because it fears those airlines that now voluntarily accept defaulted carrier tickets for the return segment of any journey might cease to do so, and passengers would be stranded.

Comment: Why would airlines that now accept return-leg coupons, with little or no hope of getting anything out of them, abandon their cooperation, knowing that they would be repaid out of the common fund?

It's just a question of how the fund is set up.

There is some sentiment for making the airlines take out insurance, with the passenger as beneficiary in the event of a carrier closure.

The DOT fears that premiums would be too expensive, thus fares might have to be raised. Another problem foreseen is the amount of time it could take the insurance operator to make payments.

Comment: If I have the choice between losing money on a useless ticket issued by a failed carrier or getting my money back after the insurance company has taken its time to process my claim, guess which one I'm going to choose?

And as for the prospect of an airline not being able to get insurance, that's exactly the kind of red flag that's needed to alert the prospective customer to look elsewhere. Or would the DOT prefer to keep consumers in the dark about such risks?

I find the DOT's constant antagonism to the call for consumer protection to be troubling. Something needs to be done. It's time. The public knows it. Privately, the airlines know it as well.

Fortunately for us, so does Congress. That's why our lawmakers are unlikely to allow the DOT's opposition to establishing a consumer protection program to influence their deliberations.

The DOT is right when it says that 60% of all tickets processed through the Airline Reporting Corp. clearing house are bought by credit card and are usually refundable under the federal Fair Credit Billing Law.

And it's right when it argues that almost half of all tickets are for business travel, and the companies paying for them can get tax deductions for any losses resulting from airline bankruptcies.

But for those millions of fliers who pay for their tickets in cash or by check, real honest-to-goodness protection, not tax write-offs, are badly needed.

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