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What to Do When Your Airline Goes Bust

Corporate, Leisure, Groups and Event Travel Management

Air Berlin. Monarch Airlines. Primera Air. All of these European low-cost lines promised great fare deals to and within Europe, and all have vanished from the scene. And after surviving a near-death experience just a few months ago, Iceland’s Wow has also announced that it has ceased operations, leaving passengers stranded around the globe.

The shakeout is claiming other smaller airlines in Europe in other ways: Flybe, a U.K. budget line, was rescued by a Virgin Atlantic holding company in an eleventh hour deal to save the struggling line. Air France’s offshoot Joon is being gradually absorbed into its parent’s route system; launched more than a year ago to appeal to millennials, it failed to catch fire. In an unusually candid admission, Air France said, “The brand was difficult to understand from the outset for customers, for employees, for markets, and for investors.”

Even a bigger low-cost carrier like Norwegian Air is experiencing some growing pains, and has responded by cutting a few routes, closing several crew bases in the U.S. and other cost-saving moves.

“Norwegian’s liquidity is satisfactory and we are currently divesting a big part of our fleet, which will also further strengthen our financial situation,” said says Anders Lindstrom, director of communications for the airline. He said that U.S. travelers shouldn’t worry: “The U.S. remains a priority market for Norwegian and we will continue to grow our presence here, albeit at a slower pace compared to previous years.”

But what does this all mean for air travelers? Do you have to choose between buying a $2,000 coach ticket on a large airline to play it safe, or taking a bet on one of those incredible fare deals on discount line and hope for the best? The answer might be somewhere in the middle. Here are some ways you can protect yourself from losing your money if your airline shuts down—and what to do if it does:

Always pay with a credit card

You should always put an airline ticket on your plastic—and keep in mind that credit is better than debit. “If the passenger paid for the tickets in the United States, with a credit card, and the airline either stopped flying or suspended routes or went bankrupt, the credit card holder would be entitled to a refund to the card, and no obligation to pay the bill if it was not due yet,” said Jeffrey Miller, a longtime travel attorney and professor at Florida Atlantic University. The protection is afforded under the Federal Fair Credit Reporting act, he says, and it appears on the back of every credit card statement, along with the instructions to the cardholder. This works best if you use your credit card to book directly with the airline. If you go through a third-party seller or tour operator, you may end up having to deal with them.

Don’t count on getting compensation under passenger rights protections

First, be aware that all those protections that airline passengers get from the EU’s strong passenger rights rules don’t necessarily apply when a flight cancellation is due to an airline’s collapse. That’s because if the carrier has ceased operations entirely, at that point, it’s technically insolvent and any refund claims will be rolled into the overall bankruptcy. If a financially ailing airline cancels a flight but is still technically in business then the passenger should be able to get compensation under the EU rules. Keep in mind that bankruptcy laws differ in other parts of the world: while most U.S. airlines in bankruptcy have managed to stay open while they reorganized under Chapter 11 protection from creditors (and virtually all major domestic carriers flying today have taken a trip through the bankruptcy courts) in many other countries, a bankrupt company goes straight to liquidation and ceases all operations. (Alitalia is a notable exception; the struggling carrier is currently in receivership, but is staying afloat thanks to a loan from the Italian government.)

Consider a low-cost subsidiary of a larger airline

If the flight on one of these budget offshoots stops operating because the airline is either being absorbed by its parent (see: Joon) or is being shut down, your money should be safe—and the airline will have to honor your ticket. The current roster of these ersatz upstarts includes Level, the subsidiary of British Airways and Iberia owner IAG, and Eurowings, a subsidiary of the Lufthansa Group. But take note: their success rate is mixed.

Buy a flight insurance policy that covers airline bankruptcies

“We’ll be in business even if the airline isn’t,” is how Allianz Travel Insurance, one of the largest players in the business, puts in in their pitch to air travelers. If an airline trip is disrupted due to a financial hardship or bankruptcy, the policy will cover the lost funds, but only if the airline is on the Allianz list of covered suppliers.

But be sure to read the fine print. “Every travel insurance policy has different terms and conditions depending upon the insurance carrier issuing the policy,” says Miller. Some cover supplier default, some do not, and some will exclude specific suppliers from coverage. Another caveat: the travel insurance might only cover the cost of the airfare, and the traveler would still have to get to the destination to avoid losing all the money they’ve put down for a trip. Those buying high ticket packages like cruises or safaris should consider booking their air through the company they’re traveling with—it might be more expensive, “but they have to get you there,” Miller says.

Still, for many, it’s worth the investment; a sample quote from Travel Guard to cover a budget trip to Ireland in early June started at $60 for a single person, including coverage for financial default. A Travel Guard agent told Traveler that the policies current cover all scheduled transatlantic airlines, including budget lines. For reference, Travel Guard maintains an “alert and strike” warning of possible disruptions to air travel on its website.

Follow the news

An airline shutdown may seem sudden, at least to the general public. But airline insiders often spot the warning signs well ahead of time. According to airline analyst John Grant, with U.K. based OAG, they are currently a number of red flags, including a 13 percent increase in airline seats on transatlantic flights from a year ago, and slowdown in consumer confidence in many markets. “The challenge for all airlines operating across the Atlantic will be to minimize losses, “ he says. If you have any [concerns about a particular company, check the business media for reports, and if you concerned about whether it’s cutting corners, you can also check with the Department of Transportation’s aviation consumer protection office, which fields complaints about all carriers serving U.S. points, both domestic and foreign.

Have a plan

It’s everyone’s worst nightmare: you’re in a foreign country and your flight back home has just vanished—along with your airline. If you bought trip protection, contact the insurer right away. The best option, though, is to have a backup and some alternate carriers in mind before leaving home. Don’t assume you’ll get sympathy or help from a competing airline; other airlines will sometimes step in an offer reduced “repatriation” fares for stranded passengers, but that depends on availability. Grab a flight as soon as you can, and then pursue your claim when you get back.

This article originally appeared on CNTraveler.com.

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