Latam Airlines Files for Chapter 11 Bankruptcy: How Will This Affect Travelers?
Due to the exceptional circumstances affecting the travel industry, on May 26, 2020, Latam Airlines filed to reorganize the company under Chapter 11 protection in the US. Current travel restrictions caused by covid-19 have affected every business entity regardless of size, and Latam is one of many. Airlines around the world are asking governments for loans, subsidies and assistance including Virgin Atlantic, Luftansa, Air France-KLM, British Airways, Easyjet, Iberia, Norwegian Air and several carriers in the US.
Keep in mind that all the major airlines in the US including Delta, American and United have at some time or another filed for bankruptcy in their past. Chapter 11 is a means to reorganize and prioritize a company's debt, assets and business affairs by allowing time to renegotiate fiscal obligations. The primary goal is to continue to provide service, employment, and benefits to customers while rearranging their finances. As the largest airline offering the most extensive service in Latin America, what does this mean for travelers?
- Delta Airlines and Latam Airlines had already signed a trans-America Joint Venture Agreement to combine both carriers complementary route networks between North and South America
- Ed Bastian, CEO of Delta Airlines, who invested $1.9M for 20% stake in Latam believes the airline will not only survive but come out of this even stronger than before the corona virus.
- Airlines outside the US are not eligible for government bailouts or subsidization
- The Chilean government acknowledged that Latam is a strategic company and has indicated they may consider options for assistance
- During the height of the lockdowns, Latam was operating at 5% capacity for passenger flights due to collapse in global demand
- Latam states that customers' miles, points and benefits are intact and not at risk of going away
- All existing tickets, vouchers, gift cards and any other form of credit will be accepted
- Agency partnerships and corporate loyalty programs will continue as they always have
- Latam has not indicated that they will eliminate routes
Latam assures everyone that this very difficult business decision will not impact passenger and cargo operations. The filing covers operations in Chile, Peru, Colombia, Ecuador and the United States. It excludes operations in Brazil, Argentina and Paraguay. All of the operations, however, intend to continue current operations based on "travel restrictions and demand.” While it's perhaps unexpected because of the size and scope of the company, it's not surprising given the circumstances. Even the big guys are only human.
What is the difference between Avianca Airlines filing for bankruptcy protection and Latam Airlines filing?
(Link to more about Avianca bankruptcy)
Avianca airlines was struggling with fiscal mismanagement well before corona virus struck the globe and shut down the travel industry. Latam airlines had several years of profitability and had just aligned itself with Delta Airlines. The financial health of each company was different at the time corona virus struck.