What Happens to Frequent Flyer Miles if Airlines Go Bankrupt

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June 03, 2020

What Happens to Frequent Flyer Miles if Airlines Go Bankrupt

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You've been loyal to one airline in an attempt to wrack up miles toward elite status for all the perks that come with it, from upgrades to lounge access and, of course, free flights.

But what happens if the airline with your award program miles goes bankrupt?

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Bankruptcy Doesn’t Mean Going Under

If an airline files for Chapter 11 bankruptcy, it’s not a guarantee that it’s going out of business.

Chapter 11 starts as a way to reorganize debts and renegotiate terms with creditors. Many companies continue operating as they did in the past.

Alitalia has been in some stage of bankruptcy proceedings since 2017 but has continued to fly.

If an airline can’t come out of bankruptcy alive by reorganizing and dealing with creditors, then it could be liquidated and its assets could be sold off. That could include stiffing passengers who have bought tickets or own frequent flyer miles.

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Which Airlines Are On The Brink?

The coronavirus pandemic has hurt most airlines. The aviation consultant CAPA has warned that “most” of the world’s airlines could be bankrupt soon, due to the pandemic.

Boeing’s chief executive said in May that a major airline will “most likely” go under due to the pandemic. It could take three to five years for the industry to recover to pre-pandemic passenger levels, he said.

Colombia's Avianca airline, one of Latin America’s largest airlines, filed for bankruptcy protection in mid-May. It hopes to return to the air after the pandemic subsides.

The United States has provided a $58 billion bailout for the airline industry to avoid shutdowns.

Closer to home, Warren Buffett’s Berkshire group has sold off all of its holdings in the airlines sector, including stock in Delta, American Airlines, and Southwest. That doesn’t mean those airlines are in danger of failing or going bankrupt, but it’s a clear sign of a large investor having a lot less faith in them.

Trans States Airlines and Compass Airlines, which are regional airlines in the U.S. that fly routes for United and American, respectively, shut down in April after suffering impacts from the coronavirus.

What’s Most Likely To Happen?

If an airline goes bankrupt and you have reward miles through its frequent flyer program, or you have a credit card through the airline that earns you miles, one of the most likely outcomes of a bankruptcy filing is that it will alter the terms of the frequent flyer program.

What does that mean?

The airline could change just about anything it wants to.

More blackout dates could be imposed, making it more difficult to book a flight with miles.

It could increase the number of miles needed for a free ticket.

Whatever you do with your miles after a bankruptcy, don’t consider them to be money in the bank. The value of an unused frequent flyer ticket is $0, and airlines can change the terms of their awards programs at any time.

Consumers Have Some Protections

If you’ve turned those awards miles into a ticket, then you have some protections under the Aviation and Transportation Security Act approved by Congress after 9-11.

The law allows passengers holding tickets on obsolete airlines to fly standby on another U.S.-based airline under two main requirements:

Pay a $25 fee. Fly within 60 days of the airline going out of business.

That doesn’t give you much time to fly, but it beats sitting on worthless frequent flyer points.

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The Best Option

Other than an airline emerging intact from bankruptcy and keeping its frequent flyer program the same, there aren’t many great alternatives for frequent flyer-mile holders. Elite status members with thousands of miles banked in their accounts, have the most to lose.

If the airline can’t reorganize and does go out of business, the best scenario for people holding miles may be if the airline merges with another carrier through the bankruptcy process.

The miles could be converted into the new airline’s program.

The surviving airline could start a “status match” program to attract elite members from the defunct program.

Other Options

If it looks like your airline is about to go out of business and you don’t want to take the chance that it will get through bankruptcy with your frequent flyer mile program intact, you have a few other options.

The most obvious one is to exchange them immediately for an upcoming flight. Better to get the most value out of them that you can than get nothing at all.

Some airlines have shopping portals where awards points can be redeemed for merchandise or gift cards.

Another option is to exchange your miles for goods and services through programs such as points.com.

You’ve Still Got To Pay Your Credit Card Bill

If you have a co-branded credit card through an airline that you have frequent flyer points with because it offers travel credits and other rewards, don’t even think about not paying the credit card bill if the airline goes bankrupt.

The airline may go out of business, but the credit card company isn’t.

The bill is still due. The money is owed to the creditor card company, not the airline.

If you don’t pay, it could drop your credit score considerably and make getting credit in the future more difficult and expensive.

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