If an Airline Goes Bankrupt, What Happens to Frequent Flyer Miles?
The answer is it depends
The coronavirus pandemic has wreaked havoc on the global economy, causing a collapse in demand for domestic and international travel, and leading airlines to cancel routes and to ground airplanes.
So it’s no surprise that formerly frequent flyers may be wondering what might happen to their hard-earned loyalty miles if their favorite airline fails to return to the skies. The answer is—it depends on the severity of the airline’s collapse.
How Frequent Flyer Miles Work
Airlines offer frequent flyer miles as a way to garner loyalty with their customers. Initially, travelers could earn an airline’s loyalty miles simply by booking flights.
Now, however, consumers have several opportunities to earn those miles. Depending on the airline, that can include using co-branded airline credit cards, spending with an airline’s partners, shopping online through its designated portal, and making everyday purchases.
Once you’ve earned enough frequent flyer miles, you can use them to book award tickets with the airline, upgrade to a higher seat class, or spend them via one of the loyalty program’s other redemption options.
For the airline, frequent flyer miles are included as a liability on its balance sheet. So if an airline goes under and looks to restructure or liquidate debt, it’s natural for members of its loyalty program to be concerned.
Airline Financial Troubles During COVID-19
Airlines have suffered significantly during the coronavirus pandemic. According to OAG, a travel data provider, scheduled flights in the U.S. alone were down by just 0.4% year over year in March, then 57.8% in April, and a staggering 72.6% in May.
While there has been a recovery of sorts, demand has remained relatively stagnant since August, with flights down 40%-48%, year over year.
Globally, the industry is projected to experience losses totaling $84 billion in 2020 and $16 billion in 2021, according to the International Air Transport Association.
In the U.S., lawmakers provided $58 billion in bailout money to airlines in the CARES Act. But despite that, Boeing CEO Dave Calhoun predicted in May that at least one major U.S. airline would go bankrupt because of the pandemic.
As the pandemic dragged on and demand for air travel continued to slump, several airlines, including American, Alaska, Allegiant, Hawaiian, Spirit, and United, furloughed workers. Congress’s late December passage of another round of pandemic stimulus and relief included $15 billion for airlines—provided they rehire furloughed workers. That lifeline will help, but the road ahead still won’t be easy for airlines. Industry leaders don’t expect demand for air travel to rebound soon and think the latest rehires may be only temporary.
What Happens to My Miles If an Airline Goes Bankrupt?
First, it’s important to note the distinction between going bankrupt and going out of business. In fact, some well-known carriers have filed bankruptcy in the last 20 years, including American, Delta, and United, and they continued to operate.
That said, what happens to frequent flyer miles in airline bankruptcy depends on the results of the proceeding. For example, if the company enters a debt restructuring plan and continues to operate, your loyalty miles are likely safe.
However, if the airline ceases to operate entirely, you may lose your miles and all the value that came with them.
The value of most airline miles fluctuates over time as the underlying cost of airfare fluctuates with the market. Airlines can also reset the value of their miles at any time. So while the airline and its loyalty program may survive bankruptcy, the value of your miles may be reduced in the process.
Ways to Cash Out Your Loyalty Miles Now
Even if Calhoun’s prediction that at least one airline will go bankrupt proves accurate, the airline and its loyalty program may survive and continue to offer value to customers.
However, if you’re concerned about the worst-case scenario—or even just a devaluation of your miles—and you want to use your miles while you can, you don’t necessarily have to fly to do that. Depending on the airline, you may have other redemption options:
- Book other travel
- Book local experiences
- Buy merchandise
- Purchase gift cards
- Order magazine subscriptions
Many airline loyalty programs allow you to transfer your rewards to another loyalty program. For example, Virgin Atlantic, which filed bankruptcy in August and is still allowing frequent flyers to redeem their miles, allows its loyalty program members to convert their miles to Hilton Honors points at a 3:2 ratio.
Before you pull the trigger on a redemption, though, think carefully about how likely it is that the airline will actually cease operations. If it doesn’t, you could end up leaving money on the table by using your rewards for non-award flight redemptions. That’s because, according to our calculations, the best value for airline miles is to be had when redeeming them for award flights.
The Bottom Line
If you’re concerned about your miles as the pandemic continues to dampen demand for travel, stay abreast of news about your favorite airline’s fortunes. In the meanwhile, check your program for details on other redemption options or transfer possibilities. If a devaluation—or worse—seems likely, you’ll be ready to move.
Also consider putting away your co-branded airline travels rewards card and switching to a general travel rewards card connected to Chase Ultimate Rewards, American Express Membership Rewards, or Citi ThankYou Rewards. These let you use your points for a variety of travel purchases and not just airfare. Some even allow transfers to airline loyalty programs, so when the dust settles, you can transfer the points you’ve earned back to your favorite airline’s loyalty program—provided it’s still flying.