What Happens To Miles If Airlines Go Bankrupt?

Filed Under: Advice

With many airlines struggling to stay alive, one common question has revolved around what happens to your frequent flyer miles in the event of airline bankruptcy.

Unfortunately there’s no one size fits all answer to this, though let me address this on a few levels, since there are several good questions people have been asking:

  • What happens to miles if an airline files for bankruptcy protection/administration?
  • What happens to miles if an airline liquidates? Is the answer different if a frequent flyer program is spun off?
  • What happens to previously booked frequent flyer tickets if an airline goes out of business?

What happens to miles if an airline files for bankruptcy protection?

On the most basic level, what happens if an airline files for bankruptcy protection, whether that comes in the form of Chapter 11, administration, or whatever else the name is? Well, nothing should happen. Miles will continue to be valid and exist.

The one change you may notice is that airlines could temporarily limit the ways in which members can redeem miles. That’s because they’re trying to limit their redemption costs.

We’re seeing this trend even among airlines that aren’t on the verge of bankruptcy — we’re seeing lots of airlines limit redemptions for merchandise or other third party rewards to keep costs down.

Virgin Australia no longer lets you transfer points to Singapore Airlines

What happens to miles if an airline liquidates?

Well, that would be bad news. In the event that an airline does in fact liquidate, and that includes the frequent flyer program, then your miles are worth nothing. They’ll no longer exist, because the program will no longer exist.

Another scenario is that the airline is taken over by another airline, and if that’s the case, the impact on the frequent flyer program could vary:

  • The airline could choose to take over the frequent flyer program as well
  • The airline may or may not honor existing mileage balances

An airline liquidating and miles going “poof” isn’t as common as you might assume, as I’ll talk more about in the next section…

If an airline liquidates you’re probably in trouble

What happens to miles if a frequent flyer program survives an airline?

For many airlines, frequent flyer programs are massive profit centers. This means that:

  • At some airlines frequent flyer programs are spun off and aren’t actually part of the same company, and are therefore considered an independent business
  • Even if frequent flyer programs aren’t spun off, there are instances where we could see frequent flyer programs survive the airline

It’s awfully strange to see a frequent flyer program without an airline, but it’s not unprecedented. For example, Jet Airways’ JetPrivilege frequent flyer program continues to operate, even though the airline liquidated over a year ago.

The program is now known as InterMiles. The catch is that generally the rewards structure won’t be as lucrative anymore, since without an airline some partnerships can be tough to keep.

For example, a loyalty program will no longer have access to all award space of a global alliance in the event that an alliance airline goes out of business.

The circumstances will vary significantly depending on the airline. In general don’t assume that an airline going out of business means the frequent flyer program will go out of business (though it could), but definitely assume the value proposition is likely to get worse.

Jet Airways’ frequent flyer program survived the airline

What happens to existing award tickets if an airline liquidates?

This is a big question I’ve received in relation to redeeming Virgin Atlantic Flying Club miles on All Nippon Airways (for the record, personally I don’t think Virgin Atlantic will go out of business, but that’s just my opinion).

In the event that you book a partner award ticket and the airline and frequent flyer program go out of business, unfortunately don’t expect the ticket to be honored. Airlines generally only compensate one another for award tickets when travel is completed, so if a partner airline isn’t getting paid for the ticket, don’t expect they’ll honor it.

Don’t expect partner award tickets to be honored if an airline goes out of business

We don’t own our frequent flyer miles

While the above are some general guidelines, I think it’s important to emphasize that for virtually all programs, we don’t own our frequent flyer miles. That’s to say that airlines can basically change the terms of the program at any time.

That includes changing mileage earning rates, changing redemption rates, and even closing accounts. The reason I say this is because for each possible scenario that plays out, there are different ways airlines could handle it.

Just to give one example, if an airline goes out of business but they find a way to keep the frequent flyer program alive, they could just wipe out all mileage balances and make people start from scratch. I’m not saying they would, but they could.

Airlines have a lot of latitude in this regard…

Airlines have a lot of power with frequent flyer programs

Bottom line

With many frequent flyer programs being so profitable, there are lots of ways things could play out in the event that airlines go out of business.

I think the most important things to take away are that if an airline liquidates, any award tickets you have booked probably won’t be honored. Furthermore, if an airline does liquidate, that doesn’t necessarily mean the frequent flyer program will.

Comments
  1. When Air Berlin had financial issues they sold their program topbonus to Etihad. In the end, Air Berlin and topbonus went into bankruptcy:
    – topbonus award tickets on OW partners were not honored.
    – lounge access for elites was immediately denied.

    OW awards on Air Berlin were rebooked by the airlines that had issued the award ticket ( or cancelled and miles were redeposited).

    While miles cannot be transferred from – let`s say a potentially unsafe AV account to a hopefully more sustainable UA account – the big question is if it currently makes sense to add the account number to a booking. The other option is to leave it blank and ask for a retroactive mileage credit once the situation is more transparent. Especially when your program is SAA Voyager.

  2. Compared to many I don’t have a huge amount of points but totalling (primarily) AA, BA, Chase, and AMEX I have an easy 1M+ points/miles. I’m doubting whether they will get used for traveling since I don’t expect that to be normal/safe for at least 12-24 months. Some of them I may be able to get at least 1 cent of value from so that is $10K which isn’t terrible but nothing like maybe snagging 5-10 R/T in business class to/from Europe.

  3. I think the answer under “bankruptcy protection” is a bit misleading. If an airline files for bankruptcy, legally, they have no further obligation to honor miles earned under the program. It’s not clear that frequent flyer miles amount to legally enforceable obligations against the airline even outside of bankruptcy (airlines can basically change the programs whenever they want, courts have ruled), but even if you have *some* legal rights outside bankruptcy, bankruptcy allows the airline to extinguish its obligations to people who have contractual rights against the airline — at most, frequent flyer program participants would be unsecured creditors of the airline entitled to some share of whatever recovery unsecured creditors receive (which is often a pittance in relation to the value of their original claim). If you had 1 million miles which were worth $10,000 before bankruptcy, you could be left with something like a travel voucher for $500 after bankruptcy (or nothing, if higher priority creditors are not being repaid in full).

    In practice, *in the past*, airlines that have restructured in bankruptcy, as opposed to liquidated, have chosen to honor frequent flyer programs on the theory that breaching the program would generate badwill among the airline’s most loyal customers and therefore make it harder for the airline to earn revenue after the restructuring is over. I think @lucky is *probably* right that most airlines that declare bankruptcy are likely to continue to choose that path. But there’s no guarantee whatsoever that they will do so. Literally none. If, for example, all the large US airlines declared bankruptcy due to Covid-19, it’s conceivable they could all decide to eliminate mileage balances (or dilute the program substantially, for example, increasing the amount of mileage required to redeem for an award by 10X, even adding to the huge devaluations they’ve already made by switching away from fixed award charts), if they felt that doing so wouldn’t put them at a competitive disadvantage. In the past, this has not happened because the airlines did not all restructure at the same time, so a restructuring airline didn’t want to lose customers to a financially healthy airline. But in this case, who knows? Past is not always prologue.

    Bottom line, there’s no guarantees. Frequent flyer program members have few or no legal *rights*, even outside of bankruptcy — and in bankruptcy, airlines have broad power to discharge claims entirely. So you’re really just counting on the airlines to decide that it’s in their best interest to continue to honor your miles (which it *might* be).

  4. FWIW, Air Canada entered bankruptcy protection in 2004, if I have the dates right. At the time I was still a bit of a FF neophyte. I had amassed a little over 100,000 miles and suddenly became worried about whether they would survive. So I booked my first redemptions, including a day trip with my daughter and a weekend in the UK, which was my first Business Class experience. (And nothing like business class now!) I’ve earned and burned a lot of miles since then, and had some very memorable experiences, but those redemptions were what got me started.

    Air Canada emerged from bankruptcy, and the remaining miles survived the bankruptcy and went toward my next redemption.

    Since that time Air Canada spun off Aeroplan, and then reacquired it, and is due to come out with its new system in a couple of months, assuming current circumstances don’t delay the launch. And on we go.

  5. Thanks for addressing this @Lucky, and particularly the VS/ANA situation.

    Using that example that would apply to other airline, what I’m wondering is in the case I transferred Amex points to VS, and VS goes under and ANA doesn’t honor my tickets, would Amex do a “chargeback” of my points like they would with cash?

  6. Thank you for posting Ben, i will hold off converting my VA miles to hilton for now then, but if i start seeing things going further down hill i will try and convert them to hilton 😀

  7. There are different types of bankruptcy, and the airlines in the US are quite familiar with them. US airlines have all flown through bankruptcy, because for the most part, it gives them some breathing room to have creditors leave them alone and have a judge decide what debts can be expected to be paid and which cannot (usually it’s a good way to discharge pension responsibilities onto the PBGC).

    From what I have read, the United Kingdom (and more broadly, Europe) does not have the same kind of “leave us alone for a bit” bankruptcy protection that the US does, which usually leads to insolvency. So when Thomas Cook, FlyBE, and Monarch went into administration, they just stopped flying, which is why so many people are worried about their VS miles.

  8. @John
    Not correct, at least in the EU. Lufthansa was taken to court and now has to announce devaluations long enough in advance so that members have the opportunity to use their points before that.
    When AirBerlin’s TopBonus went into liquidation, you could register your claim. The process isn’t finished yet so we don’t know which quota you will be awarded.

  9. @Ben – Why do we get taxed on frequent flyer miles if we don’t own them? I’m not arguing, just curious.

  10. @Max — My answers re non-bankruptcy law were focused on U.S. airlines. Europe may have additional consumer protection laws that give some rights outside of bankruptcy, but even assuming they do, those laws likely would not guarantee any relief in the context of a U.S. carrier bankruptcy. While EU bankruptcy laws vary to some extent by member country, the EU does have international comity with foreign bankruptcy proceedings. In other words, if we’re talking about a U.S. carrier, the EU would recognize the judgments of the U.S. bankruptcy court that presides over the bankruptcy of that company (the bankruptcy case generally must be filed in the jurisdiction where the airline has its headquarters, so for a U.S. carrier, the bankruptcy would be filed in the U.S.). In the case of frequent flyer programs specifically, U.S. courts would regard the programs as (at most) mere contractual promises, which the bankrupt entity can discharge if it wishes to do so.

    Even in the U.S., you can “register” your “claim” in the full amount if you’re owed something for miles (or on any other basis). That does not mean you get that amount, though. That’s just used to calculate the amount you get. For example, if your claim is for $10,000 and they’re paying 5% of the claim in the form of a voucher, you get a $500 voucher. That being said, in some cases, small claims (typically claims under $1,000) will be paid in full because creditors whose claim is impaired have certain procedural rights, and for very small claims, the cost of providing the procedural rights may be greater than the actual value of the claim so they’ll just pay the claim and get it over with. (All claims owed to a single person or entity are aggregated for this purpose, and they’ll only pay small claims that they think are basically legitimate or reasonable; as you might imagine, there are separate procedures to eliminate fraudulent or invalid claims.)

    So, bottom line, yes, you might well have your miles recognized in bankruptcy of a U.S. carrier and come out on the other side with all your value intact, but there’s no guarantee of that. Even if the carrier is not liquidated, they certainly don’t *have* to recognize the miles — and it’s not that difficult to envision scenarios where they decide the old rules no longer apply and they won’t lose much by repudiating the miles (or, perhaps more likely, massively devaluing them).

  11. Great comments and I understand what you all are saying about the airline points.
    But what about hotel points? Obviously the same situation can happen.

  12. I was one of those people trapped on a cruise ship that kept changing date, time, and place of deportation. By the time we finally got off the ship we had changed our tickets 7 times. We changed most of the tickets but they did cancel and rescheduled/reticketed 2 of the flights. We accepted the changes and it was all done under a single record locator. AA has insisted that I am only entitled refund evouchers and has refused to refund the money back to my credit card. Now my question is what happens to my money if they file for protection? As you can image it is a considerable sum. All tickets were from domestic ports (Hawaii, California, etc.).

  13. When Pan Am went belly-up, Delta took over their European routes (their Asian routes had already been sold to United) and honored both the leftover Pan Am miles, albeit with a time limit, and the lifetime Clipper Club lounge membership I had. They didn’t, however, honor the spousal benefit that Pan Am provided.

    My son and I took business class flights to Europe on my leftover miles, and we had the same ex-Pan Am flight attendant on both outbound and return flights. He was wearing a Pan Am uniform… 🙂

  14. @Garry – I remember that. Delta made a shrewd move doing that, as it won them a lot of goodwill after (sensibly) backing out of another round of financing for Pan Am. Delta also had a considerably more expensive award chart.

  15. I recently read(last week) an announcement from the leading airline body in Europe that many European airlines will go bankrupt by the end of summer this year. Does anyone know about this ? Do you think Ryannair or Aer Lingus could go bust soon?

  16. I had a paid ticket issued by Spanair with flights on US Air. After they went bankrupt, US Air took over the ticket and even changed the origination city to a more convenient airport.

  17. Virgin hasn’t just restricted transfers to Singapore Airlines, they have also restricted the redemption of all points (and CC companies are restricting to virgin)

  18. If an airline is heading for liquidation, then does it inform the customers in advance whereby we would be having a chance to redeem and finish off the miles or is it a something which happens suddenly without giving any chances for redemption? Any response would be appreciated.

  19. @SK

    No advance warnings. They just go.

    ***”For entertainment purposes only. Not an investment adviser, financial planner, nor legal or tax professional and are of an opinion and general nature and should not be relied upon for individual circumstances.”***

    Transfer out your VS miles ASAP.
    And per @Callum, too late for VA now.

  20. @RC
    Exactly, importantly to note here that European airlines/governments/laws are quite different from US ones. While all major US airlines which filed for bankruptcy had in some way re-emerged and kept their programs/miles, Air Berlin went into liquidation and all miles balance went to zero.

  21. Love the use of American’s first class flat-bed-deception as a placeholder image for the power airlines have!

  22. LOOOL

    What happens to your miles if the airline go bankrupt?

    In one phrase: sorry for your loss

  23. @StevElpaso

    Not so much to worry about for hotel points. The big chains own very little in the way of fixed assets and certainly in the case of IHG are ridiculously cash rich

  24. When Avianca Brasil (O6) signalled it could go bankrupt last year, hundreds of members of the Amigo programme – myself included – dashed to burn up the miles with airline partners!
    The amount of miles requested by partners was simply ridiculous and one spent hours browsing for a plausible and ‘affordable’ destination!
    Also, once tickets were issued, airlines refused to accept the passengers and some were barred even at check-in! After huge pressure, little by little airlines started to honour the issued tickets, being TAP and Ethiopian the last ones, only surrendering after heavy media coverage on Brazilian television!
    Some members still have thousand of unused miles and they have come to terms with the fact they are lost for good; I managed to use mine and was very happy about it!

  25. Several years ago I was a first time international traveler and did not know about how the miles work. I could have flown with Air Berlin and had miles with AA but I did not know and Air Berlin BK’d and lost all my points. Oh well, it happens!

  26. I’m not a CPA, but I believe I have some knowledge and I thought to get as this question. Some companies will sadly tax you for the miles you earn which would go into your tax return as income. If your miles went “poof,” don’t you believe you could use those amounts in which your employer charged you over the years as a deduction. Short and / or long term capital losses at the rate your employer charged you over the years. On the current or later tax year or years. Or at least what the courts may value the miles at.

  27. My question is this: if one buys miles in a frequent flyer program and the airline later goes bust, can they claim a chargeback with their credit card issuer? What is the difference between getting your money back from your credit card issuer for an airlines ticket you cannot use or frequent flyer miles you cannot use?

  28. I’m wondering about large banks who issue an airline branded major credit card. Wouldn’t there be some interest in stepping in to salvage the program for those that might include major account holders.

  29. “At some airlines frequent flyer programs are spun off and aren’t actually part of the same company, and are therefore considered an independent business.”

    I think Qualiflyer was the first frequent flyer programme to do this. So when SAirGroup & Swissair were declared bankrupt our points were safe.

    Qualiflyer ceased to exist in January 2003 when its last three partners, Swiss, SN Brussels and TAP Air Portugal, began their own individual schemes: Swiss TravelClub; Privilege; and Navigator. We chose to move our points into Swiss TravelClub, and several years later they ended up in a Miles & More account when Swiss closed it’s own program and switched to using Miles & More.

  30. What happens to your ticket, if you redeemed partner miles to an airline that declares bankruptcy, and then vanishes.

    I used 75K Delta miles to book a ticket on Aeromexico
    MEX-AMS-MAD for May 26th 2021

    If AM goes under, do my Delta miles come back to me, am I rebooked on a different sky team carrier such as KLM or AF, or is the value lost?

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