AA & United MILES PROGRAMS to end soon...?
 

A travel expert is forecasting that AA, United, and US Airways may enter into bankruptcy in a few months - and as part of that you would no longer be able to redeem miles for flights.

See: http://www.king5.com/sharedcontent/n....39d331d2.html
This expert says: "To protect yourself, the first thing you should do is use your frequent flier miles as soon as you can. If they go bankrupt and they liquidate the carrier, the miles will be worthless.”

Does anyone have more information on this likelihood?

Self-proclaimed "expert" knows nothing here.

DL, UA, US and NW have all been to Chapter 11 in the past 5 years. There was no impact to any frequent flyer miles.

Only in Chapter 7 bankruptcy (liquidation) would losing miles be an issue.

The other issue is the airlines make a lot of money selling miles to the credit card companies, hotels, etc. They are not going to wipe out everyone's miles and kill one of their profit centers.

Welcome to FlyerTalk.

The "expert" is actually a moron on this particular topic. Yes, the miles could become worthless. But even in a Ch7 filing there is a very good chance that another carrier would assume the FF program of the failed carrier - outstanding mileage balance liabilities and all - to pick up those extra customers. The risk of the miles disappearing completely is relatively low.

IMHO the FTers' comments above that miles will probably not blow-up are likely correct.

But the chance of losing my million or so miles makes me nervous. :(

So, I am trying hard to burn miles, even in cases where I would have previously purchased a ticket to earn miles.

For example, I just used 45K of NW Worldperks miles for a transcon ticket in F. Not the best use of miles, but, I'd rather use it than lose it.

Burn, baby, burn! :D

Holding a million is somewhat foolish. They don't accrue interest or increase in value over time in any other way. But having a couple hundred thousand tucked away for a pair of F seats somewhere a long way away is not a horrible thing either.

Now, now--be nice. :(

Problem is, what with credit card bonuses, etc., the miles have been coming in faster than I can use 'em up.

But, I am trying.

Now, if only I could kick the churning habit... :D

Having Platinum (or higher) status on AA for example further complicates this by making the paid for ticket 'earn' RDM's. Thus for example when burning miles on a simple domestic ticket that would have cost up to $400, using 25K miles and NOT earning the near 10K RDM's (assuming coast to coast flight) make the cost of the flight closer to 35K miles IMO. Further not getting the 5K EQM's is also problematic for those of us who are boarder line on re-qualifying...

But, I'm sure you knew this, just thought I'd state it. :D

I actually tend to burn miles by flying my family (that don't happen to have status on AA) to visit when the purchase prices are high. I explain that the flight counts as both Christmas and Mothers day present :)

Yeah, that's generally my attitude- use miles/vouchers that don't accrue mileage for the family members who DON'T have elite status, use cash for the person (me) who DOES (and accrues EQM/RDM at the better rates).

Or you could upgrade flights- for pleasure or mileage runs to keep elite status.

For instance, a TATL mileage run/quasi-vacation where it's 25,000 miles + a copay one-way to upgrade... if you're flying from the West Coast and have top elite status on the airline, and you're willing to tolerate Y during daylight hours and spend the mileage for sleeping, you basically end up mileage-neutral on the RDM (with the right set of stops, you'll get ~6,000 flight miles each way, so you'll be at around 25K EQM, assuming 100% bonuses), but you now have 12,000 shiny new EQM for next year's status (even more if you're in DEQM season).

Or travel more. ;)

This time around, the chances that members of a FFP operated by a Chapter 7-filing carrier would face little to no risk of losing a lot of value from the miles is anything but "very good". Some major US carrier is going to go under sooner or later and most of the miles in that carrier's FFP are going to see the value mostly or entirely wiped out. Still, this "expert" is jumping the gun way too soon and widely.

If an airline goes into Chapter 7, then yes, the miles are worthless and there is no assumption another airline will purchase the failed carrier's miles or be nice to their loyal passengers. Especially in this economy.

Secondly, when Ansett went bust, many Star Alliance airlines refused to board passengers holding Ansett issued reward tickets- those airlines weren't going to get paid.

Thirdly, when UA filed chapter 11, a few of their partners didn't want anything more to do with them so a few earning/redeeming options were eliminated, but I don't think AA/DL/UA will disappear completely just yet.

Why do you feel this way? The cost of the liability (outstanding mileage balances) would be outweighed by the value of the asset (loyalty base, CC partners, etc.) IMO, even in this economy.

Now that's a real expert. ^

My philosophy is similar: Always have enough miles available in case I need to make an emergency trip to Bali in F.

Mike

I agree with this, even in Chapter 7 one of the remaining majors will pay for the program and take it on to gain the loyalty of those customers. The only assets of value that any of the major legacy carriers have are: 1) Their brand-name; 2) Their loyalty program; and 3) Airport slots at LGA, DCA, and LHR. If an airline went Chapter 7, those assets will be sold to pay creditors something. Everything else is pretty much worthless and/or already mortgaged. Even owned aircraft (not that any of the majors have many left that aren't mortgaged already) are next to worthless in the current business environment.

Ansett's situation is completely different because the Australian market was much less competitive so there was no incentive for a competitor (i.e., Qantas) to try and win over those passengers, they got those passengers by default. The same is hardly true in the US market where if a major legacy airline goes belly-up there are still four legacies plus several large LCC's that will be competing to win those customers.

These are usually the posts that we see every year on April 1. I wouldn't worry about it. Though maybe he is trying to push frequent flyer insurance? :)

The FF programs are the most profitable arm of many airlines. They are not going anywhere - and neither are the accumulated miles that you have. The only real risk is some watering down (more miles needed for a given award).

You forgot NRT. ;)

And the few owned decent planes have some value, too, but most of those are leased or otherwise encumbered.

I'm surprised this is a new thread...usually we just bump previous years' April 1st threads. :D

If an airline truly went Ch7, the airport slots could get sold off piecemeal - the buyer wouldn't need to necessarily acquire the entire airline or the FFP.

I think the distinction is this: the big FFP's have value because you have entire captive audiences who would have little to no choice but to use your product going forward. (EDIT: Well, they'd technically have choices, but you'd want to keep the loyalty program intact to keep them in their current habits assuming you're also buying some of their old routes.) The smaller FFP's that don't have that kind of critical mass or captive audience (especially in a couple of major hub cities) might not be worth much of anything.

In other words, if YX, F9, or B6 went belly-up, I wouldn't count on those miles being instantly bought by another carrier. You might get lucky and receive some sort of perk, promotion, or temporary status from whomever bought their most desirable landing slots.

It's not a given that the cost of the liability from acquired accounts would be less than the value gained from maintaining those accounts at full value as marketed currently to customers -- especially not in this economy.

No, it is not a given. But it is also not a given in the other direction.

Since the prorgam would be acquired at a discounted rate that is going to help the acquiring carrier. And buying the loyalty of those customers has way too much potential upside for all of the other carriers to simply walk away, IMO. Even if the program was acquired/integrated with a sunset provision (old points die after N years) the consumers still won't be left completely out in the cold.

The story basically stated that if a carrier goes Ch7 the points are guaranteed to be lost: "If they go bankrupt and they liquidate the carrier, the miles will be worthless." There is a chance that will happen. But there is also a rather significant chance that it will not. I'm betting on the latter.

The guy also suggests, "If you're buying a big ticket – Asia, Australia, Europe – for the fall or winter, you should seriously consider buying travel insurance so at least you’ll get your money back." Of course, he's mostly talking to a US-based customer base who is almost certainly buying such "big ticket" trips on a credit card. And if the carrier fails the CC company is on the hook, not the consumer, for the ticket costs. The consumer can just get their money back from the CC company.

He's spewing out bad advice and I have no qualms about saying so.

When Ansett Australia went under, all the miles are gone. I think the author does have a point if any airline ever goes to Ch 7!

And the credit card processor, more than likely, will have held back much of the money from the carrier....

At this time last year, United had $382 million held back, or 25 percent of advance credit card sales. United reached a deal with Paymentech and JPMorgan Chase Bank to cut that amount to $25 million, but the amount would rise if UAL's cash balance declines. UAL would also have to post reserves with American Express if its cash balance falls below $2.4 billion -- it was $2.46 billion on March 31, according to regulatory filings.

http://www.miamiherald.com/business/...y/1144331.html

I think it's hard to say what would happen if a major airline shutdown since it's been so long since it happened last. Pan Am and Eastern's programs were taken over by Delta and Continental respectively in 1991. TWA's was taken over by AA in 2001, but that was more of a merger.

In theory a bankruptcy court could invalidate the FF program, but it's never happened in any of the numerous reorganizations because it would be too disruptive to the business.

The minor programs have been left out to dry -- ATA Travel Awards, Aloha AlohaPass, and Independence iClub are all worthless.

Did you read the previous posts in the thread??
Right, and no one bought whatever ATA was using for their program though the LGA slots did get sold. The carriers being discussed as most likely to disappear - UA and UA - have FF prorgams that are of value. Those programs are not simply going to vanish.
:D :D That was funny. No it wasn't.

Also remember that most airlines will enter chapter 11, not chapter 7. They have access to credit and investors to help cover operating costs while reorganizing.

Also remember that the FF programs carry many more people than passengers. The also bring all the credit card holders with them--or at least the banks who buy all those miles and would want to maintain the continuity of their product.

Really? How many of the most recent bankruptcies went that route? The answer is very, very few. Of course, those that closed up shop were also the smaller ones with no real value even in their FF programs so it is hard to say for certain, but a blanket assumption that the next airline to declare bankruptcy will get Ch11 instead of Ch7 is somewhat questionable to me.

I have little to no concern of the airlines going belly up. Certainly it would suck if UA were to go chapter 7, but the chances of Chapter 7 filing are basically non-existent without first filing chapter 11 and trying to re-organize. One thing I have done is I've diversified my mileage holdings and now have about 110k NWA miles available, about 100k Amex Points, 30k with ANA, and 40k SPG. I would certainly take a hit if a program was scrapped, but no reason to burn them at this point at any more than the usual rate.

That depends on what the "usual rate" is. If you are hoarding them and never burning then it is always a good idea to consider burning. Ironically, I think that the folks most likely to get up in arms over such an article are the ones with their 15,000 hard-earned points tucked away, dreaming about finally getting to redeem them eventually. Those folks have way less to lose anyways.

This is absurd. For no other reason than the current administration is loathe to let any enterprise go kaput if thousands of union jobs are at stake.

Read my lips: no major US airline liquidation will occur during this administration. Now by major I mean AA, DL, UA and CO. The others are expendable (except WN which is in no danger).

Completely different market situations. The reason a FF program in the US has value is because there is so much competition, the same certainly was not true with Ansett, it basically had just one competitor who didn't need to do anything to acquire Ansett's customers.

Edited to add: And I see from sbm12's quote I already said this in this thread ...

Does anyone know the financial health of Air France? I may soon be booking two high priced flights to Rome on Air France using Delta Skymiles for next June. Is Delta OK financially?

Delta is struggling but if anything were to happen, a large airline like Delta will not go straight to Ch 7 but have a restructure in Ch 11. You should be okay.

A major U.S. airline going under? Or any major U.S. company for that matter? Did you forget who our President is?

If he is backing the warranty on GM cars, maybe we can get him to back our airline tickets.

At first I was 100% with you on this one. Then I thought about it a little, now if you want to ignore the fact that with the current administration, no major Airline would be allowed to file CH 7. Lets say you fly airline X to Japan and then they shut down. Even if your CC refunded you for your unused return, you would still need to buy an expensive last minute one way.

Obviously the odds of something like that happening are extremely low and if it did other airlines would probably try and 'rescue' the pax.

If you get travel insurance that guarantees you a replacement ticket then it might make sense. But the article suggests it simply for a refund, not for the replacement ticket.

As to other carriers "rescuing" the pax, that is much more likely with other US-based carriers. If you are flying off somewhere that is not straight US-based carrier service things do get more complicated, though not impossibly so.

And I'm not entirely convinced that Ch7 is off the table. There is clearly too much capacity in the domestic market still.

Trivia question to which I do not know the answer: when was the last "major" US airline liquidation that left the passengers and frequent fliers in the lurch? Eastern Air Lines?

When DL acquired Pan Am, did they honor the FF miles? The only "big" one in my frequent-flying lifetime has been TW/AA, and TW miles and status were transferred fully.

In that case I stand corrected, as an FTer I buy gum and soda with a CC. if diet coke doesn't taste right, they can expect a charge back.

There are still miles sitting in many DL accounts that were the product of flying PanAm.