Randy, on the PrivilegeFlyer web pages, I could not find any information on its financial resources. Would PrivilegeFlyer be able to absorb the failure of one of the larger cariers? What is the amount of PrivilegeFlyer's reserves? Does it have reinsurance?

That question has been answered quite a few times in the last 11 years that PF has been around. PrivilegeFlyer has never had to have any solvency in regard to potential claims. In 1991, PF went to the London insurance market and secured insurance on itself. Claims have never been handled by PF as we try and help members get the most out of their frequent flyer programs. Claims were sent to London for resolve and there hasn't been any problems over the years or you would have heard. Over the years there has been quite a few satisfied members because of the privilege of helping extend their expiring miles. There are far more people who have been glad to have help with expired miles in the mid-1900s than the small numbers of people with miles in programs that may be at risk. You might find it interesting that most of the members of PrivilegeFlyer enjoy the benefit of help with their frequent flyer programs, not the idea that they may enjoy some piece of mind for endangered miles. Please remember that this is an eleven year program and that the last time airlines were in trouble was some eleven years ago. If you were to look closely at any interview I've done for the past few months in public, you'd know that I do not recommend PrivilegeFlyer for protection of your miles and points. I do recommend it for assistance in getting more of your frequent program. If you missed the radio show i did in Phoenix some weeks ago or some of the various interviews regarding the safety of your miles - let me recap for you. I have as many if not more miles perdonally than most any frequent flyer. Because I tend to seek out miles from a variety of programs big and small to stay impartial, my miles are in some of those programs you might find as a risk. I can say without a doubt, that I have no worries about losing my miles in either America West, United or US Airways at this time. While this may change over time, I see no immediate change in my position and advise members who are looking for solutions to protect their miles to pass on any options that are available, including PrivilegeFlyer, early redemption, partner redemption and future redemption. I said this same thing in interviews as far back as last October. However, I'm not London and there is a feeling that because of their unsettled concern about the aviation marketplace (I don't get the feeling they rely on what my personal thoughts are on the future of the airline industry) which is likely based more on analyst's stock support of airlines they may soon restrict us from accepting new members anyway. As much respect as I have for the insurance industry, I still am going to trust my instincts on this matter and go with saying your miles are safe over the next 6 months.

Hope this helps a little. Thanks for the question. And I might add - please don't worry about United Airlines. Bankruptcy there is not possible other than as a way to undo some of the more restrictive labor contracts they can't get out of any other way. Mileage Plus miles are as safe as credits in the Southwest Rapid Rewards program.

Thank you for the info. I take it then that the insurance PF has in London would be itself sufficient to cover all claims of PF's customers if, say, United were to fail and its miles were to become worthless? Likewise, is there enough insurance to cover all claims if United and American were to fail and its miles were to become worthless?

No, you have to read the carefully-couched phrasing closely. They once had reinsurance, but not now. (Technically, insurance, not reinsurance, since PF not licensed as an insurance co.)

I have read the previous threads on this topic. For what it's worth, my take is that they have and can handle the demise of one of the minors, but if a major tanks, so will PF.

Randy, is that true? Does PF have any insurance currently? Would PF's insurance be sufficient to cover PF's customers' claims if United were to fail and its miles were to become worthless?

You may want to read through this:

http://www.flyertalk.com/forum/Forum1/HTML/005223.html

I'll pass on it...

singlemalt, thanks for that thread.

Randy, in

1) the thread from Sep. 2001 singlemalt just posted,

2) the "Inside Flyer - to resume publication?" thread from last month and

3) this topic...

several folks, myself included, have asked whether PrivilegeFlyer has sufficient insurance coverage to satisfy the claims of its customers in the event that United or American were to fail and their miles were to become worthless. I have not been able to find a straight answer from you to that question.

It's a fair question to ask, isn't it, Randy?


[This message has been edited by dhuey (edited 01-24-2002).]

dhuey,
I don't know what kind of answer you are waiting for. It would be a very foolish decision on your part if you sink your money in this program, for ONE simple reason - it does not cover Chapter 11 bankruptcies.

It doesnt matter how much money they have, who the reinsurer is, how many years they have been in business, or anything else Randy tells you. Companies the size of United and American can't simply vanish overnight (which is the only time AwardGuard would pay you). These airlines have too many shareholders, auditors, employees, relationships, not to mention aircrafts to simply "turn out the lights" one fine day. In the worst case scenerio, they would declare Chapter 11 bankruptcy during which they can function normally and rearrange their debt (and AwardGuard would not cover this).

Consider the Enron case which you probably hear a lot about on the news. Given the scale of debt and losses they have, they are currently in Chapter 11, but continue to function. What about K-Mart? they also went chapter 11 last week. But if you drive past a K-Mart store, you wouldn't know it. Same way, if an airline like United or American came under extreme creditor pressure, it would simply go Chapter 11 for a few years, and then come back to life. I am not implying that K-Mart or Enron will come back to life, but they were not leaders to begin with --- Walmart can easily replace KMart and keep the latter out of business. But with American and United Airlines - c'mon, give me a break, they are the 2 largest airlines in the world!

And in my own personal humble opinion, it is sort of un-patriotic to buy an insurance policy against the failure of these 2 companies, because you are lacking faith in 2 very prominent American icons, which symbolize the success and innovation of American business.

My take on it - stay away from AwardGuard/PrivilageFlyer - you won't ever need it. If you got extra cash, donate it or buy an oriental rug or something....


[This message has been edited by custombagel (edited 01-25-2002).]

[This message has been edited by custombagel (edited 01-25-2002).]

custombagel, you make an interesting point on the limitations of this program. My curiosity, however, pertains to the possibility of complete failure of United or American (i.e., miles become worthless). I certainly don't wish for this result, and I agree with you that it is very unlikely this will happen.

Nonetheless, it is common to insure against very unlikely events. Of course, the whole point of such insurance is for the insurer to have the resources to pay out large claims in the event of an unlikely disaster.

Which brings me to the question I keep hoping Randy will answer -- does PrivilegeFlyer have suufficient insurance to cover the complete failure of United or American (i.e., miles become worthless)?

If the answer is "yes, we have insurance that will completely cover that", why not say so? Or, perhaps, the answer is "we have $x in invested reserves, sufficient to cover that." I don't know the answer to this basic question, hence I ask it.

dhuey
I believe the lack of an answer to your question, and many before it sounds like a "No, we do not have the funds to cover the failure of these 2 airlines".

But my friend, I think you're missing the point. PrivilegeFlyer is useless because if companies such as United and American totally failed, I think we would have more things to worry about than frequent flyer miles.

These 2 companies are so big, and so intermingled with the American economy that if they were to fail totally, there will probably have been some major catastrophic event....like another terrorist attack, an Enron type scandal, antitrust/class action lawsuit etc....

And in all these extreme cases, PrivilageFlyer wouldn't cover the miles anyway. See my point? I'm referring to the big picture, and thinking outside the box...what would cause these companies to fail in the first place, and if they did, would we care about frequent flyer miles, or saving our jobs, lives, homes etc.

To me, insuring miles from AA or UA is kinda like buying fire insurance for your dog's kennel. If you ever have to use it, you've probably got bigger things to worry about (your whole house burning down)......



[This message has been edited by custombagel (edited 01-25-2002).]

I think it's rude to press Randy on the question. This board is, after all, essentially his, and those of who participate here are his guests.

To ask one's host a question once is fine. He might or might not choose to answer, and you might or might not agree with the answer if one is proffered. However, to apply pressure to one's host by repeating the question over and again seems to me to be inappropriate.

wideman:
Not being upfront with your customers about your business practices is also pretty inappropriate.

If I was buying a car and asked the dealer for warranty papers, and the dealer ignores my question, I would probably feel uncomfortable doing business there. Sure, the dealership is his, and I am his "guest" while on the property, but I suppose thats because he expects to sell me a car

[This message has been edited by custombagel (edited 01-25-2002).]

And wouldn't buying the oriental rug be un-patriotic

[This message has been edited by PG (edited 01-25-2002).]

wideman, if Randy thinks I'm being rude, he can tell me that directly. He has not yet. If he wants to write "I'd prefer not to answer the question", he can do that as well. Since he is obviously capable writing his own posts, he does not need you to answer for him.

Randy, if you state that you would prefer not to answer my question, I will post nothing more about this on your website.