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What Happens To Your Miles When An Airline Declares Bankruptcy

Original article found on Forbes.com

Over the weekend, Colombia’s Flagship airline Avianca declared bankruptcy. While that might not seem notable to many U.S. travelers, diehard points and miles collectors had cause for concern. The airline’s mileage program, LifeMiles, can be lucrative—from domestic flights on United starting at 6,500 miles to flying some of the best first-class products in the skies for under $50 out-of-pocket. LifeMiles also has had a habit of selling miles for a price that made them seem almost too good to be true.

Avianca wasn’t the first airline to declare bankruptcy due to the coronavirus pandemic. UK-based Flybe, Virgin Australia and U.S. regional airlines Trans States Airlines and Compass Airlines have all entered some form of bankruptcy protection since the beginning of March 2020. Unfortunately, this probably won’t be the final tally by the time travel returns to normal.

Whether you have collected millions of airline miles from business travel or have just been scraping together miles to save on a trip, you’re probably wondering what an airline bankruptcy means for your miles. While each case is unique, let’s review some possible outcomes.
The Status of LifeMiles and Velocity Miles

Of the airlines that have declared bankruptcy so far this year, Virgin Australia and Avianca are the only two that have dedicated mileage programs. In both cases, the mileage program is a separate legal entity from the airline, and neither loyalty program has entered bankruptcy.

The news was especially bad at first for those who hold Virgin Australia’s Velocity frequent flyer miles. On April 21, 2020—the same day that Virgin Australia entered administration—Velocity announced an immediate “pause on redemptions” for an initial period of four weeks. Although members probably didn’t have plans to use miles to travel anytime soon, this pause included non-travel redemptions like gift cards.
The good news is that this pause was lifted on May 15. Members can now redeem Velocity miles for domestic flights starting September 1, 2020. Even better, Velocity is waiving all change and cancellation fees on awards through September 1.

LifeMiles is off to a more-confident start. Hours after the news broke that Avianca had filed bankruptcy, LifeMiles issued a press release and emailed members. The message: “LifeMiles Remains Strong”:

Members can still redeem LifeMiles for Avianca and Star Alliance partner flights as before. LifeMiles is going further by incentivizing travelers to continue using the program. LifeMiles has agreed to waive change penalty fees through October 2020. Also, LifeMiles is emphasizing that Avianca will continue to honor LifeMiles loyalty program terms. Current elite status tiers have been extended through January 2022.

Mileage collectors can be optimistic that LifeMiles will continue to remain strong through Avianca’s reorganizational Chapter 11 bankruptcy—just as U.S. airline mileage programs have done through the past two decades. However, confidence in the future of a program isn’t a guarantee that things will work out.

RIP Miles: Air Berlin’s Topbonus Mileage Program

Days after Air Berlin declared bankruptcy in August 2017, its Topbonus mileage program suspended all redemption activities. A week later, the Topbonus loyalty program also declared bankruptcy.

As with Virgin Australia’s Velocity and Avianca’s LifeMiles program, Topbonus was a separate entity. Since that entity was 70% owned by Etihad Airways, there was hope that the program would be saved.

What to Do With Your Points and Miles

Humans have a strong loss aversion. When considering the loss of our hard-earned airline miles, our natural instinct is to get some sort of value out of them—even if that means redeeming them for poor value for non-travel redemptions like gift cards. Some travelers may feel best doing this, especially with only a small balance in a loyalty program account.

Still, I wouldn’t recommend cashing out a large amount of points and miles at this time. In part due to refunds from travel cancelled by COVID-19, my wife and I currently have millions of points and miles in our loyalty accounts. Instead of cashing them out, we are digging into award charts and booking trips that we hope to be able to take later this year and in early 2021.

However, there is one thing that I’d recommend doing now. If you haven’t done so already, consider switching your credit card spending to cards that earn transferable points—such as American Express Membership Rewards points, Chase Ultimate Rewards and Citi ThankYou Points. Each of these bank programs partners with at least 10 different airlines.

By collecting points in one of these bank programs, you reduce the risk of any one airline mileage program losing value. Then, when you’re ready to travel again, you can transfer these points to the airline that’s offering the best redemption rate for the trip you’re looking to take.

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Colorado’s Experience the Night Tour Takes You on a Stargazing Road Trip Through Isolated Mountain Towns

How Expensive Will Air Travel Be After the COVID-19 Crisis?

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