This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. For an explanation of our Advertising Disclosure, visit this page.

So far, there have been several airline bankruptcies in 2020. One instant downside is fewer flight options to fuel the pricing wars. But affected frequent flyers also wonder what happens to airline miles of shuttered carriers?

View of the Las Vegas Strip from the plane.

Airline Bankruptcies in 2020

Bankrupt airlines aren’t new. American, Delta, and United have all declared bankruptcy in prior decades. Those airlines are larger today than before by acquiring smaller airlines in the process.

Other airlines become smaller after emerging from bankruptcy by closing unprofitable routes. Avianca Holdings is closing its Avianca Peru operations, for instance. But you can still fly Avianca-operated flights in the future.

These are some of the largest airlines to declare bankruptcy in 2020:

  • Air Italy
  • Avianca
  • Flybe
  • LATAM
  • South African Airways
  • Virgin Atlantic
  • Virgin Australia

The financial trouble for some of these airlines was well-known before the travel industry suddenly grounded. Airline bankruptcy doesn’t mean the airline closes forever. Avianca and Virgin Atlantic anticipate flying again.  But they may need to wait for the courts, investors, and company leadership completes the bankruptcy proceedings.

Governments around the world are offering bailout loans to the largest airlines to keep them in the air. Your miles are likely going to be ok as the airline ramps up operations as the pandemic threat decreases.

Miles for airlines that won’t receive a government bailout or a private angel investment are more at risk. Regional airlines fall into this category as well as some of the smaller international airlines, like Air Italy.

What Happens To Airline Miles If An Airline Goes Bankrupt?

Your airline miles don’t automatically disappear if your favorite airline goes bankrupt. This can be the case for the best airline miles after the travel bans end.

Frequent Flyer Programs Are A Separate Entity

Frequent flyer programs are usually a separate entity from the bankrupt airline. The frequent flyer program can be profitable.  Some airlines periodically raise much-needed funds by selling miles to their co-brand miles credit card partners or sell miles at a discount directly through the loyalty program.

Airlines are going to do what’s possible to keep their loyalty program afloat to maintain customer loyalty and receive income.

Both Avianca LifeMiles and Velocity Frequent Flyer (Virgin Australia) are separate entities from their bankrupt parent airline. This separation can be a good thing. You see, the bankruptcy judge may require the carrier to sell assets to close the proceedings. Lumping frequent flyer miles and co-brand credit card partnerships into the proceedings can cloud the filing process.

Related: How to Keep Earning Points and Miles While in Quarantine

what happens to airline miles
You can still redeem Avianca LifeMiles for award flights.
Credit: LifeMiles

Avianca LifeMiles Bankruptcy

In May 2020, Avianca sent a message to its flyers stating, “The LifeMiles™ program is administered by a separate company and is NOT part of Avianca’s Chapter 11 filing.”

LifeMiles members can continue to earn and redeem LifeMiles, including with their Avianca LifeMiles credit cards, during the bankruptcy proceedings. You can also keep redeeming your miles for Star Alliance award flight during this time too.

Avianca isn’t expiring airline miles for the rest of 2020 either. Many airlines are following a similar practice because of the pandemic.

Not all loyalty programs offer the same flexibility as LifeMiles currently is. You will need to look at your individual options.

Virgin Australia Velocity Miles Bankruptcy

Virgin Australia declared bankruptcy in April 2020. All redemption options were immediately halted. But, you can now redeem Velocity Miles again for domestic Australian flights with departure dates starting September 1, 2020.

Any flights you book between May 15, 2020, and September 1, 2020, can receive a full refund in your original payment method. You can purchase flights with points or cash.

If Virgin Australia closes, Velocity Miles members will receive a cash settlement from a separate trust account. Not every airline backs their miles with cash so Velocity Miles is a special exception.

Redemption Options May Vary

It’s important to remember that you don’t own frequent flyer miles. The same policy holds for credit card points. If the loyalty program closes, you risk losing your points balance and likely won’t get cash credit.

Bankrupt airlines belonging to a larger alliance might have more redemption flexibility.

Temporary Redemption Pause

Let’s get one of the worst-case scenarios out fo the way first — a point redemption pause. The good news is that your points balance is still active. However, you can’t redeem your points for any award. In this case, you must hope the loyalty program resumes redemptions soon or merges with another airline.

Virgin Australia initially had a redemption pause. Loyalty members can now redeem Velocity Miles for domestic flights operated by Virgin Australia starting May 15, 2020.

Virgin Australia Velocity Miles
You can redeem Velocity Miles for domestic flights while Virgin Australia files bankruptcy.
Credit: Virgin Australia

Book Partner Flights

You may still be able to redeem your miles for partner flights. But you might expect to pay more points to book these partner flights due to a point devaluation. This is more likely to happen if the bankrupt airline belongs to a major alliance. Avianca LifeMiles are still redeemable for Star Alliance partner flights while Avianca sifts through the bankruptcy process.

Some of the world’s largest airlines own stakes in smaller financially-troubled airlines. Qatar Airways had a 49% stake in now-bankrupt Air Italy. American, Delta, and United invest in smaller partner airlines to be codeshare partners.

Being able to book partner flights isn’t a guarantee. The partner airline may not receive payment until you complete the flight. That airline may not want compensation from a bankrupt airline.

Transfer Points To Partners

Some airline loyalty programs let you transfer airline miles to other airline and hotel partners. While the exchange rate usually isn’t the best, you at least have access to your points. You can be happy to convert your points if the loyalty program folds and all remaining airline miles become worthless.

If the airline declares bankruptcy and transfer options are available, you may try transferring as soon as possible. Loyalty programs can suspend any remaining redemption options to preserve their cash balance.

We have seen this during the current travel shutdowns. Airlines are temporarily suspending gift cards and merchandise rewards but still allow you to redeem miles for award flights.

Related: Best Travel Credit Cards

Loyalty Programs Merge

You may need to wait for your loyalty program to merge if a larger airline acquires the bankrupt one. Your miles convert into the new airline currency and your current loyalty status should carry over too.

Cash Settlement

You might get lucky and can receive a cash settlement for any miles you have for a defunct airline. Virgin Australia has a reserve fund in case the airline closes. While you at least get something, the cash value for the points may not be as much as your average redemption value. But some cash can be better than nothing at all.

Summary

Frequent flyer miles for bankrupt airlines don’t automatically expire. You should monitor your email for loyalty program updates. These updates can indicate what your current redemption options are and the possibility of a loyalty program merger.

FAQs

What happens to air miles if an airline goes bust?

Airline miles can still be usable if the airline declares bankruptcy but remains in business. You may not be able to redeem your miles temporarily while the airline changes its business model.

Your miles may become worthless if the airline closes and you cannot transfer your miles to another travel loyalty program. In some cases, you can transfer your miles to an alliance partner or a hotel. If the loyalty program has a trust fund, you might get a cash settlement to reimburse your lost miles.

Should I use my airline miles?

It’s a good idea to use your airline miles frequently to get the best value. One reason why is that airline loyalty programs tend to require more miles for future miles instead of less. If an airline is on the brink of bankruptcy, you might try redeeming them as soon as possible as you may not know if/when the airline might close.

What happens to Virgin points?

The various Virgin Airlines brands such as Virgin Atlantic and Virgin Australia declared bankruptcy in the spring of 2020. These airlines are not planning on going out of business and plan on resuming flights in September 2020. You can currently redeem your Virgin points for select Virgin-operated flights with departure dates from September 1, 2020.

Related Articles:

Josh Patoka
Advertisement

Chase Sapphire Preferred® Card

recommended-cart-post-image
APPLY NOW
  • Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 toward travel when you redeem through Chase Ultimate Rewards®
  • 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
  • Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 60,000 points are worth $750 toward travel
  • Get unlimited deliveries with a $0 delivery fee and reduced service fees on orders over $12 for a minimum of one year on qualifying food purchases with DashPass, DoorDash's subscription service. Activate by 12/31/21.
  • Earn 5X points on Lyft rides through March 2022. That’s 3X points in addition to the 2X points you already earn on travel.

The comments on this page are not provided, reviewed, or otherwise approved by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airlines or hotel chain, and has not been reviewed, approved or otherwise endorsed by any of these entities.

Leave a Reply

Required fields are marked *