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What Happens to an Airline Partner Award if the Airline's Frequent Flyer Program Goes Bankrupt? TravelSort reader Jason writes, “I'm thinking of booking ANA First Class to Japan with Virgin Atlantic miles for 2021 (I'm assuming that the Japan Travel Ban will be lifted by then). But one thing I'm wondering is–what happens if somehow Virgin Atlantic goes bankrupt before we fly? Would ANA still honor our award tickets since we already booked them? Or would we lose our awards?”
This is a great question, since most airlines are in dire straits right now due to the coronavirus epidemic, and not all of them will necessarily get bailed out sufficiently to keep operating.
In general, if an airline goes bankrupt as opposed to being acquired, tickets on partner airlines redeemed with the bankrupt airline's miles are cancelled. This is because typically the partner airline is only compensated for the award ticket after the ticket is flown, not before. So when there is no longer the possibility of getting paid, due to the bankruptcy, the partner airline tickets are cancelled. This happened when Air Berlin and its associated frequent flyer program went bankrupt in 2017: all Top Bonus awards and miles were nullified when the program failed to attract an investor. Similarly, when Avianca Brasil filed for bankruptcy in 2019, its award tickets on partner TAP Portugal weren't honored.
Right to Be Worried About Virgin Atlantic Flying Club and Many Other Frequent Flyer Programs
Virgin Atlantic Flying Club miles are not actually owned by Virgin Atlantic, they are owned by Virgin Group Loyalty Company, which is owned 51% by Virgin Group and 49% by Delta Air Lines. It's unclear that the Virgin Group Loyalty Company will be sufficiently well capitalized to survive.
While major carriers such as British Airways, Lufthansa, Singapore Airlines should survive, with government support, it's less clear that smaller airlines and their frequent flyer programs will all survive. So while I'm not worried about my British Airways Avios, I am more concerned about my Korean Airlines Skypass miles.
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Major U.S. Carrier Frequent Flyer Miles are Safe
The legacy U.S. carriers, United Airlines, American Airlines, and Delta Airlines, view their frequent flyer programs as cash cows and valuable assets. Even when these airlines went through bankruptcy, they made sure to preserve their frequent flyer programs, which generate profits by selling them en masse to bank partners to use for cobranded credit cards, as well as directly to passengers.
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Bank Points are the Best Hedge
The best hedge right now against potential frequent flyer program bankruptcies and award chart devaluations is to hold flexible bank points: AMEX Membership Rewards points and Chase Ultimate Rewards points, for example.
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