When your air miles
go belly up
If you're a frequent flier, what
can you do to preserve the miles you earned on a failing airline?
Chances are good that you will
want to answer this question sometime soon. The industry is reeling
from declining traffic and spiraling costs.
"We've never had a situation anywhere close to
this one where not just one big airline but a bunch of big airlines
are in serious financial trouble," says Ed Perkins, a consumer
advocate and founding editor (retired) of Consumer Reports Travel
U.S. carriers that have been particularly hard hit
- Hawaiian Airlines, which filed for Chapter 11 bankruptcy
protection for the second time on March 21.
- United Airlines, which entered Chapter 11 in December.
Some industry scuttlebutt says liquidation is being seriously
- American Airlines, which was threatening to file
for Chapter 11 if unions didn't agree to certain concessions.
Even with concessions, American's condition remains shaky.
- Delta Airlines, which lost $466 million in the
first quarter of this year, up from a loss of $397 million in
the same quarter of 2002.
The situation may imperil billions of unused frequent-flier
miles. For instance, American Airlines' AAdvantage program has more
than 45 million members worldwide, and United's Mileage Plus program
has 41 million. Estimating that the air miles currently in circulation
are worth $500 billion, The Economist magazine labeled frequent-flier
miles as the second biggest "currency" after the dollar.
Concern about the industry's situation forced the suspension
of one long-standing form of protection, AirGuard. This membership
program (often mislabeled as insurance but, unlike real insurance,
no policies are issued and no cash claims are paid) honors frequent-flier
miles when a carrier goes out of business and that carrier's frequent-flier
program is not absorbed by another carrier.
AirGuard was itself insured by a London company that
would pay it for any losses it incurred to honor mileage claims.
In light of the current airline industry turmoil, the insurer braced
for the possibility of major claims by AirGuard by drastically raising
the premium, says Randy Petersen, president of AirGuard.
"The premium is too expensive for us right now,
but we're still going round and round with them," he says.
AirGuard is not accepting new members now, but claims by existing
AirGuard members will still be honored.
The easiest way to protect the value of your miles
would be to sell them, but that would be wrong. Frequent-flier programs
prohibit that. Even though there are brokers willing to sell award
tickets for you (they can't do anything at all with miles sitting
in your account), if someone else is caught with your award ticket,
it will be confiscated and your frequent-flier account permanently
frozen. That's not a good tradeoff for a quick fix.
To squeeze some value out of those
unused miles, consumers have three options:
- Use them up while the carrier is still flying
- Convert them and redeem them elsewhere
- Hang onto them and use them whenever it's convenient
Burn, baby, burn
Even when the industry was not shaky, Perkins says, the
best strategy has always been to use up the free miles. "Burn
your miles? I'd say unequivocally yes, that's always been the case
... Frequent-flier miles do not improve with age. That's been true
Programs have seen a "steady drip, drip, drip"
eroding their benefits, he says. "So under any circumstances
you're better off using than holding them."
And the best strategy for burning them?
"The highest and best use of frequent flier miles
is for air travel," he says.
However, many people can't redeem the miles from the
carriers as fast as they can earn them, says Petersen, who is CEO
of a number of travel-related businesses besides AirGuard, including
Inside Flyer magazine.
"In the original frequent-flier programs, you
could only earn miles by flying." There were no partners offering
miles for hotel stays or credit card purchases. "Now, you can
walk out your front door and earn miles ... We've become spoiled
because they've made it too easy to earn miles."