Bankrupt American Airlines says your frequent flier miles are safe

CreditCards.com

If history offers any guide, the 69 million members of American Airlines' frequent-flier program shouldn't fret about losing their miles following Tuesday's bankruptcy filing by the airline's parent company.

Travel experts said Tuesday that there's virtually no chance the airline would alter or eliminate its travel awards program, called AAdvantage, and alienate its best customers. Until this week, American was one of the only major U.S. carriers never to seek bankruptcy protection, following filings in the past decade by US Airways, Delta, Northwest and United. In each of those cases, frequent flier programs remained intact, with customers able to earn and redeem miles for trips just as before.

In an email to members of its frequent flier program on Tuesday, American said: "Your AAdvantage miles are secure. The AAdvantage miles that you've earned are yours and will stay yours, subject to usual policies, until you choose to redeem them for a great award with us."

Tim Winship, publisher of FrequentFlier.com, says he's not worried.

"There is absolutely no effect at all," he says. "Nothing changes in the short term. In the longer term, I think this is a positive for the company."

Bankruptcy as a strategy
Although bankruptcy carries a stigma of failure, major U.S. airlines have used bankruptcy court in the past decade more as a business strategy to reduce costs. Under bankruptcy laws, airlines can force changes in labor contracts, escape from costly leases on older planes and emerge in stronger financial shape.

Rewards balances are endangered if a company liquidates -- much like a holder of a gift card is usually out of luck if a retailer closes. While smaller carriers such as Aloha Airlines and ATA Airlines stopped flying and canceled their frequent flier programs after bankruptcy filings, carriers of American's size typically leave bankruptcy and become profitable or wind up merging with another airline (which also honors accumulated frequent flier miles, though with changes to the program). American is the country's third largest airline.

Winship says American could even offer deals such as lower fares or mileage bonuses to prevent nervous customers from defecting to other carriers.

About AAdvantage
Started 30 years ago, American AAdvantage is the country's oldest and largest frequent flier program, and continues to add to its 69 million members. In the past eight months, it has averaged 7,100 new members a day, according to bankruptcy documents.

Like other frequent flier programs, much of the growth comes not from ticket sales but from people who buy things from other companies in exchange for miles that they can redeem for free trips. American says it sells miles to more than 1,000 companies, including Citi , which offers the Citi Gold AAdvantage World MasterCard and other co-branded American Airlines cards. Nearly two-thirds of all American frequent flier miles are issued through these partnerships, according to securities filings.

John Kasarda, a business school professor at the University of North Carolina at Chapel Hill who specializes in aviation issues, says he expects American will continue to be a major airline, and that it needs to hang onto its most loyal customers.

"If they lose their miles, then people will have a good deal of bitterness toward American, and they're likely to lose them to another airline," he says.

On Tuesday, American acknowledged this reality. In a bankruptcy filing asking a judge to allow its frequent flier program to continue, American wrote: "Failure to honor the obligations of the AAdvantage Travel Awards Program will alienate literally millions of [the airline's] most loyal and valuable customers -- an act that would severely harm, if not destroy, [American's] competitive position and [its] reorganization efforts."

See related: Are your frequent flier miles protected in bankruptcy?

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