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What happens to my miles if United goes bankrupt?

Dear Tim,


I have 250,000 Mileage Plus miles. If United Airlines goes bankrupt this fall, what happens to them? If I lock in tickets now with the miles up to one year out, will those tickets have to be honored? Would you recommend burning up the miles ASAP now?

Dave in Boulder, CO

Dear Dave,

Congratulations on having accrued such a nice cache of miles.

If United were to declare bankruptcy, there are a number of possible scenarios, some affecting your miles and others not.

Remember that Chapter 11, the form of bankruptcy United would likely file for, is intended to give companies a chance to reorganize, by protecting them temporarily from the demands of their creditors. In a best-case scenario, the company restructures its debt, streamlines its operations, and emerges from bankruptcy a leaner, meaner organization. And all of this happens without affecting its day-to-day operations. Budget Rent a Car, to use a travel-industry example, is currently operating under Chapter 11, and its car-rental operations continue uninterrupted.

At the other end of the spectrum is outright liquidation, a Chapter 7 bankruptcy filing. In this case, a trustee is appointed by the court to oversee the sale of the failed company’s assets, and distribute the proceeds to creditors. As I understand the law, frequent flyer program members would have no claim against the airline for their outstanding miles.

Under Chapter 11, United would presumably continue flying and allowing Mileage Plus members to both earn and redeem miles. In other words, you’d be fine.

In a liquidation scenario, all is lost, assuming that a white knight did not appear to acquire Mileage Plus, including both the program’s members and their miles. The unused miles would simply evaporate, and any award tickets for travel on United would be worthless. Award tickets on other Mileage Plus partners almost certainly would be worthless as well, since liquidation would void the frequent flyer program agreement between United and its partners.

Will United file for protection under Chapter 11, or?much less likely in the short run?Chapter 7? It’s hard to say.

I recently interviewed Alfred Kahn, the eminent economist and chief architect of airline deregulation. On the question of airline liquidations, Dr. Kahn was definitively circumspect: If the major carriers (including United) can squeeze cost concessions from their unions, then they might survive.

I bring up Dr. Kahn’s highly conditional prediction by way of sidestepping the question of United’s survival. If a renowned economist can’t say whether United is headed down the road to oblivion, then it would be the height of arrogance for me to do so.

To conclude, if you believe that United’s prospects are truly bleak, or if you just want a hedge against anxiety, you can insure your miles. AwardGuard will insure the value of your miles up to $7,500 worth of award tickets in selected programs, including United’s. You will pay $119 for one year’s coverage, or $214 for two years.

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