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What Will Happen to Award Tickets If US Airways Stops Flying?

In the wake of US Airways’ Chapter 11 filing, the level of anxiety regarding frequent flyer miles and awards has escalated. Understandably.

Accordingly, in this column I’ll address three questions, all dealing with various aspects of award travel, and how it might be affected by an airline’s demise.

Question one

From Paul: Several years ago (1990) I flew to Sydney, Australia, on a frequent flyer ticket issued by Continental. At the time Continental was in financial problems, and I tried to purchase trip cancellation insurance. I was told trip cancellation insurance would not apply to my ticket because I had not paid anything for the ticket, and in the insurance company’s mind, the ticket was of no value. Is there any way to protect frequent flyer awards or miles?

Traditional travel insurance does not cover frequent flyer awards.

In better times, a company called AwardGuard sold insurance specifically covering frequent flyer miles and award tickets. But in the face of the industry’s deterioration, they stopped issuing new policies in early 2003. So there is no longer any way to insure frequent flyer awards or miles.

Question two

From Diane: We have used our miles on US Airways for a trip to Aruba in November. What will happen to us if something should happen to US Airways before then? Since we already have flights, would another airline honor our tickets? My sister-in-law and her husband and another couple are using them also and we are all on the same plane.

Many travelers are vaguely aware of government rules mandating the protection of passengers stranded by airline break-ups. What they are thinking of is the Aviation and Transportation Security Act (ATSA), passed by Congress in 2001, in the days following 9/11. Among the Act’s provisions is Section 145, which specifically directs U.S. airlines to assist passengers ticketed on insolvent carriers to the best of their ability.

Unfortunately for those concerned about US Airways’ prospects, the ATSA expires on November 19, and there’s no indication that Congress will extend it. And in any case, Congress never clarified whether Section 145 applied to frequent flyer awards.

So there’s no way to insure award trips, and there isn’t likely to be any protection afforded by the government.

What’s left? Goodwill.

Consider the case of Australian carrier Ansett, which ceased operations in March 2002. While they were under no legal or contractual obligation to do so, United, Singapore, and Air New Zealand honored Ansett award tickets. One reason: Ansett was a member of the Star Alliance, along with United, Singapore, and Air New Zealand. Airlines understand the brand equity of their alliances. Plus, they understand the future value of the goodwill they can generate toward their own companies by exercising flexibility and compassion when another airline leaves travelers in the lurch.

As a practical matter, airlines are rather less likely to exercise such largesse today.

For one thing, Ansett’s Global Rewards program had only 2.3 million members. US Airways’ program has more than 25 million members. The potential costs of accommodating so many awards are enormous.

For another, if US Airways were to tank, the principal benefactor of stranded Dividend Miles members would be United, which itself is in bankruptcy.

Also bear in mind that the route networks of United and US Airways don’t overlap very much. So United simply cannot fly Dividend Miles members to many of the destinations they may have booked for travel on US Airways.

Finally, the logistics can be daunting. Since the Star Alliance implemented awards allowing travel on any combination of alliance carriers, some itineraries with a US Airways segment will simply be impossible to fly without US Airways’ participation.

All that said, I predict that the Star carriers—and United in particular—will do what they can to accommodate distressed US Airways award-ticket holders, should the need arise. Non-Star carriers, at least in the U.S., will probably do the same. It may be on a space-available basis. And there probably will be modest fees assessed.

Question three

From Peter: Any idea what happens if I cash in frequent flyer miles to book electronic tickets now for February 2005, and the airline liquidates before then? Should I get paper tickets instead?

The jury is still out on whether passengers left stranded by a failed airline will find it easier to be accommodated on other carriers if they are holding paper or e-tickets.

My assumption was that paper would be preferable. But earlier this week, a United spokesperson indicated that it was still in the process of developing a re-accommodation policy, and that the question of paper versus digital still hadn’t been resolved. If United, as US Airways’ biggest domestic partner, has not yet developed a policy, it is likely that other U.S. carriers have also not made up their minds on this issue.

Final thoughts

It should be stressed that, if US Airways disappears, Dividend Miles members who have redeemed their miles and have an award ticket in hand will almost certainly be better off than Dividend Miles members who have not acted and, as a result, find their accounts frozen and their miles lost forever. When Ansett shut down, program members forfeited all the miles remaining in their accounts.

So the question is: When will US Airways stop flying?

While they might survive for the long term, industry analysts only give US Airways a 50-50 chance of doing so. If the carrier does shut down completely, the consensus opinion is that it won’t be until early 2005. That’s at least in part because under standard terms of Chapter 11 protection, the company has 120 days to submit a reorganization plan to the bankruptcy court.

It’s human nature to hope for the best. But in the spirit of preparing for the worst, Dividend Miles members might do well to use that four-month window to get their house in order, mileage-wise.

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