Will the US Airways Dividend Miles program survive?

Dear Tim

Dear Frances,



We have received many, many variants of the above question, all united by a common theme: concern over the future of Dividend Miles members' hard-earned miles.

When the smoke clears and we have a better idea of US Airways' future plans and prospects, we'll almost certainly devote a feature-length article to the topic. For now?and with the understanding that we're indulging in "best guesses"?here are the likely scenarios, both for US Airways generally, and for Dividend Miles in particular.

Beginning with the worst case, what happens if US Airways proves unable to survive as an independent company, and for various regulatory and financial reasons no other company is willing or able to buy US Airways (i.e. they declare bankruptcy)?

The bad news is that frequent flyer miles are not guaranteed. If US Airways were to cease operations, effectively terminating Dividend Miles, there's no public or private organization responsible for making good on the implicit promise of awards associated with frequent flyer miles (as the FDIC would make good on your savings at a failed bank). Dividend Miles could become Disappearing Miles.

But it's only bad news if it comes to pass. Many analysts believe that despite management's own dire predictions, US Airways' can survive. And even if bankruptcy were their fate, US Airways would almost certainly be able to sell Dividend Miles to another airline wishing to strengthen its position in markets now dominated by US Airways. I'd bet my laptop that the acquiring airline would treat Dividend Miles in much the same way that American treated TWA's Aviators program: members of US Airways would be automatically integrated into the other airline's program, and their Dividend Miles would be converted to miles in the new program.

Getting back to the survival scenario… there's reason to believe that while United and US Airways will go their separate ways, they will become partners indirectly, through the Star Alliance. The rumor is that United (a founding Star partner) will lobby to have US Airways added to the Star roster, alongside Lufthansa, Singapore, etc.

While Star membership alone would not insure US Airways' future, it would help. Generally, global alliance memberships have added substantially to participating airlines' revenues. And there are particularly compelling benefits in the frequent flyer program area. Alliance members participate in each other's programs, as both earning and redemption partners, and offer elite benefits across one another's programs.

So this last possibility is the most likely in my estimation and would be a positive for the airline itself, as well as for members of Dividend Miles.

With all that said, there is an irreducible element of risk here for Dividend Miles members. While I would not advise any rush to redeem miles at this point, it's clearly a situation that bears watching. And if it began to look as if US Airways' days were numbered, I'd begin making travel plans using Dividend Miles. (Hint: if US Airways' future looks doubtful, redeem miles on one of the Dividend Miles partner airlines, which might stand a better chance of operating longer term.)



Tim Winship Contributing Editor SmarterTravel.com