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The American Airlines Bankruptcy and Impact on Your AAdvantage Miles

by on November 29, 2011 · 17 comments

in American

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I’ve received a ton of emails today asking my advice on the current American Airlines bankruptcy announcement. Everyone wants to know, “Are my miles safe?”

In the short term: Yes. American will operate “business as usual,” which means you will still be able to earn and redeem your AAdvantage miles. American may even run some promotions to ease everyone’s minds and focus on keeping their best customers loyal.

In the long term: I don’t know. And frankly, no one does. The airline industry is extremely volatile and there are many ways this saga can end. I wouldn’t panic, but I also wouldn’t be naive and put all of your eggs in the AA basket. I always recommend diversifying your mileage balances, and this is a perfect reason why – you just never know what’s going to happen.

Update: I found this interesting article on airline bankruptcies, which has a much less rosy view of traveler rights during this process.

Delta, United and US Airways have all been through bankruptcy filings and emerged as relatively healthier entities. In fact Delta arguably got through bankruptcy because American Express bought hundreds of millions of dollars worth of SkyMiles that helped keep them afloat at a critical time. Citi may step up to the plate to ensure American’s success, since they have a highly lucrative line of AAdvantage co-branded credit cards and I’m sure they don’t want to see all of the miles they’ve prepurchased become useless.

However, a fairy tale ending isn’t guaranteed for American. They are going to be asking their unions for a lot of concessions (and their unions will surely fight them and point to management compensation) and they may be laying off more employees to trim costs – along with restructuring a lot of their costs with their creditors. The vested parties like AMR Corp shareholders and Citibank don’t want to see American fail, but this is business after all and if it makes financial sense to sell American to a competitor (we’ve seen a lot of industry consolidation within the last several years with Delta acquiring Northwest, Southwest acquiring Airtran and United and Continental merging), then we may just see a merger – potentially with US Airways and/or Alaska Airlines.

I think the odds of American going under and miles becoming useless is very low, though anything is possible. In general, I recommend using miles because they generally devalue over time. If you have the option of using American or United miles for your next trip, I’d probably use up the American miles solely because of the uncertainty.

Before you use American miles, be sure to read my post on maximizing AAdvantage awards. If you are looking to diversity your points portfolio, you should look into getting a transferable points credit card that gives you many transfer options, like the Sapphire Preferred, which has instant 1:1 transfer partners with Continental, United, British Airways, Korean, Hyatt, Marriott, Priority Club and Amtrak. That way, if one program devalues or goes under, you can still use your points on a number of different partners.

NBC New York Nightly News

For a quick overview of the situation as well as my thoughts, you can check out the video from a television interview I did on November 29 here.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • AAJunkie
  • http://twitter.com/trentswanson Trent Swanson

    Thanks, TPG for your timely insight.. Now the decision to abandon CitiAA 75K/$4500 spend option in favor of Chase Ink 50K/$5000 spend option. Thoughts on valuation of 75K AA miles vs 50K URs at similar min. spend? Tx

  • Anonymous

    Did you already apply for the AA? I’d honestly just finish that spend and get those points and just focus on Ink Bold at a later time and date. 75k AA is still worth more than 50k UR in my opinion (plus the AA75k deal is dead, possibly forever so I’d hate to see you walk away from it if you’ve already “paid” the credit inquiry)

  • http://twitter.com/trentswanson Trent Swanson

    Yes.. Got the two personal CitiAA’s a few months back, but put on shelf until BA $30K companion and Sapphire Preferred $3K spend completed.. Now have 8 weeks to plow thru the $1500/5000 CitiAA spends to get th 150K bonus AA miles. $1500 easy decision, but wasn’t sure about the $5K CitiAA card. Another factor to consider is confidence level of Citi honoring their committments. Burned badly by AMEX PRG 75K bump promises (borrowed 60K MRs for recent transfer bonus). Chase UR 100% confident to fufill promises.. Have your heard any issue with Citi fulfilling its promises?

  • Anonymous

    I’ve heard no issues with Citi. I got my two 75k bonuses like clockwork once the spend was met

  • CorinneL.

    That reminds me. I was going to spend 5,000 on the AAdvantage Amex just to be on the safe side. I am a few hundred dollars away from the $4000 mark so far, but I can’t remember…was the 75,000 mile bonus for the Amex $4000/$4500/$5000 spend requirement? I thought it was $4000, but I’ve read so many different things I just don’t recall.

  • Anonymous
  • Cary

    Did my AA gift card just go from $300 to $0?

  • Anonymous

    No.. It’s still worth $300

  • CorinneL.

    Thanks!!!

  • JA

    Any coincidence that AA ran a huge one day sale yesterday? I’m sure they wouldn’t have taken in anywhere near what they did once they filed

  • http://www.facebook.com/creditlady Tracy Banks

    I guess I will give up on the million miler club and focus on another airline. This makes me sad though I am a big fan of American.

  • Justin M

    Maybe I am missing something, but I think the linked article is unduly pessimistic/cautious. As point or ticket holders, “we” are creditors of AA (right?) and the DIP could refuse to honor any pre-petition points, tickets, and/or contracts. But customers are the last group that AA wants to scare off and we will almost surely be considered vital to AA’s reorganization efforts and “paid” (with flights) first. Those who purchase tickets or earn points post-petition will have an even higher priority. Now, if AA declares Ch7, then yeah all bets are off. Maybe some of the business folks can comment on the likelihood of an unsuccessful reorganization by looking on Pacer and taking a look at the Schedules; it would be interesting to see whether AA has any unencumbered assets. A lot of the Chapter 11′s are based on cash flow problems, which are easily fixed. If this is instead true balance sheet insolvency, the news is a lot worse.
    It makes sense to just try to use your points as soon you get them rather than accumulating a ton. I agree that AA will probably offer some very good deals.

  • PJ

    a bit off the subject: is it correct Aeroplan gave Avios ideas to price up short hops? I just notice Amex MR has a hidden gem: EWR-YYZ costs only 15K and fly out of Newark instead of LGA if you plan to use avios to fly on American… with the transfer bonus, the last 75K AMEX GPR bumped up bonus > 6 EWR-YYZ r/t.

    Indeed, just as in managing your own money IT PAYS to DIVERSIFY

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