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The American Airlines Bankruptcy and Impact on Your AAdvantage Miles

Nov. 29, 2011
3 min read
The American Airlines Bankruptcy and Impact on Your AAdvantage Miles
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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.

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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.

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