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Will my credit card issuer refund me if my airline goes bankrupt?

Jan. 23, 2020
5 min read
Norwegian Air Reviews
Will my credit card issuer refund me if my airline goes bankrupt?
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Editor's note: This post has been updated to reflect changes to card benefits. It was originally published on Jan. 31, 2019.

"Reader Questions" are answered twice a week by TPG Senior Points & Miles Contributor Ethan Steinberg.

While we might not like to think about the laws of gravity while flying at 38,000 feet, what goes up must come down. Over the last few years we've seen that logic applied to a number of low-cost and leisure carriers. Primera Air collapsed with little warning, followed shortly thereafter by WOW Air and Thomas Cook. TPG reader Robert wants to know what type of protection he'll have if he books a ticket and the airline ends up filing for bankruptcy ...

[pullquote source="TPG READER ROBERT"]I have five round-trip tickets from New York to Stockholm booked on Norwegian for July. If the airline goes bankrupt by then will I be reimbursed or am I out of luck?[/pullquote]

Norwegian Air has been in a precarious financial position for a while now, and I'm sure Robert isn't the only one concerned about this possibility. However, right off the bat, it's important to note that bankruptcy doesn't necessarily mean that an airline is going to stop flying. We did see that with airberlin, and Alitalia has been bankrupt for some time yet continues to limp along.

That said, there are a few possible ways Robert might get his money back if Norwegian ceases operations. Let's start with the most obvious one — the airline issuing a direct refund. It's impossible to say for certain whether this would happen, as this is highly dependent on Norwegian's debt structure/obligations (i.e. which creditors are entitled to get paid first) and cash on hand at the time of bankruptcy. Obviously this would be the simplest solution, but even if it doesn't happen, Robert isn't totally out of luck.

If you purchase a ticket on your credit card and don't receive the service for which you paid, you can initiate a chargeback or dispute with the issuer. I spoke to representatives from both Chase and American Express on the phone, and while they couldn't confirm the outcome of any such dispute, they said that paying for a service and not receiving it would give you a very strong case and good odds of getting your money back.

Robert might also have access to travel insurance through his credit card, especially if he booked using a credit card with trip interruption and cancellation insurance. Unfortunately, Chase recently updated the language in its travel insurance policy with no announcement. While "financial insolvency of a travel supplier" used to be listed under the "what's covered" section on cards like the Chase Sapphire Reserve, now, you'll find it under the "what's not covered section."

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Related: Battle of the premium travel rewards cards: Which is the best?

It's possible that Chase made this change due to a spike in bankruptcy related insurance claims, but whatever the reason it's important to understand that Chase cardholders can't fall back on their travel insurance plans anymore in the event of an airline bankruptcy.

Last but not least, Robert might be entitled to compensation of up to 600 Euros (~$680) per person under EU 261, the European Union's generous passenger bill of rights, given that his itinerary includes flights operated by a carrier based in the EU, and those flights both arrive into and depart from an EU member country. However, there are many gray areas here. Was he able to be reaccommodated with another airline? Did Norwegian prove that the cancellation was due to "extraordinary circumstances" and thus not subject to compensation? Assuming it's determined that he is due compensation, it once again comes down to available cash, as holders of valid EU 261 claims simply become unsecured creditors, hoping to get paid.

Related: Here's how my $200 travel insurance plan gave me almost $1,300 to spend in Italy

Bottom line

While an airline bankruptcy is one of the fastest ways to ruin a vacation, Robert should rest easy knowing that he has a good chance of recouping the cost of his tickets in the event that happens. If he's still worried, he should consider purchasing supplementary travel insurance through a company like Allianz, but he would need to confirm that Norwegian going bankrupt and ceasing operations would be a covered event under the terms of the policy he buys.

Thanks for the question, Robert, and if you’re a TPG reader who’d like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at info@thepointsguy.com.

Featured image by Corbis via Getty Images
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,400+ lounges, including Capital One Lounges and our Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023