What Will Happen to My Miles if US Airways Goes Bankrupt?

Dear Tim,

Any ideas on what will happen to those of us enrolled in US Airways’ Dividend Miles?

I’ve been a Silver Preferred member six years running now, and I was quite excited when United joined forces as I could keep saving my miles to use for two first-class tickets on my honeymoon in two years. If US Airways were to collapse, do you think our benefits (upgrades, preferred seating, accrued miles, etc.) would be incorporated by United or whichever other carrier acquired the remnants of US Airways? Or would we be left in the cold? Thanks for your views.

Kevin

Dear Kevin,

Playing the “what if” game is fraught with peril as more often than not events leave even the savviest prognosticators eating their own words.

That said, I will also say that I don’t know whether US Airways will pull through or not. All I’m sure of is that their future now hangs by a thread. And that thread is unraveling.

Under those circumstances, we’d be in denial if we didn’t indulge in at least some basic scenario analyses. So here goes…

Survival scenario #1

The best case, of course, is that US Airways soldiers on in roughly its current form, with a medium-sized network and a full-service business model. No news would be good news.

And looking ahead a bit, the airline is on track to join the Star Alliance, which will be a huge plus for Dividend Miles members who will enjoy new earning and redemption opportunities with all Star carriers.

Cross your fingers.

Survival scenario #2

Another possible scenario follows from the “shrink into profitability” strategy, in which US Airways begins selling various assets (the Shuttle, one or more of its hubs, etc.) in order to keep flying until financial stability can be achieved.

Here again, frequent flyer miles would be safe. But the prospect raises the concern that Dividend Miles would be devalued, as a shrinking airline translates into fewer opportunities to earn and redeem miles. While small airlines can have large, robust programs—Alaska Airlines is the best example—that’s the exception to the rule.

It’s also worth remembering that airline asset sales have a bleak history. Both Pan Am and TWA began what turned out to be their final descents by selling off pieces of their operations. In both cases, the extra cash did little more than prolong the inevitable.

Chapter 11 scenario

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If US Airways cannot get its financial house in order fast enough, the company could be forced to return to the shelter of Chapter 11 bankruptcy protection for yet another round of restructuring.

This would certainly be a slap in the face to management. But it might also be just the catalyst needed to bring about a meeting of the minds between the company’s management and unions.

And in any case, Dividend Miles members could continue earning and redeeming miles, just as they did during the first bankruptcy filing.

Liquidation scenario

Remember Eastern, Pan Am, TWA? Some of this country’s most historic and, in their days, celebrated air carriers have fallen by the wayside. There’s no reason why US Airways couldn’t face a similar fate.

Things do look bad. The airline has squandered a recent trip into Chapter 11, emerging before management could fully address its cost and balance sheet problems. Even as further wage concessions are critically needed, relations between management and labor have reached a new low. And Southwest is poised to invade US Airways’ primary Philadelphia hub.

What would be the likely fate of Dividend Miles if US Airways liquidated altogether?

The hope is that another carrier would purchase the program, together with other US Airways assets, and fold the members—and their miles—into the surviving program. This is what happened when American purchased much of TWA, incorporating Aviators members into the AAdvantage program.

But those were very different times, the end of an era when profits were flying high and growth-by-acquisition made sense financially and strategically. Who would, and could, buy Dividend Miles today?

United, which several years ago was on the verge of buying US Airways, is hardly in a financial position to embark on a buying spree. And even if it were, US Airways is a much less attractive target than it was as recently as two years ago.

Assuming United did not acquire Dividend Miles, would they honor members’ miles in the event that US Airways shut its doors? Perhaps. But expecting one bankrupt airline to come to the rescue of a second failed airline’s frequent flyers seems like a sure recipe for disappointment.

Elsewhere, American has expressed interest in buying the US Airways Shuttle if it were put up for sale. Might that airline want more routes, and Dividend Miles, if the entire company were auctioned off? With American’s existing network in the Southeast, it seems unlikely.

Delta? It might cherry-pick a few complementary routes. But given its rather conservative business philosophy, it would be more likely to see Dividend Miles as a financial liability than as a marketing asset.

It’s difficult to imagine a positive outcome to liquidation.

But if US Airways were to liquidate, it would almost certainly be after returning to Chapter 11 and spending months, possibly a year, trying unsuccessfully to reorganize. Which means that, even if you expect this to be US Airways’ ultimate fate, there should be ample time to cash out Dividend Miles for award trips on US Airways and other program partners before the last jet is grounded.

My advice: Until US Airways’ future comes into sharper focus, try booking flights based on low prices or convenient schedules, rather than choosing ones that will increase your Dividend Miles account. For now, just sit tight, and neither an earner nor a redeemer be.