What happens to my award tickets if Delta or NWA stop flying?

We get many questions from concerned readers whenever word spreads that a major airline will file for bankruptcy protection. In the case of Delta and Northwest, two of the nation’s largest carriers, those questions have taken on a new urgency with this week’s news: Both airlines are, indeed, bankrupt.

It’s important to note that “bankrupt” does not mean “out of business.” Delta and Northwest will continue to operate under bankruptcy protection, at least for the forseeable future, and that means business as usual for flyers. But what happens if either airline is eventually forced to liquidate its assets?

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One reader asked us about the safety of his award ticket. “I tried to purchase trip cancellation insurance,” he writes, “but I was told it would not apply in my case because I had not paid anything for the ticket. In the insurance company’s mind, the ticket was of no value. Is there any way to protect frequent flyer awards or miles?”

Traditional travel insurance does not cover frequent flyer awards. In better times, a company called AwardGuard sold insurance specifically covering frequent flyer miles and award tickets. But in the face of the industry’s deterioration, it stopped issuing new policies in early 2003. So there is no longer any way to insure frequent flyer awards or miles.

Another reader wonders, “What would happen to my frequent flyer award tickets if [my airline stops flying] before my trip? Would another airline honor our tickets?”

Many travelers are vaguely aware of government rules mandating the protection of passengers stranded by airline shut-downs. What they are thinking of is the Aviation and Transportation Security Act (ATSA), passed by Congress in 2001 in the days following 9/11. Among the Act’s provisions is Section 145, which specifically directs U.S. airlines to assist passengers ticketed on insolvent carriers to the best of their ability.

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Unfortunately, Congress never clarified whether Section 145 applied to frequent flyer awards, so there’s no way to insure award trips, and there isn’t likely to be any protection afforded by the government. What’s left? Goodwill.

Consider the case of Australian carrier Ansett, which ceased operations in March 2002. While they were under no legal or contractual obligation to do so, United, Singapore, and Air New Zealand honored Ansett award tickets. One reason: Ansett was a member of the Star Alliance, along with United, Singapore, and Air New Zealand. Airlines understand the brand equity of their alliances. Plus, they understand the future value of the goodwill they can generate toward their own companies by exercising flexibility and compassion when another airline leaves travelers in the lurch.

As a practical matter, airlines are rather less likely to exercise such largesse today. But if they do, it may be on a space-available basis. And there probably will be modest fees assessed.

It should be stressed that, if Delta or Northwest disappear, frequent flyers who have redeemed their miles and have an award ticket in hand will almost certainly be better off than those who have not acted and, as a result, find their accounts frozen and their miles lost forever. When Ansett shut down, program members forfeited all the miles remaining in their accounts.

So the question is: Will Delta or Northwest stop flying? It’s human nature to hope for the best, and things certainly do not look as bleak for them as they have for other airlines in the past—including US Airways just last year. That airline is currently in merger-mode with America West and appears to have weathered the storm. In the spirit of preparing for the worst, though, flyers might do well to get their house in order, mileage-wise. Just in case.

This article was adapted from a previous column written by SmarterTravel.com’s frequent flyer expert, Tim Winship. Josh Roberts contributed to this report.