Airline miles you earn are an asset. They represent a reward owed to you by the airline whose program you have earned the miles on. If that airline goes thru a merger, acquisition or bankruptcy, it can adversely affect the value of or even existence of all your hard earned miles. This article takes a look at airline mergers, acquisitions and bankruptcies and how they can affect your airline miles.

In today’s turbulent economic times, we are seeing the airline industry go thru serious consolidation. Just in the US, Frontier Airlines went bankrupt and was acquired by Republic Airlines. Northwest merged with Delta. Overseas, Japan Airlines is on the verge of Bankruptcy, BMI of UK was acquired by Lufthansa, British Airways of UK and Iberia of Spain are merging, just to list a few. All this can be heaven or hell for frequent flyers and their airline miles.

Bankruptcies:

Let me begin by getting bankruptcies out of the way to begin with. This is really the worst case scenario for your airline miles. Airline Miles show up as a liability on the airlines balance sheet. After all these are rewards owed to you by the airline. If the airline liquidates, like Independence Air or ATA, all your Airline Miles disappear too. If the airline is acquired by another airline, it is then upto the buyer to decide what to do. I shall discuss this in the section on acquisitions below. If an airline files bankruptcy with the intention of coming out of it – like United, US Airways and Delta did – then the survival of your airline miles depends upon the success the airline has in returning to financial stability. If the airline struggles getting back to profitability, the airlines board or even the bankruptcy judge can decide to nullify all the miles in order to reduce the airlines liabilities.

Your only option when an airline is headed for bankruptcy that analysts say it might not emerge from, is to redeem your miles ASAP. You might not have any miles left otherwise. But take this drastic action as a last resort only when you see that all signs seem to lead to the airlines demise. Doomsayers had predicted United’s demise during its last bankruptcy. Many people cleaned out their accounts, only to see United survive and (hopefully) thrive.

Mergers and Acquisitions:

Mergers and acquisitions may actually work in your benefit. It all depends upon how the airlines decide to merge with respect to their airline miles. Here are some recent scenarios:

Lufthansa:

Lufthansa has been highly acquisitive in the recent years. Its airline portfolio today includes Swiss, Austrian, a majority stake in BMI and a stake in JetBlue. For the Swiss and Austrian acquisitions, Lufthansa did not merge then into one single airline. They operate as three separate airlines. For the Airline Miles program though, Lufthansa expanded its own program called Miles-and-More to include these two airlines. Today all three airlines share this single program. Anyone who had miles accumulated or had elite status in any of the three pre-acquisition airlines got their miles combined to one total sum and retained their status in the combined program. All good for the customers!

For BMI, Lufthansa has so far taken no action on its Airline Miles program. It may eventually incorporate BMI’s Diamond Club into Miles-and-More. There are rumors that Lufthansa is planning to sell of BMI to Virgin Atlantic. Either way, BMI is now a great program to accumulate miles and earn elite status on – whether it stays independent, combines with Lufthansa’s program or with Virgin Atlantic’s.

Delta & Northwest:

The Delta and Northwest merger was windfall for many frequent flyers – yours truly included. Delta and Northwest combined their airline miles into Delta’s SkyMiles program when the airlines merged. They recognized elite status from either airline’s program. If someone had miles on both programs, they saw the totals combined to, in some cases, pretty large sums.Airline mergers

Personally, I had some miles on Northwest from some trips I had taken on KLM a few years ago. I had no miles on Delta. As the acquisition was announced, I applied for a Northwest credit card. That added 25,000 miles to my Northwest account (there was no annual fee for the 1st year of the card). As the merger progressed, I cancelled my Northwest credit card and applied for a Delta credit card. Thanks to the slow merger process, I was able to give a gap of over 9 months between these two events. That added 25,000 miles to my Delta account, again for no annual fee. When the merger completed, Delta actually gave me 500 miles to transfer my Northwest miles over to Delta. Today I have a combined total of well over 90,000 miles in my Delta account. This was a great event for everyone who was able to take advantage of this.

On the downside – and there are always two faces to every coin – the combining of all these Northwest and Delta accounts has severely diluted the value of Delta’s airline miles. A visit to any message board or forum on Delta will tell you that award tickets on Delta are extremely hard to get. So many people, so many airline miles, only that many award seats to go around.

My crystal ball:

If I do some crystal ball gazing, I see a very strong possibility of a merger down the road of United and Continental. They have come extremely close to each other since Continental defected from SkyTeam to Star Alliance. That defection in fact, was due to the Delta-Northwest merger tilting the balance of power in SkyTeam. They have come too close, too fast to be just friends. United and Continental are code-sharing hundreds of flights, they are recognizing each other’s Elites well beyond Star Alliance level of recognition and even giving free upgrades to each other’s Elites. Moreover, from a coverage perspective, they complement each other beautifully. Continental is strong in Latin America, India, the Pacific rim; United is strong in far-east Asia, Middle-east (adding more destinations) and Western Europe. They even have hubs that do not overlap at all with each other, and so on. If I was to hedge my airline miles positions (which I am) I would start earning miles in one of these programs if one already had miles in the other. In my case, I have 1K status and tons on miles on United. Time to get a Continental visa card…

Thoughts on this topic? Leave a comment.

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Posted by unroadwarrior | 13 Comments

13 Responses to “Airline Miles and Mergers, Acquisitions, Bankruptcies”

  1. At the recent event in Frankfurt the Lufthansa CEO described their process of integration much differently. Each airline in the group still operates the customer-facing aspects as they see fit, with their own operational needs in the forefront. The real benefits to the group come from running the back-end stuff (catering kitchens, insurance, fuel, etc.) as a single company with much higher purchasing power.

    The decision on the future of Diamond Club will rest on the shoulders of the new bmi CEO who starts the job shortly. There is no guarantee that it will go one way or the other. In the mean time the carrier does continue to improve the program.

    As for the Continental/United pairing up, I don’t get your position at all. Are you suggesting that you’re going to start earning CO points now in hopes that they eventually become UA points? Why? Why not just continue to earn in the program where you already have the miles and where you can use them?

    Continental walked away from a merger with United because the financials with the latter didn’t make any sense. I’m not sure that the numbers have gotten any better and the management at Continental still knows that, despite the recent posturing and comments being bandied about. And were there to be a merger the points are pretty much going to stay put.

    On the bankruptcy front, when there is a customer base worth keeping the points manage to stay allive. Ask the TWA folks who saw their points move into AA. But with Independence Air, ATA, Braniff, et al. there was no compelling reason for anyone to honor the points. The ROI wasn’t there for other carriers to pick up that debt. That is the key to deciding whether to liquidate an account when the carrier is on the brink.

  2. admin says:

    Thanks for sharing. What happens with BMI will certainly be interesting to watch.

    The Continental-United merger has been discussed and speculated on ad-infinitum on several forums and blogs. It is certainly not something that will happen in the near future, if even. Financially, things will have to improve significantly. My comments are pure ‘crystal ball gazing’ into a very foggy crystal ball. As per my thoughts on starting a CO FF account, I am in no way advocating people start flying CO if they are an Elite on UA (like me). I am suggesting they may start looking at free miles opportunities from CO/UA – like a fee free credit card, etc.

  3. Continental doesn’t have any fee-free CCs right now so that would be an impressive find. And investing now for a potential payoff a few years down the line is a pretty bold move to make, especially when there is no guarantee that it will actually pay off. Remember that many thought it would be Continental and Northwest that eventually merged.

    As for UA folks flying on Continental, come Q2 2010 the EUA program will include UA elites, too, No real reason to shy away at that point if the routes or timing works better.

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  6. Thank you and your site for your guidance!

  7. Rheba Washor says:

    thanks ;-p very helpful post!

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