Airline Bankruptcy and the State of the Skies

US Airways and United Airlines are already under bankruptcy protection, and Delta Air Lines is skating dangerously close. Consumer members of frequent-flier programs are not considered creditors, but to many, they might as well be.

“Consumers are absolutely, unquestionably concerned, and anyone who says differently is blowing smoke,” said Tim Winship, publisher of FrequentFlier.com. “I get e-mails literally each and every day from people concerned about frequent-flier miles,” he told CRM Buyer. His readers’ top concern is US Airways, which entered Chapter 11 protection on Sept. 12. Delta and United also attract a lot of worry.

“When you have three of the biggest six airlines in or on the verge of financial bankruptcy, people are concerned that airlines not in bankruptcy just haven’t gotten around to announcing it yet,” he said.

Airline Response

“I have heard anecdotally that people have been trying to redeem US Airways miles in desperation because they think US Airways is going to liquidate. They are having more than the usual trouble in trying to redeem,” Winship recounted.

But US Airways spokesperson Amy Kudwa said, “We haven’t seen a change in how our customers are using our Dividend Miles program.” Nor has US Airways implemented any changes to the terms and conditions of the program. “We have proven, despite our Chapter 11 filing, that our airline is operating business as usual, as we promised a month ago.”

US Airways also has continued its partnership with United Airlines, which has been in bankruptcy for approximately two years now, as part of its commitment to business as usual, she said.

“Certainly there’s been no shortage of public conversations about Dividend Miles,” she conceded. But she added that most have generated positive feedback, including an e-mail from US Airways’ CEO sent to all program members within 24 hours of the Chapter 11 entry and an hour-long live chat conducted on FlyerTalk.com that placed three airline executives in direct communication with their customers.

“We’re getting questions like, ‘Should I be booking travel with US Airways?'” said Kudwa. “Certainly,” was her response. “We’re not in operations to liquidate.”

A Delta spokesperson, Eric O’Brien, told CRM Buyer that Delta is “in the process of transforming the company, and part of this restructuring is examining ways to improve and simplify its SkyMiles loyalty program. While specific details are not yet available, Delta is examining every aspect of the program to make it simpler, easier to manage and more member-friendly.”

Beating the Budgets

United’s award redemptions have remained consistent over the past three years, since before the airline sought bankruptcy protection, averaging about 2 million per year, said spokesperson Robin Urbanski.

Since entering into Chapter 11, United has expanded the perks available through its frequent-flier program, Mileage Plus. “Especially with low-cost airlines like Southwest and Jet Blue entering the market, we’ve had to add benefits to Mileage Plus. We’re trying to broaden what members are earning and redeeming points for.”

In this calendar year, United also has run three Mileage Plus promotions, the “Fly Three, Fly Free,” one that dropped the mileage threshold for an award seat from 25,000 to 15,000 miles for trips to locations where United’s leisure carrier, known as Ted, flies (Bermuda, Florida, California, etc.) and one that took only 15,000 miles for any destination within 750 miles of the point of departure.

“These are outstanding promotions, some of the best in the industry,” said Urbanski, “and people should be taking advantage of them.” She said that given the airline’s longevity under Chapter 11, frequent United fliers seem to have stopped questioning the airline’s future and continued flying.

“What we’re finding is that business travelers specifically want to travel the same carrier for family and leisure travel,” she said. The Ted Mileage Plus promotion answered that interest just as the addition of Asian routes has answered the Mileage Plus member’s need to travel to the Far East.

Urbanski said Mileage Plus members also have begun using their miles for awards other than travel, a trend at least partly attributable to the spiraling cost of major carrier travel on routes that the frills-free airlines also fly. “Why spend 35,000 miles for a trip to Florida when you can sometimes get it for $180?” she explained.

A Different Perspective

According to Steven Georgeou, a loyalty consultant, “The airlines that are worst off are making richer offers to their [frequent travelers]. For example, United is doubling miles that earn you elite status. United is also offer a free ticket after you’ve purchased three tickets,” he told CRM Buyer. “All these efforts are intended to keep these valued customers during this time of uncertainty.”

He doesn’t, however, think miles as a motivating currency have an expiration date in our society. “I have to believe that [frequent travelers] are looking more closely at the proprietary mileage programs that are being offered by banks and American Express, where the proprietary miles are not converted to airline miles but rather redeemed for tickets purchased by the bank/AmEx and [that] do not have blackout dates or capacity controls,” he said.

“Capital One is really capitalizing on the seat capacity issue with its ‘No Hassle’ card, and the current TV advertising they are running. The proprietary programs are looking more and more attractive every day.”