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American Airlines bankruptcy and your mile credit card strategy

by on Tue November 29, 2011 • 3 Comments

With American Airlines going through a bankruptcy reorganization process, many of you are asking what that means for AAdvantage miles and what you should do with credit card spending.

Here are the three primary scenarios:

1. Miles become worthless — hasn’t happened to a national U.S. airline yet

Except for Southwest, all of the legacy U.S. network airlines went through bankruptcy at some point — United, US Airways, Delta, and now American. The lesson — in each of these large airline bankruptcies miles did not become worthless, and the airline continued to operate and honour the miles. Many years ago when Pan Am and Eastern folded completely, other airlines honored the miles. An exception was Independence Air, a small regional carrier, which was liquidated in 2006 and and saw its miles become worthless. The caveat to it all — everything is in the hands of the bankruptcy court. American has to ask permission for the ability to continue with its operating plans. Again, in the big bankruptcies of the last 10 years this hasn’t been a problem with so many vested interests.

2. Miles become less valuable via a merger

Another airline could decide to buy some or all of American’s assets. This could lead to miles being converted into another frequent flyer program. The general perception is Delta miles are less valuable than others due to more restricted ‘low level’ award availability and many Northwest flyers are still upset their miles don’t feel worth as much as they were before Delta took over the program post their merger. It wasn’t a catastrophic devaluation — the average flyer probably didn’t notice, but super frequent flyers were dismayed by the new program’s less generous options.

3. Miles see no change or increase in value

If American is allowed to continue operating as United, Delta, Northwest, and US Airways did during their bankruptcies it may well keep its mileage program as is. This is what American communicated to its frequent flyer members and is the course for now. Again, no guarantees, but there are a lot of vested interests (banks and airline) to keep the program as is and rewarding for flyers. If anything, American may be more generous with mile bonuses to entice flyers who may be skeptical of flying during bankruptcy. United and Northwest did this during their bankruptcies and made many flyers especially loyal in the process.

A strategy to help lower risk

We recommend earning credit card miles using cards that earn in a neutral point program not run by the airline. These programs let you transfer to one of several airline or hotel programs when you’re ready to use the miles for a trip, so you’re not held hostage by any one airline’s financial situation.

If you use an American Airlines credit card today, you might want to consider adding one of these credit cards and putting more spending on them to give you some extra flexibility:

  • The Starwood Preferred Guest American Express lets you transfer the points you earn 1:1 into American miles at any time, along with 20+ other airlines.
  • The Chase Sapphire Preferred® Card offers 1:1 mile transfer to United / Continental, British Airways, Korean Airlines, Hyatt, Marriott, and Priority Club
  • The Gold American Express lets you transfer to Delta, British Airways, Air France, and several other airlines and hotel programs.


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Chase Sapphire Preferred® Card

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3 thoughts on American Airlines bankruptcy and your mile credit card strategy

  1. Walter Armstrong

    Given that American Airlines has filed for bankruptcy, should I not take advantage of current mileage bonus offers from Citibank and others to sign up for an addt’l credit card?

    1. MileCards

      @Walter – It’s at your discretion. History says this will be a non event — and American has billions in idle cash, this was a filing done primarily to rework labor contracts. We’ve always used multi-airline cards for most of our spending, but signing up for another AA card to get the bonus doesn’t look like a very risky situation, particularly if you plan to use them in the near future.


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