Here's what happens to your frequent flyer miles if an airline goes bankrupt

For the cash-strapped traveler who dreams of sipping champagne in first class, a frequent flyer program is a must-have.

Airline loyalty programs offer passengers free flights, seat upgrades and access to elite business class lounges.  

They are also a massive revenue generator for U.S. airlines.

"It's big money for these airlines, bigger even for a lot of airlines than all those baggage fees," said Seth Kaplan, aviation analyst and principal with Kaplan Research. 

But this year, U.S. airline passenger travel tanked when the coronavirus pandemic shut down businesses and states enacted stay-at-home orders. Passenger traffic is down by 90% and more than half of U.S. passenger planes are parked.

"The challenge in the business right now is demand," said Delta Air Lines CEO Ed Bastian. "With all the stay-at-home orders and the challenges with respect to travel, it's well documented we're operating right now at less than 5% of a normal passenger load." 

Frequent flyer programs are a lifeline for the nation's air carriers. 

Airlines make money by selling billions of dollars worth of miles to hotels, car rental agencies and especially to their credit card partners.

Delta has a co-branded credit card with American Express. United Airlines has a 30-year credit card relationship with Chase Card Services. And American Airlines is partnered with Citi and Barclaycard. 

American also makes money off some rewards cards that aren't branded, such as the popular Chase Sapphire Reserve card. Here's how that works: The bank purchases miles from the airline and then issues those miles to the cardholder as a reward for spending.

While the terms of such agreements are generally not made public, Delta said it took in $4.1 billion from American Express in 2019, and the airline expects to increase that to $7 billion by 2023. 

In a February filing, United said it had agreed to a contract extension with Chase to 2029 that would increase cash flow in 2020 by $400 million. 

With U.S. passenger traffic down, airlines are offering big incentives to keep their most reliable customers loyal.

In April, Delta announced its SkyMiles Medallion members will be able to keep their current status through the end of 2021 and qualifying miles from 2020 would be rolled over to 2021. Medallion status is reserved for Delta SkyMiles' most elite flyers and is earned through a combination of flying and spending.  

The carrier is also expanding other benefits, including the extension of travel vouchers and flight credits to SkyMiles members and Delta cardholders. The SkyMiles program has more than 92 million members worldwide.

United offered similar incentives for members of its MileagePlus program. The program's top flyers who have attained Premier status will have their benefits extended through Jan. 31, 2022.  

American AAdvantage members who have achieved the program's Elite status level will see reductions in status qualifications for 2020 and extended airport lounge membership for an additional six months. 

But with would-be passengers sheltering in place and fearful airplanes could be a breeding ground for Covid-19 infections, many are choosing to postpone travel. The situation begs the obvious question — do airline miles expire and will all these perks still be around when people choose to get back on planes?

United, JetBlue and Delta said the miles on their frequent flyer programs never expire. American said its miles expire after 18 months from the date of your most recent activity.  

"Your frequent flyer miles are safe during the pandemic,"  said Henry Harteveldt, travel industry analyst at Atmosphere Research Group. "Nothing's going to happen to them."

That is, of course, if an air carrier stays in business. Watch this video to find out more about what happens to frequent flyer miles if an airline files for bankruptcy.

Watch more:

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What airlines are doing to clean their planes

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