What happens to your frequent flyer points if an airline goes bust?
The good news: you probably won't magically and tragically lose all your points if an airline goes into administration.
By David Flynn, April 20 2020
Like most travellers, you're probably sitting on a stash of frequent flyer points. You've amassed them on your travels, and through strategic shopping and credit card spending on the ground. You're saving them for an upgrade on that next flight, or to book that long-awaited holiday.
But what happens to all your points if the airline behind that frequent flyer scheme goes belly-up?
As airlines around the world fight for survival against the coronavirus pandemic, which is set to cost them close to $500 billion in lost ticket sales this year, their now-grounded passengers have an understandable concern about the fate of their points should their favourite airline collapse.
It's an issue brought into sharp focus by the ongoing struggles of Virgin Australia, which is seeking a billion-dollar government bailout and – failing a fresh investment surge or a contentious debt-for-equity swap – could enter voluntary administration without that lifeline.
Update: Virgin Australia's administrator says the Velocity Frequent Flyer program will not be sold off "as an individual asset", and will instead be offered to Virgin's new owner as part of the overall airline deal.
Read more: Virgin administrator says Velocity won't be stripped down, sold off
Why this isn't Ansett all over again
Many Australians retain raw memories of the sudden collapse of Ansett in September 2001, which rendered worthless the airline's Global Rewards points. But Virgin's Velocity Frequent Flyer will likely present a very different scenario for its ten million members, says loyalty program expert Phil Gunter.
"19 years ago the frequent flyer schemes and the loyalty industry were very, very different, and in fact many companies looked at what happened with Ansett and tried to put more protections in place for members."
Today's model typically sees loyalty programs run as a seperate business within the airline, rather than just another division on par with the likes of human resources or finance.
How airlines can make money without flying
And it's a highly profitable business, with many airlines making as much or more money from their points machine than from flying.
In the case of Virgin Australia, for the July-December 2019 period its Velocity arm recorded higher pre-tax earnings ($68.9m) than the airline's entire domestic and international flying ($66m).
This makes an airline's loyalty business a solid asset in its own right, and one which an administrator can readily sell to raise much-needed funds.
"Frequent flyer programs are a major asset," explains Gunter, who helmed Velocity from 2006 to 2013. "There's two sides to it. One is the ability to generate cash, although there would be some impact of not being owned by an airline anymore."
"The other is the fact that it's a large, high-quality database. Virgin and Qantas both have colossal databases – each almost half of Australia. So there’s definitely value in a frequent flyer program, and if an airline went into administration, I would assume they would be looking to gain value from that asset."
The points held in members accounts would be handed over to the new owners of a loyalty scheme, so they don't vanish.
But they can be devalued by losing some of their purchasing power when it comes to turning those points into a 'reward', be it an airplane ticket or a toaster. "The value of the points is directly related to the rewards," Gunter says.
Likely buyers
So what might happen to the Velocity program, and your Velocity points, if Virgin Australia went into administration?
"Well first of all, I hope that doesn't happen because I'm a big Virgin Australia fan," Gunter admits.
"But if the worst happens and Virgin Australia didn’t survive the current crisis," Velocity could find a new home with a large-scale retailer such as Coles.
"If for example Coles picked Velocity up, I would assume it would work with other partners to enhance the travel-based rewards. Coles could keep Velocity as a separate program to its own Flybuys program, or they could merge it with Flybuys, but almost certainly they'd be looking to add some travel-based rewards."
A bank would be another contender, Gunter suggests. "50% of frequent flyer points globally are issued through credit cards, so banks could be very interested in Velocity."
"If I had to rank best-fit buyers, the supermarkets and the banks would be most interested. Those guys are still making money and could potentially take it on."
In any of those scenarios, frequent flyer points wouldn't disappear in a puff of smoke, but they could prove far less valuable under their new owners.
David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.
Singapore Airlines - KrisFlyer
08 Jun 2018
Total posts 91
David, it is an interesting thought piece, but I suspect that there is every chance that the value of points may well move to zero (or close to), for a number of reasons.
Firstly, yes, they are often run separately to the airline, but the intrinsic value that is derived (and the reason they can sell the point to retailers / card providers, etc,) is because they are linked to the airline. The underlying driver of value falls off a cliff in the event that the airline disappears (or is massively scaled down).
Secondly, yes they could, in theory, be sold off or acquired by another party, but post this crisis businesses will be desperately hoarding cash, integrating a business (even if acquired for cents in the dollar) is unlikely to be a priority, not withstanding they can potentially create their own version and the fact that the 'brand' value of the scheme is likely to be extremely heavily damaged in the public eye in the event that the airline associated with it goes bust. I would be utterly astonished if a bank wanted to acquire this business at the current time.
I have mentioned before on these forums, the perception that some people have of FF points as some form of quasi currency just baffles me. The reality is they are issued by, controlled by and spent through, the issuing airline, in the event that the airline collapses it is incredibly hard to see that there is much underlying value in the FF programme. And most people want to spend their points on flights, we all know the value of spending them on toasters and such like through the stores that the providers have. So, hopefully it doesn't come to pass, but in the event that an airline does collapse, I really don't hold out such a rosy potential vision for it's FF program.
23 Aug 2016
Total posts 13
Hope you are correct David, but I think they will go down with the Titanic.
But the iceberg hasn't been hit yet. A solution to ensure Joyce doesn't completely control Australian aviation may yet eventuate. $23 million a year Joyce may well be the biggest problem the industry has.
11 Nov 2014
Total posts 1
What if the frequent flyer programme has loaned all of its accumulated cash to the airline and the airline cannot pay it back? It is just left with points liabilities and becomes worthless.
Qantas - Qantas Frequent Flyer
04 Nov 2011
Total posts 359
Cant see the points being worth much at all if Virgin goes belly up, which is looking more likely by the day. Would have thought Velocity would have been stripped to the bone to satisfy creditors if Virgin goes into VA.
Qantas - Qantas Frequent Flyer
14 Sep 2012
Total posts 382
Agree with other replies, FF points are all well and good when the good times are rolling but peel away the layers during a crisis like this and FF points are exposed for what they really are.....monopoly money.
Qantas
01 Jun 2016
Total posts 28
If I book a singapore airlines flight using Virgin Points and if there are issues with the flight e.g. cancellation by SIA, Would I be able to book another SIA flight or they will refund me junk Virgin points (Situation they have gone under)
Qantas - Qantas Frequent Flyer
14 Sep 2012
Total posts 382
I would say if SQ initiated the change to their flight they would accommodate you like any normal disrupt scenario for ticketed passengers, but if you wanted to make changes (after ticketing) you could potentially run into challenges depending on what kind change you're asking for e.g. date change, route change, upgrade etc. I would say the ticket would be a "use it or lose it".
12 Feb 2013
Total posts 47
Best to think of it from the perspective that every person who holds points is an unsecured creditor and is a liability on the airlines books. The more points you hold, the higher the risk. I'm sure their T&Cs say if anything happens like they go bust, you're out of luck.
Think back to businesses which went bust and you had gift cards, you had to spend one dollar to redeem the equivalent one dollar amount on them or they weren't honoured in some instances, guess it also comes down to goodwill.
14 Jan 2013
Total posts 19
I think it is highly likely that the points value will be very close to zero. You could argue that you haven't actually paid anything for these anyway, albeit, that the cost was included in the price of your ticket.
The biggest problem is likely to be the complete loss in value of any travel credits; where this was an actual original purchase with cash. It's going to turn into a big dogfight with with the credit card companies who will likely state that this event is new and is not linked to the original ticket where the card was used and they will refuse most claims.
Jetstar Airways - Qantas Frequent Flyer
14 Jan 2017
Total posts 67
I would have to agree with others here. Their would be little intrinsic value to the frequent flyer program if the airline failed. Also I think it's time people faced the brutal reality of this pandemic and that is Australia can not afford two airlines at the moment. We hardly need one. I think the industry will rationalise to one airline and we won't see another until trading conditions can support it.
03 May 2013
Total posts 682
Looks like Qantas will have to start expanding lounges stat and using A330's as the mainstay of the domestic fleet!
Qantas - Qantas Frequent Flyer
04 Nov 2017
Total posts 344
QF might not even need the A330s as the mainstay of the domestic fleet for a while apart from Trans-Cons or selected peak-hour SYD-MEL runs for the short term..
Domestic demand will be depressed for a while and international demand recovery will take even longer for markets that's outside LAX/TYO (NRT & HND) and SIN. Hence the 747 retirements being sped up and the rumours that half the A380 fleet (all unrefurbished birds) may not even return at all.
Virgin Australia - Velocity Rewards
24 Jan 2018
Total posts 762
I remember the great Sydney dust storm of November, 2009, out at SYD airport, flights out cancelled, nothing until the morning. Having been a loyal QFF since 1992, I'd flown Virgin Blue as a one-off try out, whereas the rest of my work colleagues flew Q. At the airport, most colleagues were left to fend for themselves. Virgin initially offered overnight accommodation, but it ran out. I was told to keep all receipts and submit a claim with by boarding pass for return cab fares, one night accommodation and breakfast. Thinking it a total waste of time, I complied and, 21 days later, fully recompensed. My colleagues were not (not a cracker, Qantas actually blamed them for not taking out travel insurance, which I thought was a bit cheeky).
Since then, when airfares have been roughly similar, Virgin has got my business (and now that of my staff when flying), both domestic and internationally (Asia and the UK). I still fly Qantas at least once/year or when their schedules are a better fit (and will continue to do so). But there's no doubt the competition between the two has helped my business.
I heard a plane fly overhead yesterday when in the garden. Cloud cover prevented detection of the carrier. But the sound was great (I miss it).
09 Apr 2020
Total posts 11
Why use a Virgin Velocity image?
24 Oct 2010
Total posts 2560
Because it's the airline and frequent flyer program which most Australians are asking about, and it's the example called out in the article.
28 Feb 2014
Total posts 18
I spent some 500k points at the velocity store yesterday, which is not the way I normally want to use my points.
I had started to set up a Krisflyer account the other week just as VA put a suspension of transferring points. While watching the entire situation nervously, the new reports at lunchtime yesterday was enough for me to act.
Qantas
01 Jun 2016
Total posts 28
I was a bit late on transferring to Kris Flyer. Instead I both $100 JB Gift Card and the rest (157k points) I bought rewards flights on Singapore airlines for travel dates Feb-Mar 2021. If they dont go under, I cancel the flights for a small loss.
Qantas Gold
07 Jun 2016
Total posts 8
So a lot of purchasing during the past few days to drain my account - but most things are not due to be delivered for a while. Even the vouchers are physical and have a two week wait (eye roll) Is there any chance of them being delivered?!
Singapore Airlines - KrisFlyer
08 Jun 2018
Total posts 91
Sadly David it appears that this will come to be tested in the near future. I have a horrible (and sad) feeling that Mr. Gunters comments will not age well. But we live in hope.
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