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Although I haven’t researched how it qualifies to do so, the holding company for Colombia’s Avianca Airlines has filed for Chapter 11 bankruptcy protection in the United States. As you may recall from previous North American airline bankruptcies, Chapter 11 allows companies to continue operating whilst their debt situation is sorted out. Of course, with the ongoing coronavirus situation, Avianca isn’t flying to many destinations anyhow…
Unless you have travelled to, or via, Colombia before, you may never have flown on Avianca. But you are more likely to be a member of LifeMiles, Avianca’s loyalty programme. LifeMiles, as many travel hackers are well aware, is known for regularly selling miles at a large discount. Members can then use those newly-purchased miles to book award travel on any Star Alliance airline.
Fortunately, LifeMiles isn’t actually owned by Avianca, something that is made perfectly clear in the first paragraph of Avianca’s press release.
LifeMiles™, Avianca’s loyalty program, is administered by a separate company and is not part of the Chapter 11 filing.
However, LifeMiles is quite reliant on Avianca, something that Moody’s pointed out when it downgraded LifeMiles to B3 with a negative outlook. (without going into too much detail regarding credit ratings… B3 is not good… at all!) Moody’s did say that LifeMiles had $108 million of cash on hand at the end of 2019, and that its negative free cash flow resulted from substantial dividends being paid to Avianca. In other words, Avianca has been raising debt against a profitable loyalty programme in order to pay itself dividends and prop up the airline.
The Near Future
It will continue to be business as usual for earning and burning LifeMiles. However, with very few flights actually flying and little clarity about when intercontinental travel will return, this isn’t a great time to be booking reward flights. LifeMiles is particularly poor for speculative reward booking – unless the flight is cancelled, you will pay a $100-200 cancellation fee to get your miles back.
The Medium Term
If Avianca is successfully restructured under Chapter 11, the airline should survive and LifeMiles would be under less financial pressure to support the airline financially. More importantly, Avianca would remain a member of the Star Alliance, allowing you to redeem your Lifemiles on Lufthansa, ANA, United, Air Canada, Thai, etc.
If Avianca is unable to survive the coronavirus crisis in some form, then LifeMiles members will likely lose access to Star Alliance award space. As a profitable, stand-alone entity, LifeMiles would likely survive in some form, especially since 47% of its revenue comes from credit card partners. But it would clearly look little like the loyalty programme that tempted you to speculatively buy miles at a discount.
The Bottom Line
We are likely to see more and more airlines go bankrupt as a result of the travel shutdown. Even though your miles might be relatively safe within a separate entity – such as with Lifemiles and Virgin Atlantic Flying Club – you should definitely be looking at burning miles whilst you can.