How Safe Are Your Frequent Flier Miles?

You fly regularly. You crave frequent flier miles, and your account is bulging. Then ... BAM! The carrier you fly most often goes bust.

Do you stick with the airline, or shift loyalties? And what about all those points? Are they even worth anything now?

A lot more people are asking these questions in the wake of American Airlines parent AMR declaring bankruptcy. Fortunately, the answers aren't as dismal as you might expect.

Why You Shouldn't Worry About Your Miles

Good news first: Frequent flier miles rarely go away with a bankruptcy. Carriers are all too aware that their best customers pile up points like a high-powered NFL offense. Jeopardizing their miles means jeopardizing revenue.

And while airline bankruptcies have become more common in recent years -- particularly among smaller carriers such as Hawaii's Aloha Airlines and Washington's Independence Air, among others -- "bankrupt" rarely means "dead" when it comes to major airlines.

For example, UAL spent three years reorganizing itself under protection of the courts. Delta Air Lines (DAL) spent two years in hock only to acquire Northwest Airlines shortly after resuming normal operations. American (AMR), the industry's most recent victim, is following this same pattern.

All three carriers have and continue to dole out points and award seats to big earners.

The More Programs Change, The More They Stay the Same

More often, frequent filer program changes result from mergers or growth. United Continental (UAL) -- born of the merger between United Airlines and Continental Airlines -- is folding Continental's OnePass program into United's MileagePlus.

Frequent filers of one airline will see points accrued for elite benefits rolled into a single account. Other changes appear to be minimal, judging from the information page at United Continental's website.

Southwest Airlines (LUV) has made more sweeping changes to its Rapid Rewards program, switching from awarding credit for trips flown, regardless of distance, to a more traditional points-based program tied to the cost of the ticket purchased. It's a savvy move; Southwest's profit soared in 2010 as the average fare rose about 14%.

Why You Might Switch Loyalties Anyway

So where does a bankruptcy take its toll? At American, service has become an issue. The carrier's partner for flying short routes between smaller cities, American Eagle, ranked last in baggage handling in 2011, The Wall Street Journal reports.

Holiday travel brought some ugly reminders of this unfortunate statistic. American lost celebrity stylist Rachel Zoe's luggage during a trip from Los Angeles to St. Barts. For my own part, a family trip home from Hawaii included canceled flights, lost luggage, and shockingly rude cabin service. I've never encountered anything quite like it.

My guess is these service glitches are temporary -- the result of a carrier figuring out what's next while executing a management transition from Gerard Arpey to former company President Tom Horton, who now serves as CEO. Still, it would be hard to blame any traveler who chooses to switch preferred carriers in light of American's recent underperformance. Service issues could take months or even years to resolve.

Resources for Switching

For those determined to switch, the experts at WebFlyer have four ideas for moving your points into another program:

1. You can utilize a limited number of carrier partnerships to move credit to another program.
2. You can use a broker to trade or exchange points.
3. Redeem your points for a trip on a partner airline.
4. Redeem them for something entirely different, such as a hotel stay.

Sponsored Links

Of the four strategies, your best bet may be to redeem everything and start earning on another airline. Both American and United Continental offer decent deals for exchanging miles for hotel stays directly from their loyalty program websites. Booking a trip on a partner airline might also work well, especially if you've been longing to travel to a destination that your primary carrier avoids.

Still desperate to transfer points out of a program? Try Points International's (PCOM) Points.com portal for trading, gift card redemptions, and exchange offers. But be warned: You will probably lose a lot of value in any exchange.

Points.com does best with trades between members. Yet even here offers can range from fair to kleptomaniacal. One post I saw at the site recently offered just 1,000 points for InterContinental Hotel's Priority Club in exchange for 15,000 American AAdvantage miles. And that's before a $150 transaction fee.

So while it's sure to be troubling for shareholders and frequent fliers of American Airlines to see their carrier go bust, AAdvantage points are just as valuable today as they were before the bankruptcy. Use these strategies to get all you can for each and every one you've earned.

How are you using miles these days? What programs and deals do you recommend? Please let us know using the comments box below.

Motley Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and past columns. Motley Fool newsletter services have recommended buying shares of Southwest Airlines.