Should you be concerned about losing your Avios and Virgin Flying Club miles to bankruptcy?

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Is there a risk of losing your Avios points and Virgin Flying Club miles if the airlines go bankrupt?  And is it even a realistic possibility?

To be honest, this isn’t an article I wanted to write.  However, I am being inundated with emails from readers who are concerned about the value of their points being at risk so it only seems fair to address it.  I hope that my many friends at Avios Group, BA, Virgin Atlantic and Virgin Group Loyalty Company take it in good grace.

I have a lot of skin in this game

Let me put my own cards on the table.  AwardWallet (sign up here, it’s free) shows that I am currently sitting on 6.1 million points across my family members.  Assuming 1p per point of value if spent well, this is £60,000 of value which is potentially at risk.

In theory I should be concerned.  However, ‘only’ 2.5 million of these are realistically at riskI define ‘at risk’ as meaning they are airline miles.

I don’t see ANY risk to my hotel points since the hotel chains are now all asset-lite businesses which own virtually no hotels and employ comparatively few staff.  IHG, for example, reported a 54% operating profit margin in 2019.  It throws off so much cash that it literally has no idea what to do with it.  Since 2014 IHG has given $3.6 billion back to shareholders ON TOP of their usual dividends.

I don’t see any risk to American Express Membership Rewards points either.  Amex isn’t going anywhere in a hurry.

That still means, of course, that I have £25,000 of value ‘at risk’.  Should you – can you? – bail out?

(I’m not, for clarity.)

should you be spending all your avios points due to coronavirus

Should you cash out your Avios balance?

No.

The obvious reason is that IAG is sitting on around €9 billion of liquidity.  If things get so bad that IAG goes bankrupt then we will pretty much be at the end of the world as we know it, living in caves, and your Avios will be the least of your worries.

The only risk as I see it is that, if it came to the crunch, the UK Government may not want to support a Spanish business.  The Spanish Government – not exactly flush with cash – may insist any IAG bailout is ringfenced for Iberia.

Let’s be more practical for a minute.

I generally value an Avios at 1p and, as my ‘what is an Avios worth?’ article shows, you should actually do a lot better.

If you want to cash out now in panic, however, you obviously won’t be booking BA flights which is where the best value is usually found.

There are other issues too:

you can’t realistically book partner flights.  It is likely that tickets on, say, Qatar Airways would be cancelled if IAG went bankrupt as Qatar Airways would not be paid.

you can’t realistically book hotels using Avios.  As the hotel won’t be paid until after your stay, your room will almost certainly be cancelled if IAG disappears.

the same goes for ‘experiences’ rewards and Avis car hire rewards

Assuming that you don’t book a hotel on Avios for a stay over the next month, the ONLY easy way to cash out Avios TODAY, with 100% certainty of receiving something, is to order a pile of wine via Laithwaites via this page.  The order is executed immediately and you’ll have the champagne, wine or beer within a couple of days.

It’s a terrible deal though, as is redeeming Avios for hotels or car hire.

You are getting around 0.5p per point, compared to 1p+ if you eventually redeem them for flights in premium cabins.  Redeeming in panic and losing AT LEAST half the value of your points is not smart, especially given the low risk of IAG hitting critical trouble.

should you be spending all your virgin flying club miles due to coronavirus

Should you cash out your Virgin Flying Club miles?

My answer is the same for Virgin Flying Club miles, with caveats.  Non-flight redemptions generally come out at under 0.5p per mile so you’re losing a lot of value.

There are two caveats here though:

the risk of Virgin Atlantic going bust is substantially higher than with IAG.  It is compounded by the fact that Delta, its minority shareholder, is restricted by European rules in what it can do since it is already at its 49% ownership limit.   The sums required are far beyond what Sir Richard Branson could rustle up.

Virgin Flying Club miles don’t have real value until you have enough for a long-haul premium flight.  If you have a few hundred thousand Virgin miles then, yes, they are probably worth 1p each.  If you have 20,000 Virgin miles, they are certainly not worth £200 because there is no way of using them for a premium redemption.

There is another quirk.  Your Flying Club miles are not owned by the airline.  They are owned by Virgin Group Loyalty Company, a standalone business which is jointly owned by Virgin Group and Delta Air Lines.

Does this make your miles more or less safe?  It depends on how well capitalised Virgin Group Loyalty Company is.  Does it have enough money in the bank so that it could fund a ‘run’ on redemptions?  I am guessing it doesn’t.  My guess is that it was set up with only a modest cash balance on the basis that – month to month – money coming in from selling miles to the airline and other partners would match money spent on redemptions.

There’s another factor.  You can only redeem Virgin Flying Club miles for non-flight rewards by calling up.  It can’t be done online.  You are looking at spending a couple of hours on hold, given the queue times at the moment, just to end up using your miles for a sub-optimal redemption.  It’s not a great use of your time.

The easiest options for emptying your account would be:

1:1 into IHG Rewards Club points (minimum 10,000 miles) – gets you 0.4p per mile based on my IHG valuation

2:3 into Hilton Honors points (minimum 10,000 miles) – gets you 0.5p per mile based on my 0.33p Hilton valuation

£50 Virgin Group voucher for 12,500 miles – gets you 0.4p per mile

There are various hotel and partner flight redemptions too, but as with IAG it is likely that your booking would be cancelled if Virgin Atlantic / Virgin Group Loyalty Company went down as there would be no-one to foot the bill afterwards.

Conclusion

I’m not bailing out of my points balances.  I don’t see any realistic risk in the case of Avios / IAG.  Even with Virgin Atlantic, I’m not prepared to take a 50%+ discount on what I should get for my points to liquidate them in a fire sale.

Some people have told me that they might switch to a cashback, hotel or Membership Rewards credit card for the next few months.  I can see the emotional reasoning behind that.

Logically, however, it makes no sense.  The new points you earn are no different from the points you already have.  If you’re unwilling to keep accumulating more airline miles then logically you should bail out of your current balances too.  Similarly, if you happy to keep your Avios and Virgin Flying Club miles where they are, you should be happy to keep on earning a few more via your cards.

If there is a lesson to learn here, it is one I have been banging on about for years.

Transferable points (ie Amex Membership Rewards, Tesco Clubcard, Heathrow Rewards, HSBC Premier credit card points) are more valuable than non-transferable points (Avios, Virgin Flying Club miles) because you have more options.  1 Amex point is worth MORE than 1 Avios, even though they transfer 1:1, because the Amex points give you a lot more flexibility on top.

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Comments

  1. Sounds like someone has been listening to shoestring too much – at least she didn’t call it a Pussycat

    https://www.bbc.co.uk/news/newsbeat-51941986

  2. Not sure the UK government is flush with cash to bail out IAG/BA either!

    • ChrisBCN says:

      You know IAG is a Spanish company right?

      • If it came to it though, there would be some kind of intervention. Just as no Italian govt will let Alitalia go bust, no British govt would let BA go under, simple as that.

        • Lady London says:

          Dont bet on it.
          The bankers let Barings go down.
          Same sort of point would be made here.

          • I thought the BOE tried (not very hard) and failed to rescue Barings.

          • Lady London says:

            I was kind of close to decision-makers when that decision was made. With the ‘Lifeboat’ which has been unprecedented about 20 years before, everyone wondered whether there would, or more importantly should, be a lifeboat for Barings. At that time Barings was a venerable longstanding institution amongst the most respected. Should Barings be allowed to fail or should it be rescued.

            The fact was IMV the nature of the business t
            Barings was doing was fundamentally different to its historical business. The whole City had to move to different business types along with the rest of the world. Rescuing Barings by a levy on banks was possible IMV. I believe the decision was more about should than could. Is what message would it send to the City, the markets and the world if they were rescued

            FWIW I think letting Barings fail was the right decision even though they were unlucky with one trader – but IMV it wasn’t totally his fault. This was about a systemic failure (and a culture failure but we haven’t really fixed that and may never).

            Totally OT and there will be much more worthy cases for bailout than IAG.

            Conversely I think bailing out the banks in 2008 was the wrong decision. But in 2008 I wasn’t anywhere where I would know could we have survived without bailing them out but I wish we hadn’t.

        • The staff that lose their jobs and the lack of flights from London will be a British problem regardless of who owns BA.

          I can’t imagine it will come to it but the government will need to bring it under their ownership for a time like they did with the banks should the time come.

          The difficulty is going to be balance. It’s not fair to rescue some and not others and it’s also not fair to hand cash out to companies with no reserves and expect prudent companies to run down their reserves until they run out before they get help – that’s often rewarding failure.

          I think what we need is a freezing of all mortgage and rent payments for people and issue a basic income to everyone for a period of time. Take the pressure off people day to day financially, take the pressure off companies to pay staff. It still wouldn’t be fair on all by a long way but it would at least mean companies and people sort of resume in the same position that the went into this, not weakening strong companies and propping up weak ones with the revenue to strong ones continue to pay.

      • Doug M says:

        It’s Spanish registered but what does that really mean. The Spanish gov won’t bail BA, just like the British gov won’t bail Iberia. Interesting times.

        • Anthony Dunn says:

          IAG is Madrid listed/Spanish registered but BA is a UK Plc within IAG. Complicated? Sufficiently that it poses quite a post-Brex**it conundrum that has been rather opaquely skated around so far by WW and the IAG board.

  3. Drolma-la says:

    OT – What happens to the refund of taxes and fuel surcharges on a Premium Economy reward flight booked for next autumn if Virgin goes belly-up before then? Any thoughts?

  4. Can you report and/or investigate that it is now MORE expensive to cash in avios for wine.It would seem as of yesterday or the day before ,12 mixed wine was around 17k now its gone up to
    around 18k. Assume Laithwates benefit rather than BA

  5. Colin MacKinnon says:

    Has Virgin gone? App been down for 24hrs and web page not taking a booking for London to New York in November, for example

  6. Slightly OT and I appreciate given the circumstances somewhat crass, but what would happen if you had reward flights booked with another airline within OneWorld using avios and they went bankrupt, appreciate the cash component would be likely caught up in the asset freeze (or recoverable by other means) but what of the points? Would these just be credited back to your account?

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