What Happens to All My Points and Rewards If the Company Goes Under?

In most cases, your points will be safe — but at what cost?

Coronavirus is wreaking apocalyptic havoc on American businesses. J. Crew, JCPenny and Neiman Marcus have all filed for bankruptcy so far; the airlines got $25 billion in bailout money (which still won’t stop them from cutting employees’ hours or even jobs); and small businesses everywhere are fighting for their lives. 

But let’s cut to the goddamn chase: What’s going to happen to all your points, your miles, your sandwich-store stamps if or when a company waves the white flag? Alongside Raphael Thomadsen, professor of marketing at Washington University in St. Louis, we’ll get to the bottom of this doomsday scenario for all the points hoarders, gold-class winners, preferred guests, frequent flyers, circle of appreciation recipients and five-diamond, elite-level, executive status, director’s club members.

So am I gonna lose my points or what?

It depends on the size of the company, and what’s happening to it. If an airline company, for example, declares bankruptcy but is merely being restructured (Chapter 11) instead of liquidated (Chapter 7), it’s very likely they’ll continue to honor your points. But if it’s anything more dire or detailed than a restructuring of debts, things can get complicated (more on that in a bit). 

On the other hand, if, say, Frank’s Frozen Yogurt around the corner from you goes out of business, well, the points, loyalty programs and things like gift cards just tend to disappear, losing all their value. “Generally when those businesses go under, who are you going to get the assets from?” Thomadsen asks, rhetorically. “There’s nothing really left.”

Why do they keep honoring points and miles if they’re going through bankruptcy?

Thomadsen decided to study loyalty programs in part because previous studies had suggested they’re ineffective, but he discovered the opposite. Even when they don’t actually increase sales per customer, somehow, some way, they retain customers better. That even goes for loyalty programs with pretty modest rewards, like a men’s hair salon chain he studied that offered a whopping $5 off coupon for every $100 you spent (and yet still had lots of limits and conditions attached). “There’s this idea of, ‘I’m so close — I should just go another time’ that pulls enough people in,” Thomadsen says of rewards programs, an idea he deduced based on theories by psychologists. 

And for larger companies, like airlines?

Depending on their situation, it’s usually in their interest to continue for customer service purposes. However, when the shit really hits the fan, customers become less of a top priority. “Companies that are in more dire financial situations tend to value their customer base and future profits less,” Thomadsen says. “If tomorrow is very uncertain [for them], you’ll often see worse customer service and more willingness to lose a few customers. But the more the company’s confident they’re going to have future customers, the more likely they are to hold onto those customers and be willing to pay for it.”

What happens when points or miles actually disappear?

Here’s a current example: Virgin Australia is on the ropes at the moment, maybe getting bailed out by the government (or not), and people Down Under are understandably wondering what’s going to happen to the airline’s Velocity program and its $2 billion worth of existing points if the company disappears.

Opinions differ as to what happens then. One Australian aviation professor encouraged points holders to redeem their points on stuff online. “Just try to get a product out of them, get yourself a frying pan,” he said. Yet another expert was confident that a different entity will surely snatch up this loyalty program because it’s actually healthy and profitable (more than the airline, obviously). Retail stores with robust loyalty programs and particularly banks might be willing buyers, as half of frequent flier points are issued through credit cards anyway.

Uh… how is that even possible?

It’s surreal, right? Even zombie-like, that an airline’s miles program outlives the airline! The reason is that some loyalty programs are actually separate entities. This has happened before, actually: Air Berlin had officially ceased to exist in 2017, and yet Air Berlin’s reward program remained alive and well, being a separate entity. The miles were redeemable on Etihad, at least for a few months (Etihad had a 29 percent ownership stake in the erstwhile Air Berlin). 

What if my hotel/airline/etc. gets bought out?

Things usually turn out all right. “In all the cases where we’ve seen airline mergers, I’ve never seen anyone lose points,” Thomadsen says. Your miles often get rolled into the new airline’s program, but since every program values their miles differently, you might be downgraded to a lower level or upgraded to a higher level, says Thomadsen.

When things turn bad, I should spend my points on that frying pan?

Maybe, maybe not. Those Velocity points come with a lot of temporary restrictions in order to prevent customers from swallowing up Virgin’s cash flow at a time like this. Like, you can only redeem one gift card a day, and they’ve suspended points transfers to other airlines. But also, the value of points on non-flight products is extremely low compared to spending it on flying. That goes for most loyalty programs, in fact. When you spend on something besides flying, you end up getting a little for a lot. 

Most major airlines have revalued their points at one time or another — according to Thomadsen, this is sometimes under the guise of “closing loopholes” that people supposedly took advantage of. And actually, he doesn’t believe airlines are under any obligation to define what a point is — there’s no gold standard for them, points are simply worth whatever the company says they’re worth, it’s only the reputation of the company that keeps them honest about it. 

“That’s why, personally, I always take cash on my credit card,” Thomadsen says. “I probably have lost value relative to what I could have gotten. But I know what cash means — and I don’t know what points mean.”

So unless a company completely disappears, my points will probably be okay?

Yeah — you and all the Gregs and Karens can rest easy. If a company is restructuring its debts through a Chapter 11, your miles will probably still be good. But that doesn’t mean everything is rosy: Thomadsen points out that a company’s employees sometimes lose out in a restructuring. Labor contracts are renegotiated and benefits like retirement plans are severely trimmed. It’s a common, yet unsavory side to corporate America, and it’s up to you whether you want to continue to patronize a company like that, simply based on your existing stash of their proprietary brownie points — which, yes, will probably remain spendable.