Ask Randy: What happens to miles if airline goes out of business?

— -- These are tumultuous times for frequent fliers, as struggling airlines continue to add new fees and restrictions to their loyalty programs. So we've invited frequent-flier expert Randy Petersen to take your queries and offer advice on how to make the most of your miles. Here are some recent queries; join him in his ongoing forum to post one of your own or help answer a question from a fellow reader.

Reader texasex95: Randy, I have almost 400,000 miles on United but with the craziness of the airline biz these days, I'm a little worried that even a monster like United could go out of business...especially with all of their nickel and diming. What would happen to my miles? Are they gone? Is there mileage insurance? How much are 400,000 miles worth?

Randy Petersen: Good question and it certainly seems that it is timely as once again United "makes the news." Could they go out of business? Yes. A partner of their from the Star Alliance folded its doors a few years ago — Ansett Airlines — in Australia and it was the leading domestic carrier there at the time. Virtually anything could happen as we were so reminded over the past 18 months losing 6 (soon 7 with Express Jet (XE) scheduled to exit commercial service on Sept. 1).

As for United, despite their apparent continued struggles to find themselves and to find some of their passengers heading for the exit doors — hungry at that — I have little worry about the security of your United Mileage Plus miles.

400,000 of them is nothing to sneeze at and congrats on that nest egg. But United has such deep assets, that it is easy to overlook how they could conceivably spend down for quite a few years. Now, some of those assets are leveraged to get them through bankruptcy, but they have a single asset that is larger than the airline and that's the one where you bank your frequent flyer miles. United Mileage Plus, even in a downturned and sloppy market is worth a few times more than all of UAL, meaning that even when choking on themselves, there is an oxygen mask nearby, something that most other airline don't have ready for that market. Of any U.S. carrier, they have the leadership in the mileage department to do that transaction, though not endorsing it for timing right now. Heck, if the airline doesn't work well, then all the miles in the world aren't going to help you much.

Now, should you burn those miles down as some frequent flyers seem to say they are doing? All depends on your outlook in life and your appetite for risk. I live on Colorado and while for what I do, I'm as non-denominational as they come, BUT, and that's a big BUT, I have over a million miles on your same carrier (are you sure we haven't met in flight somewhere?!!!) and trust me, I'm will not risk losing any of those miles and from my own actions, I'm fine with United's future right now. We may have to whip them a bit in shape with their apparent meltdown of this Buy-On-Board stuff (a great read is Ben's excellent and constant coverage), but with some pressure from both pilots and passengers, they will prevail.

So, a few things. So goes United, so goes your miles. Sure, I have to break the bad news to you. But, I don't think you have to worry right now about them. And even if you decide to leave them for another airline should better service or a better passenger experience await you, I wouldn't rush to burn them away. As for mileage insurance, well, I'm an expert on that. In the early 1990's I got thousands of questions about the loss of miles when the industry was in a similar place. So I went off to London and put together something called AwardGuard. It worked great and we helped members through the bankruptcies of Midway Airlines at that time and the whole pain and agony of others like Canadian International. But after 9/11, no matter how many trips i took to London, I could no longer find an underwriter for such protection/insurance. Your insurance these days are twofold: redeem your United miles out on Star Alliance partners well in advance so that if United did not make it, you'd have something to remember how it was when you had miles. I can advise this but don't necessarily like this sine you're likely to have to pay big fees to redeposit the miles if and likely United does make it. As well, who the heck really knows where they'd like to go a year from now? The other is the current "burn, baby, burn" that some other travel experts have suggested and some members on their own have adopted. Not sure about where you work but going to the boss to ask for a lot of extra time off to take "flying vacations" just doesn't seem reasonable and rational. Then what do you do over the next few years when you want to go on vacation (before you re-earn those 400,000 miles)? I suppose go back to the old days and spend real money. Personally I think using real money is a bad idea!

So, as noted, it's your personal preference and that's why I am here — to help you get through these trying times.

As for what your miles are worth? About $25,000 if you really know how to use them, otherwise, nothing. Some have tied to sell their miles with some success, but I can easily refer you to many. many more who got busted selling their miles and lost everything as the airline froze their remaining miles.

I'll suggest you hang in there with me on this one and let's see if indeed we never have to pay for our vacations.

Reader geoduck: I have a basic question about purchasing miles. Do miles purchased from the airline get credited towards preferred status (and, if so, with which airlines?) or are they racked up as non-preferred miles? I'm wondering if it is possible to simply purchase miles to gain/maintain status instead of attempting a more expensive "mileage run" at the end of the year.

Randy Petersen: With the end of the year creeping up on us, this is certainly a timely question, thanks for asking.

As a general rule, miles purchased from an airline are considered "general" miles and are just deposited into your account. Typically members purchasing miles this way are doing it to "top off" a frequent flier account for immediate award redemption.

Now, having said that, the actual purchase of these miles can serve a duo-purpose and that is if you have used a credit card that earns EQMs (elite-qualifying miles) then you have accomplished that goal, though I strongly suggest that there are much easier ways to accomplish that same thing without purchasing miles.

There are any number of frequent flier program sponsored credit cards that can award you EQMs so you can either qualify for elite status without flying or at least re-qualify without having to resort to a "mileage run" as you have indicated in your note. Among those programs offering such a bonus benefit are Continental, US Airways, United and Delta. My current favorite for this is the Delta SkyMiles Reserve card. While pricy (it includes airport lounge membership), it does have a few nice wrinkles for members, nonetheless are the ability to count many of your credit card purchases as EQMs and in fact you could conceivably earn elite status without flying — now, how's that for plastic fantastic? But one of the things with that card is the ability to transfer EQMs earned from spending to other members.

Now, in years past, several programs have offered promotions to enhance EQM accumulation toward the end of the year such as US Airways and United, so be on the lookout for those offers and I'll try and post them here as I see them begin.

This year I see many more programs offer some sort of end-of-year EQM offers so that you don't have to mileage run yourself to re-qualify. The facts are with fares rising, it may not be as financially beneficial as before, but I think with fuller flights, airlines now understand that they can earn even more money from those same seats — sell them to passengers who really do want to fly (and perhaps now even fly and earn miles) and offer you a way to earn EQMs for a small fee, less than if you were flying to earn them. Airlines gain and you leave that seat open for someone else to fly. So, flying and credit card purchase EQMs remain the two most common ways to re-qualify for elite status. And of course with credit cards, those EQMs are for your everyday purchases — such as the gift buying season at the end of the year.

Hope this helps and I certainly look forward to discussing the year-end rituals we might all think of.

Reader kkua: Randy, I'm a Platinum member of NW and am seriously looking to defect into StarAlliance (with CO). Will DL recognize the mileage flown with previous partner carriers (CO and NW) eligible towards their million miler club? There's nothing published about it these days.

Also, will CO extend an invite to pull over NW's elite members? Seems like reciprocal benefits will end very soon.

On a related note, will DL recognize the lifetime NW lounge memberships? They don't offer lifetime memberships, but NW does.

Randy Petersen: Timely question — but if i could ask you to hold on for a few days, I do have a flight to catch. Be back with you. A short answer is that timing is everything and since it is only NW that is merging with DL, only those flight miles will count toward the million-miler program with DL. Continental remains only a partner ... for another 6 months to a year. And CO can't really extend an invitation or recruit you from NW since they will remain a partner ala into DL as well, until they formally join Star and partners don't try (well, they publically don't try) to poach partners. More later and a good question for everyone.

Got a question for Randy? Join the discussion in his forum.