Here’s Why You Can No Longer Earn Or Redeem Airberlin Topbonus Miles

A week ago airberlin filed for insolvency, after Etihad withdrew their financial support. In the US when companies file for bankruptcy protection it’s often “business as usual” for some amount of time, though the law works differently in Germany. When companies file for insolvency there are often immediate changes due to the need to differentiate different types of debt. As a result, we’ve seen the airline make refundable tickets non-refundable, and also no longer award compensation in accordance with EU laws.

However, last week we also found out that airberlin’s topbonus frequent flyer program has suspended mileage accrual and redemptions until further notice. Per a notice on their website:

We cannot currently (since Saturday, 19. Aug.17) guarantee that your miles will be credited. We have had to suspend mileage accruals and redemptions pending clarification of the situation.

We are working hard to resolve the matter as soon as possible and hope for your understanding.

Thank you for your patience.

This confused me at first, since topbonus is a spun off loyalty program, so I’m not sure what specifically would cause this. A friend with much better knowledge of German law, as well as the finances of the program, filled me in. I figured I’d report back on what I’ve learned, because now I realize just how screwed topbonus is (in many ways their situation is even more complicated than airberlin’s).

Topbonus is 70% owned by Etihad

Topbonus is a spun off loyalty program, and in 2012 Etihad purchased a 70% stake in the program for ~184 million Euros. This was clearly an attempt for Etihad to finance airberlin beyond what was otherwise legally allowed.

The arrangement between topbonus & airberlin

This is where things get tricky. Specifically, the way they’re account for costs is likely why airberlin is no longer awarding miles or allowing redemptions. The below is largely based on the 2015 government filings for topbonus. To simplify this as much as possible, up until now here’s how things have worked:

  • Airberlin has purchased miles in bundles from topbonus
  • Rather than airberlin paying cash for the miles directly, topbonus has shown the awarded miles as debt, with the agreement that when a member makes a redemption, they’ll offset the cost of the redemption against the debt; this gives airberlin access to miles without huge cash expenditures (this is reflected in the first screenshot below)
  • Since not all miles are going to be redeemed, this meant that a good chunk of this would be a direct profit (as you’ll see in the second screenshot below, there’s potentially quite a discrepancy between the minimum number of miles sold and the minimum number of tickets purchased, since not everyone redeems miles right away)

But this gets significantly trickier now that airberlin has filed for insolvency:

  • Airberlin can no longer buy new miles for old tickets, since those tickets are “old debt”
  • When a member wants to redeem miles, topbonus can no longer offset these costs from the old debt, as that debt has become frozen; this means topbonus would either have to pay for the awards out of their own pockets, or airberlin would need to pay for issuing the tickets, and airberlin can’t afford it either

What’s next for topbonus?

Presumably topbonus’ only option will be to file for insolvency as well, given that they don’t really have a way to continue to operate. With airberlin no longer able to pay topbonus for miles, and presumably with topbonus’ partnerships quickly dwindling as customers no longer have interest in earning these miles, and with members probably eager to redeem their miles (which is costly for the program), they don’t have much of a future.

So, can topbonus just discontinue the program overnight, or what could this mean for members? Here’s what the topbonus terms say regarding that:

3.2. Discontinuation of the Program: In the event of the topbonus Program being discontinued, topbonus Ltd. shall be entitled to issue due notice to terminate membership of the topbonus Program (see section 3.1.). The same applies in the event that the topbonus Program is replaced by another program. In this case the member is also entitled to give notice of termination in accordance with section 3.1., however, in such case miles already collected can be used up until 18 month after due notice of termination has been received by the member. The same applies if the operator and issuer of the topbonus Program should change.

The program can only be discontinued with 18 months of notice to members. So it looks like the program couldn’t be discontinued overnight even if they wanted it to. However, I’m not sure what their obligations are if topbonus just goes out of business.

Furthermore, I guess it’s entirely possible that topbonus could continue to exist without airberlin as an airline. The question is what value (if any) the program would have at that point.

Bottom line

This is a very nuanced and screwed up situation. Typically when a loyalty program is spun off, the airline and loyalty program are run as separate entities with separate goals. In this case, topbonus being spun off was a way for Etihad to increase their ownership stake in airberlin-related companies, and really the program has been run as something intended to support airberlin, rather than as an independent for-profit company.

As a result, topbonus is pretty screwed at this point. They’ve been operating in a way that limits the cash paid by airberlin, which is fine when both companies are doing well. However, now that airberlin has filed for insolvency, that’s old debt, and the airline can’t offset those mileage purchases anymore.

So now airberlin either has to pay cash for miles, which they can’t afford, or not award miles, which is what they’re doing for now.

On top of that, topbonus needs to provide 18 months of notice to members before discontinuing the program, which really makes you wonder how this will all go down.

This whole situation is the perfect example of Etihad’s flawed investment strategy. I can’t believe it took Etihad so long to fire James Hogan (for that matter, the guy should have never run the airline, after his failures at Gulf Air).

What. A. Mess.

Comments

  1. All the more reason not to fly them which means push them further into loss. Pretty moronic law then, isn’t it

  2. “Here’s why you can no longer earn or redeem” my mind had already processed the rest of this to say Aadvantage miles, coupled with the photo of the Etihad Business Studio, scared me quite a bit. Thanks lucky lol.

  3. Anorher question is, what happens to reward tickets on Oneworld arlines alrwday ticketed for later flights i.e. in 2018 (as Topbonus tickets are on AB stock even with operating airline being IB, AA, CX…

  4. I’m just really wondering what’s gonna happen to my gold status. I don’t care about my miles as TopBonus redemptions were always so bad, but the Oneworld status is very important to me.
    I asked BA for a status match and (as expected) was declined.

    FML.

  5. @Adrian- have you tried status matching to AA? In my experience the US legacy carriers are pretty generous about the lower couple of status levels, so I’d expect you’re at least entitled to OW Sapphire…

  6. I can’t believe it took old Swissair so long to figure out Jeffrey Katz would destroy it. But he did. Sometimes things in the corporate boardroom are opaque. God knows this sure was. Even despite the tortured Germanic syntax printed above, it seems clear they can just discontinue the program without 18 months advance notice. But ask the lawyers, as they’ll be getting hefty fees in the event of a class-action lawsuit (which in any case likely would get filed in the US and not Deutschland).

    PS let’s conjure up one more ghost of Etihad’s past: Alitalia

  7. It may seem tricky or complicated in the eyes of the consumer, but really simple. The abovementioned method is a financial engineering possibly to avoid taxation law, since the purpose of establishment of topbonus is to accomodate foreign investors which have limited shares ownership due to investment law.

    Will topbonus need to file for insolvency? (Since it only purpose is to ‘support’ air berlin). Not necessarily. It depends on negotiations of air berlin take over.

  8. @James:
    AirBerlin won’t be taken over but assets will be sold – with a later liquidation of the holding.

  9. Lucky…I actually have an AA award ticket that has a segment with Air Berlin and I think I am going to need to change my ticket…normally with AA it is no problem to change the dates as you know. …but in this case will I be able to? 🙁

  10. Oh that’s really good news to me so far for program discontinuity, I thought I wasted 1989 EUR on finest club Airberlin miles which basically a waste for bad redemption but at least will get some even though I think it will be worse than before.

  11. It seems to me you can also no longer redeem partner miles for Air Berlin as I was recently checking plentiful flights on Air Berlin from Abu Dhabi using BA avios and now they no longer show

  12. @Tina
    Wow! That’s news…. thanks a lot!!!

    Anyway, is there any assets worth selling? Is airport slot, airline permit, routes permit, and the likes can be transferred? Will there be a bankruptcy proceeding? Will there be an appointed curator, or will the administrator given more authority? Or shall it be liquidator? Worst comes to worst, is there a possibility of ‘piercing corporate veil’ whereby Etihad as shareholder deemed responsible for a portion of debt (since they are the one who pull the plug-or any other reason thereto)?

    Regarding Lucky’s post of t&c of mileage between topbonus and AB, will there be an investigation of uncommon bussines conduct? – Since AB and topbonus is different entity but it seems topbonus can’t fulfill its obligation to consumer solely due to failing of another separate entity.

    Sorry for asking a lot. But you seems to know much and this case is very interesting….

  13. @James:
    Since I was stupid enought to book a ticket to the US on the 14th evening (at least managed to upgraded one with tb) I’m following it closly ..and its businesswise interesting since its the biggest case filled as ESUG.

    Well its not acutally news, but thats just what everyone expect to happen and with probaly take some time.

    The holding owns shares or 100% of a lot of companys, some like the holiday airline Niki (which seems to have some profit so could be a multiple from 4 to up 12 from the EBITDA depending on debt etc.); a travel company were they own 49%, the cargo line, the brand, chairs etc.
    If its possible to sell the slots seems to be big qustions nobody knows so far if they can – they could be moving an agreed number of slots to a company with an licence (they do have at least one), and pay a goodwill price for the share in that etc.

    At the moment the insolvency is only filled so the ESUG can still turn into a normal insolvency, where the liquidator will take over (which should be the same as the current administrator). I personal think that this will happen as soon as the major assets (niki & Slots) are “sold”.

    Ethiad? It depends on the wording of the letter of intent or support if the liquidator will fill – but sinc Ethiad is not based in Europe or Germany its a lot more difficult to process. But it could be that the bond shareholders are taking som sort of acting – but since business is currently doing well and liquidators ar having a lot of time on hand, they usually take a look at all action up to 10 years – depending on the time its easy or a bit difficuly for them to get some money back.

    I don’t think there will be a investigation in tb – its hard to set the value for tb first and then I expect them to fill for insolvency pretty soon.

  14. I’d like to join in with some more questions

    1) Lucky: “Airberlin can no longer buy new miles for old tickets, since those tickets are “old debt””
    From the AB point of view, the tickets issued by AB on Topbonus miles, are an old asset; tied to the old debt for the Topbonus miles that AB gave to their customers. However, as the debt (the miles) are higher than the claim/asset, the asset is useless;

    2) Tina: is this already a done deal, or is it simply the most likely scenario?

    3) For the assets (slots, routes, leases, AOCs): these are tied to the airline and the operation, and you can only buy them when you also take the liabilities (including: employees, leases). AFAIK, slots can’t be auctioned of in Germany. But I wonder if they try to do ‘something’ to split the airline in chunks, and sell chunks to several interested parties (e.g. 30x A320 + employees + 100 DUS slot pairs for easyJet, 8x 332 + employees + 16 TXL slot pairs for Condor, etc). Would this be possible in Germany?

    In a parallel track, I expect airlines like Ryanair and Norwegian to be teaming up all their lawyers and try to delay the process as much as possible, in the meantime weakening AB. Norwegian is already organization Pilot roadshows in Berlin and Dusseldorf this Friday, trying to find pilots who are willing to leave AB for DY.

  15. @Joost: The liquidiation of AirBerlin? Its the most likely scenario

    About the slots there is at the moment a lot of speculation since it seems that the slot coordinator can agree to a movement but it would be more difficult to get the crew & pilots and the aircrafts aswell. Thats why airlines mention a idea of moving certain slots & aircrafts and crew to one of airberlins companys with a flight licence.

  16. @Tina, that seems to be the most understandable for anyone. Could this, in your opinion, also mean that they will, on a very short notice, transfer planes, crew and routes to their subsidiaries (they have enough: Luftfahrtgesellschaft Walter, Niki, Belair) and sell off these airlines, before liquidating what’s left of AB?

  17. @Joost: that could be an options, if there is an agreement, the board of creditors & lawyers agree that its legal possible. Time is the key – they need to agree soon & sign a SPA because either the german or EU ( more likely) will give the green light for it. Usually that takes up to 4 months, which will be a working capital issue

  18. @Tina
    Thanks again.

    @Joost
    I think you forgot to mention lobbyist. If it related to permits (routes, regional airspace, etc) you would need an application approved by authority once the slot preoccuppied by AB is vacant, isn’t it?

  19. @Tina @Lucky
    What are the chances Etihad will eventually offer topbonus members a match to Etihad Guest and preserve the miles there?

  20. Ryanair in UK seems to have made a complaint to Brussels suggesting illegal state aid by the German government .

  21. These bankruptcy laws do not apply to US. Wonder if topbonus members in US can start a class action law suit and take over one of their A330 that landed in the US. Anything not nailed down can be taken in bankruptcy dispute right? So it is completely legal to strip down flight attendant’s uniform while the flight is still over US territory?

  22. “What are the chances Etihad will eventually offer topbonus members a match to Etihad Guest and preserve the miles there?”
    Good Question.

  23. i massively relied on airberlins flights from new york in order to get home (tel aviv) next year. I was going to use my avios points and book the airberlin flight via british airways website. Is there ANY chance these flight will be made available again? I dont know how this whole business works but as it stands there are no airberlin flights available on the british airways website when you book using avios points.

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