Airlines are on the brink of bankruptcy — what happens to your voucher, travel miles and airline credit card if they go belly up?

The financial horizon looks uncertain for the airline industry.

Air travel has largely ground to a halt as people have grown wary about potentially exposing themselves to coronavirus. Many airlines have resorted to flying mostly empty flights — although in some cases, passengers have complained about crowded planes, as in the case of a recent United Airlines UAL, -5.04% flight.

Carriers’ stocks have tanked in response. Warren Buffett recently revealed that Berkshire BRK.A, -0.61% had sold off all of its holdings in the airline sector, including stock in Delta DAL, -4.45%, American Airlines AAL, -4.45% and Southwest LUV, -3.25%.

‘If one of the nation’s biggest airlines went belly-up, it would create an absolute tidal wave of refund requests, and it is unrealistic to think that banks would grant them all.’

— Matt Schulz, chief credit analyst at LendingTree

Boeing BA, -2.86% Chief Executive David Calhoun suggested that a major airline will “most likely” go under as a result of the coronavirus pandemic during a recent appearance on NBC’s “Today” show. He added that it could take three to five years for the industry to recover to the passenger levels seen before the pandemic.

Read more: Airlines are issuing billions of dollars in vouchers — but can you still get a cash refund for coronavirus-related flight cancellations?

A recent study estimated that airlines have distributed $10 billion in vouchers since coronavirus reached U.S. shores.

Depending on how the bankruptcy is handled, ticket-holders may or may not be in the clear. Often companies use bankruptcy as a legal tool to restructure its debts — in other words, an airline that goes bankrupt won’t necessarily be liquidated.

“Alitalia, for example, has been in some stage of bankruptcy proceedings since 2017 yet has continued to fly,” said Ted Rossman, industry analyst at on Tuesday. Colombia’s Avianca airline, one of Latin America’s largest airlines, filed for bankruptcy protection on Monday. But he added, “Avianca hopes to get back in the air once the coronavirus pandemic subsides.”

Here’s what consumers need to know:

No guarantee of a refund

There’s no guarantee that a liquidated airline will directly reimburse would-be passengers for the cost of their airfare.

Investors who own corporate debt and stock would be paid back first, said Sara Rathner, travel and credit-card expert at NerdWallet. In other words. That, she added, “means you’re out of luck.”

Customers, meanwhile, are considered “unsecured creditors,” said Paul Hudson, president of consumer-advocacy group The FAA requires airlines to have insurance for this, he said, but a payout could take a while if it comes at all.

Vouchers don’t have cash value

In lieu of refunds, the vast majority of airlines have provided travelers who pro-actively cancel trips because of coronavirus with vouchers or credits. “They would lose their money,” Chris Elliot, a consumer advocate, said.

Travel vouchers don’t actually have cash value. As a result, if a traveler is worried about their airline going under before all is said and done, they may be better off booking a trip using their voucher and then taking out a travel insurance policy on that trip that covers bankruptcies, Rathner said.

Your credit-card company could bail you out

You can request a refund or charge-back from your credit-card company if the airline goes belly up, experts said. (Debit cards may also provide some protection in these cases, but the claims process with credit cards is generally smoother, Rossman said.)

These requests can be made online or by phone. Making a request is no guarantee of receiving a refund, warned Matt Schulz, chief credit analyst at LendingTree TREE, -0.83%.

“It certainly doesn’t hurt to ask, but you shouldn’t consider it a slam dunk that you’ll get your way,” he said. “If one of the nation’s biggest airlines went belly-up, it would create an absolute tidal wave of refund requests, and it is unrealistic to think that banks would grant them all.”

Timing is another critical issue. Under the Fair Credit Billing Act, consumers only have 90 days after your purchase to file a claim, Elliott said. “Banks sometimes will give you more time, but technically you only have three months,” Elliott said.

Also see:Nearly 1 in 3 Americans are planning to take a road trip this summer, as low gas prices outweigh coronavirus fears

Your travel-insurance policy may not protect you

If an airline liquidation hampers your travel plans, your travel-insurance policy may cover some of the costs. The key lies in the fine print.

“Look at the policy’s terms and conditions to ensure it covers financial default, and make sure the airline you’re flying is a covered supplier,” Rathner said.

Frequent-flyer miles may be useless

“If an airline goes out of business, it would be bad for its elite-status members and frequent flyer-mile holders, but they still might be able to get some value,” Rossman said.

If the airline ends up merging with a surviving carrier through the bankruptcy process, those miles would likely be converted into the new airline’s program.

If the airline ends up merging with a surviving carrier through the bankruptcy process, those miles would likely be converted into the new airline’s program.

Some airlines have split their loyalty program into separate companies, Rossman said, which could survive the bankruptcy. Many carriers also have “status match” programs to attract frequent-flyer members from other airlines. These programs will give you the equivalent status, and surviving airlines could use these programs to attract elite members from the defunct carrier.

But retaining frequent-flyer miles or status is far from guaranteed. “Rewards are not considered property, and can be eliminated by the airline program at their discretion,” said Brett Holzhauer, travel and credit-card expert at LendingTree.

If an airline looks like it will go out of business, people who have frequent-flyer miles should consider using them for flights or converting them into other purchases such as merchandise or gift cards, Holzhauer said.

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You must pay off your airline credit card

Many people sign up for co-branded credit cards from airlines to get attractive perks, including travel credit rewards, but just because an airline goes out of business doesn’t mean you can avoid paying off your credit-card bill.

“Retail-card delinquencies spiked a few years ago along with store closures, with the theory that some customers felt they no longer owed a closed store like Toys ‘R’ Us,” Rossman said. “Unfortunately for those with credit-card debt, you do still owe the card company if the airline/store closes, and there can be major consequences for your credit score if you don’t pay.”

CityWatch: New York turns attention to testing children

Hospitals and health-care facilities in New York have been directed to prioritize testing children with coronavirus symptoms as state officials investigate roughly 100 cases of an apparently coronavirus-connected inflammatory disease that has killed three children in the state. 

Known as pediatric multisystem inflammatory syndrome associated with COVID-19, the condition affects children and causes inflammation in blood vessels and can affect the heart, Gov. Andrew Cuomo said at his daily news conference on Tuesday.

“We have been behind this virus from the very beginning and it still surprises us,” Cuomo said. “We thought initially that it didn’t affect children, we’re now dealing with an issue that’s very disturbing. We have about 100 cases of an inflammatory disease in young children that seems to be created by the COVID virus.”

The governor’s office released guidelines directing that New Yorkers should seek immediate care if a child has:

  • Prolonged fever (more than five days)

  • Difficulty feeding (infants) or is too sick to drink fluids

  • Severe abdominal pain, diarrhea or vomiting

  • Change in skin color, becoming pale, patchy and/or blue

  • Trouble breathing or is breathing very quickly

  • Racing heart or chest pain

  • Decreased amount of frequency in urine

  • Lethargy, irritability or confusion

The syndrome, which has symptoms overlapping with Kawasaki disease and Toxic Shock Syndrome, has affected children from below the age of 1 up to the age of 21, according to data shared by Cuomo. The majority of cases — more than half — have been diagnosed in children between the ages of 5 and 14. 

Earlier on Tuesday morning, Mayor Bill de Blasio said that 52 cases of pediatric multisystem inflammatory syndrome had been confirmed in New York City with a further 10 cases pending. 

Of that total, 25 have tested positive for COVID-19 and another 22 had antibodies, de Blasio said. 

Early detection and early action is key, according to the mayor. The quicker action is taken in reporting symptoms and the quicker a healthcare professional can evaluate “the more chance of protecting the child and seeing them through this challenge safely,” he said.

Across New York, 338,485 have tested positive for coronavirus and 21,845 people have died according to the state’s health department. On Monday alone, 195 New Yorkers died, according to Cuomo, an increase from 161 the previous day.  

The mayor went on to underline that New York City is still at least weeks away from reopening as some regions in the state edge closer toward easing restrictions

He reiterated that the city would need to see 10 to 14 days of declining rates of key metrics, which include the daily number of people admitted to hospitals for suspected COVID-19 and the percentage of people testing positive.

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“We haven’t had that in a sustained way at all,” de Blasio said. “In the beginning of June, that will be the first chance we get to start to do something differently, but only if the indicators show us that; only if they show that we’ve reached the kind of consistent progress we need.”

Meanwhile, The Broadway League, the national trade association for the theater industry, announced on Tuesday that Broadway theaters would remain shut through at least Sept. 6. 

Performances have been suspended since March 12.

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“While all Broadway shows would love to resume performances as soon as possible, we need to ensure the health and well-being of everyone who comes to the theater — behind the curtain and in front of it — before shows can return,” Charlotte St. Martin, president of the Broadway League, said in a news release. 

“The Broadway League’s membership is working in cooperation with the theatrical unions, government officials, and health experts to determine the safest ways to restart our industry.”

Personal Finance Daily: ‘I owe child support from my first marriage and did not receive a stimulus check’ and what one-third of Americans are planning to do this summer

Happy Tuesday MarketWatchers. Don’t miss these top stories:

I received two $1,200 stimulus payments. One was direct deposit and the other was a paper check — I cashed the check

Some people are upset that they didn’t receive a large enough check, while others have received two payments.

‘I owe child support from my first marriage and did not receive a stimulus check. Does President Trump not realize that I now have another family to take care of?’

‘Withholding checks now does not take into account the unprecedented circumstances in which we’re living.’

Are you still waiting on your stimulus check? Make sure you meet this deadline before noon on Wednesday

The IRS has already sent out 110 million direct deposit money transfers and nearly 20 million paper checks.

6 places to get free, professional financial advice now

Financial advisers are offering pro bono help during the pandemic. Here are the links.

How to find work in a pandemic economy

Who’s hiring, what to add to your resume and how to network virtually.

Nearly 1 in 3 Americans are planning to take a road trip this summer, as low gas prices outweigh coronavirus fears

The coronavirus pandemic has caused many Americans to cancel their summer vacations — but some see the low gas prices as an opportunity to save.

Airlines are issuing billions of dollars in vouchers — but can you still get a cash refund for coronavirus-related flight cancellations?

The coronavirus pandemic has made air travel far less appealing, which is pushing airlines to the edge of bankruptcy.

Think it’s bad now? Wait until hurricane and fire seasons start

Prepare your financial records and learn where to turn for help when natural disaster strikes.

8 types of credit card relief you can ask for

Credit card issuers may be more lenient with customers in the pandemic, but you have to take some initiative.

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The rich are getting richer among high-yield ETFs, too

Many investors know the old adage “don’t fight the Fed.” How about “don’t fight the Fed front-runners?”

In the weeks since the central bank announced unprecedented levels of asset purchases to bolster financial markets after the market shock from the coronavirus pandemic, there have been some winners — and losers — before the Fed even started buying. That’s amplifying the survival-of-the-fittest trend that already exists in one corner of the marketplace.

Since the March 23 announcement, investors have plowed over $9 billion into the two largest corporate bond exchange-traded funds. About one-third — $3.38 billion — has gone into the SPDR Bloomberg Barclays High Yield Bond ETF JNK, -0.05% , while nearly twice that amount, $5.8 billion, has flowed into the iShares iBoxx $ High Yield Corporate Bond ETF HYG, -0.12% .

Related:Three fund managers may soon control nearly half of all corporate voting power, researchers warn

As institutional investors increasingly embrace ETFs, using diversified baskets of securities to express opinions on sectors, asset classes, or other broad views, they’re looking to the biggest, most liquid funds to do so, noted Todd Rosenbluth, head of mutual fund and ETF research at CFRA.

“As the pie gets bigger, the benefits accrue to the bigger players,” Rosenbluth said.

But in the case of the HYG and JNK ETFs, Rosenbluth said, it’s “ironic” that JNK has been left in the dust. “It’s as if investors thought the Fed won’t buy anything but HYG,” he said. “In fact, they’re quite likely to buy both.”

Perhaps the biggest and most important reason for that view is the elephant in the room: BlackRock, the massive asset manager which is iShares’ parent company, is running the Fed’s bond-buying program. The company late in March pledged to “treat BlackRock-sponsored ETFs on the same neutral footing as third-party ETFs.”

While many market participants have said publicly that BlackRock’s participation creates at least a perception of a conflict of interest, “it’s unlikely they’re going to buy just their own ETFs,” Rosenbluth said.

There’s plenty to recommend JNK, as well. It charges a slightly lower management fee than HYG: 40 basis points to 49 basis points. That’s not unusual: as previously reported, big funds beloved by institutional investors, like the S&P 500 ETF Trust SPY, -1.99% , also charge a bit more than upstart competitors.

Both HYG and JNK have very similar allocations to different sectors, as shown in the table below, and to segments of the credit rating scale.

HYG, %JNK, %
Consumer non-cyclical17.5117.18
Consumer cyclical16.4117.82
Capital goods8.959.13
Basic industry3.235.06
Finance companies2.32.34
Finance “other”1.191.03
Source: company web sites

Mostly, though, just as in other corners of the market, the fund’s popularity seems another example of how ETFs are increasingly split into haves and have-nots.

“iShares has a broader suite of fixed income ETFs, so they reap the benefit of the demand” for products like the iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, +0.96% , and the iShares Core U.S. Aggregate Bond ETF AGG, +0.25%, Rosenbluth said. “Institutional players are choosing to focus on one family.”

See:ETF survival of the fittest shows just what’s going on in financial markets

Social Security recipients may be in for a rude awakening later this year

Social Security beneficiaries might not receive much of a cost-of-living adjustment next year — and some say recipients might not get anything at all.

COLA is linked to the consumer-price index, which has suffered lately because of low oil prices. Based on the CPI data between January and April of this year, COLA for next year would be zero, according to Mary Johnson, a Social Security policy analyst for The Senior Citizens League. There are still five months until the administration announces the COLA for 2021, which occurs in October.

The adjustment in 2020 was considered minimal, at 1.6% this year, down from 2.8% in 2019. COLAs have averaged 1.4% over the last decade, down from the average 3% it was between 2000 and 2009.

See: Increase in unemployment hits older workers harder than prime-age workers

But even if the adjustment was above zero, it still wouldn’t be enough for most retirees, studies show. Many Americans rely on Social Security benefits for some, and in some cases most, of their retirement income, but the benefit doesn’t align with actual cost of goods for retirees.

Since 2000, Social Security COLAs have increased benefits by 53% but the prices of what retirees typically buy has grown almost double, to 99.3%.

The problem: Social Security’s cost-of-living adjustment is linked to the consumer-price index for urban workers. There’s another subset of CPI, known as CPI-E, which tracks elderly spending. The difference is primarily in health care and housing. Those expenses, including Medicare premiums and homeowners’ insurance, grow rapidly year over year, but benefit adjustments don’t reflect that growth.

The coronavirus crisis could deepen the divide, especially as medical expenses drop in some areas — such as elective surgeries — but increase in others, including care for COVID-19 patients. “Older people are disproportionately affected by the COVID-19 crisis, often due to underlying medical conditions,” Johnson said. The Centers for Disease Control and Prevention, as well as other leading figures, have urged older Americans to stay home and away from others as they are typically at a higher risk of complications from contracting the virus.

Also see: Should people be able to tap Social Security now to shore up coronavirus-battered finances?

Annual average out-of-pocket expenses for prescription drugs were $1,102 in January 2000 and $3,875.76 in January 2020, according to the study — a 252% increase. Medicare Part B premiums jumped 218% during the same time frame, and home heating oil grew 172% during that period. Even the price of oranges grew more than double, from $0.61 in 2000 to $1.34 in 2020, a 120% increase. A retiree in 2000 with an average benefit of $816 a month would have $1,246.20 in 2020, but would need $380 more a month just to maintain that same level of buying power she had in 2000.

In total, Social Security benefits have lost 30% of buying power since 2000, Johnson said in her report. That is a slight improvement from last year’s report, when the findings were a 33% loss of buying power since 2000.

But there is still much uncertainty as to what will happen in the coming months in light of the pandemic. In some cases, consumer prices are rising — such as for groceries and meat as more consumers cook at home and factories are shuttered — while in other scenarios, costs of goods and services are declining, such as with insurance and airfare. “There’s going to be some lag-time before we know the full impact of what is going on,” Johnson said.