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2 Big Airline Policy Changes

By Alexander MacLennan – Feb 27, 2014 at 9:33PM

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Two policy changes could affect investors and travelers.

Airlines are constantly updating their policies to generate maximum profits but two policy changes in February could change basic operating methods of the industry. I'll look today at what these developments mean for travelers and investors.

Frequent flyer changes
Frequent flyer programs have long been part of the airline business model. The collection of miles has served as a way for airlines to encourage repeat sales and give higher status to the most valued flyers.

For the large carriers, the number of miles earned was connected to the number of miles flown. This allowed customers good at finding long distance flights at good prices to be able to collect a large number of miles for a low ticket price.

Delta Air Lines (DAL 0.93%) is bringing a new approach to the frequent flyer program to the legacy airlines. Starting Jan. 1, Delta flyers will earn miles based on dollars spent, not distance flown. Flyers will earn between 5 and 11 miles per dollar spent with a cap of 75,000 miles per ticket.

Although it represents a major shift among legacy carriers, this approach is not entirely new in the industry. Southwest Airlines (LUV -0.82%), AirTran Airways, and JetBlue Airways (JBLU -0.25%) all use this method for awarding frequent flyer miles.

If history's an indicator, other legacy airlines will be happy to match this program if Delta finds success. When Delta instituted a minimum annual spending requirement to get Silver Medallion status in the SkyMiles program, United Continental (UAL) matched the policy change soon after.

With the U.S. airline industry now dominated by a smaller group of players, the matching of policies is becoming far easier. With Delta and Southwest both taking the dollars for miles approach, it would not be difficult for United Continental or American Airlines Group (AAL -0.07%) to join the trend as well. Flyers and investors should keep an eye on the success of Delta's new approach to see how likely it is to take hold at other carriers.

A goodbye to bereavement fares
Airlines are one of the few industries where companies offer discounts to families who have recently lost family members. However, not all airlines offer these deals and American Airlines Group has joined that club.

American Airlines Group will take on the policy of US Airways, which did not offer bereavement fares, and apply it companywide. By comparison, Southwest Airlines does not offer such discounts and both United and Delta appear to offer small discounts.

The future of bereavement fares really could go either way at this point. Although many recent industry changes have come about because of the reduced number of competitors, the decision by American falls in line with the airline's plan to unify policies between American Airlines and US Airways.

As for other airlines, the bereavement fares are often not too much lower than the other lowest fares and can be subject to availability. So as with many parts of this industry, the future of bereavement fares remains up in the air.

New approaches
Airlines are seeking to maximize earnings by adjusting policies across their businesses. With less competition, the airlines have more power to do so than ever before, and this could be a driver for earnings going forward.

Both travelers and investors should monitor how these policy changes shake out since it will have an impact on both their flying experience and their portfolios.

Alexander MacLennan owns shares of and has options on American Airlines Group and Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

JetBlue Airways Stock Quote
JetBlue Airways
$7.94 (-0.25%) $0.02
Southwest Airlines Stock Quote
Southwest Airlines
$39.75 (-0.82%) $0.33
United Airlines Holdings Stock Quote
United Airlines Holdings
$43.89 (%)
Delta Air Lines Stock Quote
Delta Air Lines
$35.71 (0.93%) $0.33
American Airlines Group Stock Quote
American Airlines Group
$13.97 (-0.07%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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