Frequent flyer programs have become commonplace in the airline industry, but industry-wide policies are far from consistent. Now that American Airlines has merged with US Airways to form American Airlines Group (NASDAQ:AAL), the combined airline will need to adopt a single frequent flyer program.
Miles vs. dollars
Traditionally, the frequent flyer programs of the legacy airlines awarded reward miles based on the number of actual miles flown by passengers. However, this policy is changing at Delta Air Lines and United Airlines, where, starting next year, frequent flyer miles will be awarded based upon a combination of dollars spent and status within the airline.
The new systems from Delta and United are aiming to reward passengers more for how much they spend with the airline rather than how long they spend on its planes. Passengers who rack up frequent flyer miles by finding cheap fares for long distance flights will certainly be disappointed, but Delta and United want to focus more on their high status -- and high paying -- customers.
Many people, including me, were wondering whether American Airlines would follow the same path in changing its frequent flyer program, AAdvantage, as it merged with the US Airways rewards program, Dividend Miles. But the airline let long distance flying bargain hunters heave a sigh of relief, as the plan made no mention of deviating from the current distance-flown awarding basis.
While the airline has not permanently ruled out changing to a spending based miles system, the likelihood of such a change drastically decreases with this announcement, since the integration of AAdvantage and Dividend Miles would have been an excellent opportunity to announce rewards changes. However, investors should expect American to monitor whether it begins to attract bargain-hunting frequent flyer mile collecting customers and whether they are beneficial for the airline overall.
Bringing the programs together
Like the mergers of Delta Air Lines and Northwest Airlines and United Airlines and Continental Airlines, the integration of American Airlines and US Airways requires that each airline's frequent flyer program be fully integrated with the other.
Since the ultimate goal is to fully integrate the airline under the American Airlines name, the new frequent flyer program takes the name of American's current program, AAdvantage.
But there are many aspects of frequent flyer programs that go beyond just earning miles, and like so many other complex airline policies, they will also need to be factored in.
At the top of the list is qualification for status levels. Currently, American's AAdvantage program has three status levels -- Gold, Platinum, and Executive Platinum -- while US Airways' Dividend Miles program has four status levels: Silver, Gold, Platinum, and Chairman's Preferred. To fold the four levels of Dividend Miles into the three levels of AAdvantage, the top and bottom status levels of Dividend Miles will fold into the respective top and bottom status levels of AAdvantage, while Dividend Miles' Gold and Platinum levels will become AAdvantage Platinum.
Also of importance is that the threshold for Executive Platinum in AAdvantage will increase from 100 qualifying segments to 120 qualifying segments starting next year. The airline expects to complete the rest of the program combination by the second quarter of 2015.
Bucking the trend
The integration of AAdvantage with Dividend Miles would have provided American Airlines Group with an ideal opportunity to switch to a dollars spent system and follow the lead of Delta Air Lines and United Airlines.
However, American Airlines has bucked the trend by keeping its changes rather small, although there will be some effects on certain elite status travelers. As the merger of American Airlines and US Airways approaches its one year anniversary, flyers and investors should continue to watch the integration progress at American Airlines Group and keep a close eye on the integration of reservation systems and frequent flyers programs on deck for next year.
Alexander MacLennan owns shares of AMERICAN AIRLINES GROUP INC and Delta Air Lines. Alexander MacLennan has the following options: long January 2015 $22 calls on Delta Air Lines, long January 2015 $25 calls on Delta Air Lines, long January 2015 $30 calls on Delta Air Lines, long January 2015 $17 calls on AMERICAN AIRLINES GROUP INC, long January 2015 $32 calls on AMERICAN AIRLINES GROUP INC, long January 2017 $25 calls on AMERICAN AIRLINES GROUP INC, and long January 2016 $60 calls on AMERICAN AIRLINES GROUP INC. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
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