US Airways’ Doug Parker has been beating the drum for airline-industry consolidation for years, and has made unsuccessful bids for both Delta and United, both in bankruptcy at the time. More recently, he mused that if United, Delta, or American were interested in a merger, US Airways would be the logical choice of partners.
So with American now in bankruptcy, and hence vulnerable to a takeover, it’s been assumed that the most likely merger scenario was a tie-up between American and US Airways, with Parker at the controls. The new bulked-up company would be larger than Delta and challenge United as the world’s largest airline, a title that once belonged to American.
Adding substance to the speculation, it’s been reported by Bloomberg that US Airways has indeed hired consultants to advise on just such an acquisition.
Bloomberg further reports that investor group TPG, headed by David Bonderman, is looking into taking a stake in American, or buying the airline outright.
Separately, and perhaps most interesting of all, the Wall Street Journal (subscription required) reports that Delta is considering a bid for American as well.
Frequent Flyer Prospects
There’s no telling what might happen to American in the event of a buyout by the likes of a TPG. But if either Delta or US Airways were to acquire American, there’s no doubt the combined companies would look a lot more like Delta or US Airways than American. And for members of American’s AAdvantage frequent flyer program, that would be a definite downgrade.
While there’s no definitive ranking of the airlines’ loyalty programs, a study last year by industry consulting company IdeaWorks deemed Delta and US Airways next-to-worst and worst, respectively, when it came to award availability, reporting success rates of just 27.1 and 25.7 percent when booking awards. By contrast, the researchers were able to successfully book awards on American 62.9 percent of the time.
So, to the extent that the value of frequent flyer miles depends on their redeemability for free flights, the conversion of American miles to miles in the programs of either Delta or US Airways would be a significant devaluation.
There are other considerations, to be sure. US Airways miles can be earned and redeemed for flights on airlines in the Star Alliance, a more robust group than American’s alliance partner, oneworld. However, oneworld is generally regarded as superior to SkyTeam, the alliance co-anchored by Delta.
And American is stingier with elite upgrades than Delta or US Airways.
But overall, based on IdeaWorks’ findings and on more anecdotal data, American simply does a better job of meeting the expectations of AAdvantage members than Delta or US Airways do in meeting the expectations of their program members.
Watch, Wait, Redeem
It will be months before American’s future prospects come into sharper focus. Other suitors (United?) may step up, possibly to derail the efforts of US Airways and Delta. Issues of industry consolidation and regulatory approval will arise. American’s own plan will get a hearing.
AAdvantage members will have to wait and watch. But they should also be planning an exit strategy, in case it begins to look as though their program is likely to be merged into the program of Delta or US Airways. Then, the choice would be clear: Redeem their AAdvantage miles sooner, while they can; or wait, and find their Delta or US Airways miles much harder to use.
There has always been a strong argument for using miles sooner rather than later. American’s uncertain prospects make that argument more compelling than ever for AAdvantage members.
Reader Reality Check
What’s your plan for maintaining the value of your AAdvantage account?
This article originally appeared on FrequentFlier.com.
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