US Airways to Potentially Takeover American Airlines- What it Means for Your Miles

by on April 20, 2012 · 51 comments

in American, Travel Industry, US Airways

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Per this CBS News report, US Airways filed preliminary Securities and Exchange Commission filings to begin a takeover of American Airlines. This does not mean a takeover/merger has been agreed upon, but simply that US Airways has discussed the possibility with the key labor unions involved and they’ve come up with an agreed upon plan if this all comes to fruition. Of course, we have no idea what is currently (or has been) discussed between US Airways and American and while American has stated it would like to come out of bankruptcy as a stand-alone carrier, they’ve got a lot to do – especially since they just posted a staggering 1.7 billion dollar loss in the first quarter of 2012.

Assuming that a US Airways and American merger/takeover/whatever-you-want-to-call-it happens (which I honestly feel like it will), what does that mean for your frequent flyer miles?

Generally there will be a grace period before any major changes occur, so I wouldn’t panic. That being said, airline miles generally devalue over time, so I encourage using your miles vs. stockpiling them.

The biggest questions I have, with respect to the combined frequent flyer program:
1) Which alliance will the combined airline choose?
US Airways is a part of the behemoth Star Alliance, with North American competitors United and Air Canada also members.
American is a part of the smaller, but tighter knit Oneworld alliance. If Oneworld loses American, they will not have any North American carriers, which would be a huge blow to the network.
My thoughts: I bet the combined airline will be a Oneworld carrier. US Airways has been the neglected stepchild of Star Alliance for a long time and I think they’d stand to gain more from a tight transatlantic partnership with British Airways and Iberia.

2) Which credit card company will the company go with?
US Airways is currently partners with Barclay’s and they offer a range of decent credit cards, though none that have really taken off in popularity (pardon the pun).
American has a strong partnership with Citi and they’ve developed a very broad portfolio of credit card products.
My thoughts: The combined airline would maintain the AAdvantage branding and remain with Citi.

3) So, which frequent flyer program will the new program keep?
I bet they will take aspects of both, but to be honest American AAdvantage is a well oiled machine and it would be a shame to see it dismantled. AAdvantage was the first frequent flyer program ever, so not only does it have a huge number of members, but it has a rich history as well. Dividend Miles on the other hand has had a rockier past, with several dark periods of mismanagement that disgruntled a large number of members, the effects of which can be still felt today.

There are thousands of more questions to be asked, but I’m going to wait until more news develops before really digging into the details. However, my overall thoughts are that airline mergers are generally not consumer friendly because prices will rise with less competition, however that doesn’t mean they aren’t necessary – especially when some airlines are losing billions of dollars. Both US And American have strong frequent flyer programs and if the takeover does happen, I hope US Airways maintains more AAdvantage than Dividend Miles. Time will tell!

What are your thoughts on a potential takeover?

A US Airways Takeover of American Airlines is a:

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  • oneeyejack

    HOSTILE takeover…hehe

  • Jmw2323

    also makes more sense to leave the American Airlines name over US Air

  • amr2002

    the real downside is that the value status on both airlines goes down IMMENSELY.

  • bluto

    There was a headline at 10:01 this morning: American Pilots Say Merged Carrier Would Stay in Oneworld

    This is all very very preliminary. It’s like some guy talking to the girl’s parents about future children’s names before the girl’s even agreed to go out on a date.

  • Joel

    More destinations for using frequent flyer miles. That I like.
    Less competition probably means higher prices. That I do not like.

  • Mike

    so, for those of us rich in AA miles, should we pick up some United miles as well to sweeten a merger?

  • Eric

    Can you talk more about why miles lose their value over time? I have been “collecting” miles as you put it to save for a big trip one day. Is this a bad strategy? Should I just be trying to use them as soon as I collect enough for a flight? This may need its own post :)

  • Joel

    Same here, Eric. While not even in a serious relationship, I’m saving up miles for my honeymoon. We’ll go wherever she wants. Well, I might have a hand in influencing a RTW six month to year long trip.

  • Mike

    I think he’s referring to the tendency of carriers every few years to reset the redemption costs for flights. I.E. a flight may cost 15k AA today and in 2 years that route will probably run 20k.

  • Amex Centurion

    It would be great for Amex blackcard holders who get Platinum USAir status. We lost Continental after the merger

  • Marianne Bergman

    Thanks Brian!

  • LAX

    There was a recent statement released by AA’s pilot union that stated they would remain in the one world alliance, keep the AA name, and the headquarters would remain in DFW.

  • أندرو

    Hopefully it won’t be hostile… although it reminds me a bit of the Mirage/Steve Wynn situation. Either airline are transfer partners in AMEX Membership Rewards, but we do get AA lounge access with Platinum and US Air. Maybe the merger will sweeten the pot in some way.

  • MO

    There is a headline from Reuters that 3 AA unions support the merger:

  • ClayD

    Brian, I am not much of an AA flyer, I have 225k AA miles from the 75k cards last year. I know you have been doing a lot more AA flying since the MegaDo. I would love to see you do a series on some of the best aspirational awards available to burn through AA mile b4 the possible merger..

  • Del

    I hate this! in 4 years you will have gone from having multiple North American carriers in each alliance to 1 in each I think this will have a drastic effect both on fares and redemption levels as the market will get so much less competitive. Lets face it US carriers have some of the worst service bu for years they have made up for it with extremely lucrative FFP’s. Just look at the FFP of any European or Asian carrier they all pale in comparison to the rich rewards and ease of earning miles with US carriers. The reason for this is the harsh competition. While for a business perspective this makes total sense, we as frequent fliers will loose in a big way!

    So I dread this and selfishly really hope it does not happen.

  • Del

    I hate this! in 4 years you will have gone from having multiple North American carriers in each alliance to 1 in each I think this will have a drastic effect both on fares and redemption levels as the market will get so much less competitive. Lets face it US carriers have some of the worst service bu for years they have made up for it with extremely lucrative FFP’s. Just look at the FFP of any European or Asian carrier they all pale in comparison to the rich rewards and ease of earning miles with US carriers. The reason for this is the harsh competition. While for a business perspective this makes total sense, we as frequent fliers will loose in a big way!

    So I dread this and selfishly really hope it does not happen.

  • Del

    Correction replace North American with US (as *A will still have 2)

  • NTD

    Brian, does this mean we could effectively buy our way into Executive Platinum status? Presumably, at some point when the merger is “on” but not quite effective, we could buy our way into Chairman’s Preferred (since USAirways allows you to buy status), and then have that carry over into Exec Platinum when the merger is complete? Sounds like a good deal to me.

  • Jeffjefferson

    This would be far worse that the UA/Continental merger, which has resulted in neutering my otherwise respectable “Premiere” status (what’s the point without confirmed E+?). Although neither US/AA have hubs in my city (DC), both airline programs have some significant and non-complementary advantages that I love exploiting (more than any other programs out there). There is no way I want to give up US’s loose routing and availability that’s afforded me 5+ “stopovers” (<24hrs) on international *A; nor do I want to compromise the American values and availability on OW, esp to S. America. There is absolutely no way I can win by this merger, not to mention increase in revenue tickets. In addition, I like US, but it's really a LCC, and I like it for what it is. I'd very much hate to see them spoil the quality of AA, which made it this far in spite of all the troubles other airlines. They had problems and the "mass retirement" pushed them off the cliff. I feel bad for their employees, but I hope they can restructure without resorting to the like-ness of US Air.

  • Brad

    This is a bad idea. The route networks don’t help either airline and would leave the merged enterprise with an unsustainable number of East-Coast hubs, and the sweetheart deal US Airways would offer the unions would leave it with uncompetitive labor costs. On top of that, the domestic carriage market would become much less competitive. I don’t think this would fail to get regulatory approval, but it wouldn’t help market competition at all–US Airways now has a beneficial disruptive effect on some of the larger airlines which would drop off the map.

  • mrredskin

    $5 says they name it American Airways

  • Phil

    I agree with what you are saying, but the numbers of airlines in the US that existed in 2007 and all losing money hand over fist was no more sustainable than Wachovia lending hundreds of thousands of dollars to strawberry pickers in California for homes they could not afford and didn’t need. Ultimately this leads to a more sustainable business and should lead to better products and service, but for sure not better price

  • John

    This is a LONG WAYS off. AA has agreed to nothing. Further the bankruptcy ct must approve this. Two poorly run airlines don’t make a better one merged. I would give this merger less than a 1% chance of going thru. Bankruptcy is a long drawn out process. It is a little early to be writing about a merger.

    Further, US Air still has not integrated the workforce from the America West merger. There are still separate seniority lists and work rules for some. What a mess. US Air DOES NOT know how to run an airline.

  • Samuel Adams

    I don’t think miles get devalued as much as everyone thinks. You also have to consider that the price of revenue tickets has been increasing. The best way to compare the value of miles is not how many miles a tickets costs now compared to the past, but how much you are getting out of each mile you spend (i.e. 2 cents per miles).

  • Samuel Adams

    By the way, I am relatively new to this game (have only been collecting miles for 2 or 3 years now). I get about 1.5 to 2 cents value out of my miles on average. I am curious to know if people got a lot more value out of their miles 10 years ago.

  • Jade

    Your comment about “strawberry pickers” is very derogatory. I imagine when you sit in First class with your mile-redemption ticket, people look at you in much the same way. This condescending attitude is totally unnecessary.

  • Ace

    My favorite (published ) housing bust story was a loan officer with Washington Mutual who turned down a loan to a mariachi, her boss asked her why, she said she couldn’t verify employment, the guy sent in a polaroid of himself in a mariachi uniform and her boss approved the loan.

  • David Adams

    Phil’s comment can be taken completely literally, in that there are cases of actual strawberry pickers being given loans that they would not have been able to qualify for had they needed to substantiate their income. I took more offense at the suggestion that they “didn’t need” the houses they took out mortgages for. Of course they needed them! In fact, a field worker who’s in all likelihood housing a large extended family needs a large house much more than the kind of double income no kids couple that buy many of them.

  • Gavin

    As per Reuters at 7.35 pm, the new merger, if it goes through, will remain in the One World Alliance (whew!)

  • tassojunior

    For those of us at DCA, it would mean a lot more use for our Avios.

    OTOH, I hate America West (dba US Airways) and love American.

  • tassojunior

    I’d call America West’s bluff. They intentionally got the web names of a merger to get publicity. Now they’ve prematurely given unions sweetheart deals to get publicity. Obviously (for good reason) American isn’t really keen on the idea and all the “inevitable” publicity won’t change AA’s mind.

    American knows it’s problems won’t be solved by being taken over by a crummy airline.

    I’d think Alaska would be a much better fit for AA anyway.

  • Rich

    I don’t think US Airways could drop Barclays any time soon. From what I recalled reading they had a pretty lengthy agreement when the airline came out of bankruptcy.

    Unfortunately I do agree with the OneWorld thing.

  • Jiml

    British airways won’t allow this to happen. They will prepare a bid for american as well.

  • Dhammer53

    Eric, way back when, the cost of a domestic ticket was 20,000 miles. It went up to 25,000 miles in the late 80′s, very early 90′s. The cost of a business class ticket on UA went up from 90,000 miles roundtrip to 135,000 miles NYC/SYD. This happened a few years ago. Don’t save your miles because the airlines devalue what you earn. Your account isn’t a piggybank.

  • Alex

    I was thinking the same thing when I read about it this morning. It would definitely stake a claim in the North American market for BA.

  • Ryan

    Just spoke with an AA call center rep in Arizona, who said they are closing their call center of 700 plus people in August. Also, I was trying to book some BOS-BKK flights and gave her multiple dates, all of which have no economy availability.

  • Ggarc1

    TPG, got any special US Airways bonus credit card offers for we AA devotees to take an early hedge?

  • immiLawyer

    Well, in 1999, when I started working in Australia (fresh out of law school), I could redeem F/J on CO for 60k R/T from the States. Today, the same trip is 300k. I’d call that a devaluation (the revenue-price didn’t increase five-fold).

  • Milecardinsider

    If the alternative is AA not emerging from bankruptcy, then this is the lesser of two evils. We need a strong third network carrier to keep United and particularly Delta in check. At least two ways to do that: AA comes emerges stronger and is able to beef up seamless Oneworld connections to replicate UA / DL global coverage. Or we get the AA / US combo which shores up some of the U.S. but doesn’t do much to help the international situation.

  • Nomadic Matt

    I agree. I think it would stay mostly under the American name. As American and Oneworld, it would have far more influence than as a neglected carrier in Star Alliance.

  • Gianpaolo

    aren’t there laws preventing foreign carriers from owning/operating US airlines? i seem to remember virgin atlantic and american having to be separate entities

  • Scotti Mac

    I couldn’t see regulators allowing them to stay in Star Alliance

  • Kestie

    I’ve been a loyal AA flyer for many years. Their advantage program has worked well–and, for the most part, their airport and plane personnel are smart, proactive and helpful. I’ve found the opposite with USAIR.

  • Vishal

    You are correct. Virgin America had to be 51% American owned in order to be able to operate as a domestic carrier. Same rules will apply to the takeover of AA.

  • Tyler Zellner

    The new airline would be called American Airlines and more than likely keep all of the American Airlines branding. They would belong to the OneWorld Alliance, and more than likely keep the AAdvantages Program. Everything besides the AAdvantages Program was confirmed by the CEO of Us Airways Doug Parker; he struck a deal with the unions of American. This merger is probably going to happen.

    More on the Airline; they would still be extremely close with British Airways, Iberia Airlines and Japan Airlines. Belonging to OneWorld, keeping all of the current hubs that American has; Miami, Dallas Fort-Worth, New York JFK, Chicago O’Hare, and Los Angles. Still maintaing the US Airways hubs in Philadelphia, Charlotte, Phoenix and Washing DC (Regan)

  • Tylerzellner

    Yes, you are correct. Vishal isn’t correct with his percentages though. The airline (for this mater Virgin Atlantic and Virgin America) is not allowed to be owned by 25% or more of International companies, therefore the company must be 75% owned by US companies/holding companies/investors.

  • Tyler Adam

    Nor do they have plans to.

    Confirmed by Doug Parker CEO of US Airways

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  • Scott Charles

    As long as American Airlines goes out of business it doesn’t matter what happens. AMR needs to be sent to the curb with their continued mismanagement of the airline. US Airways isn’t the best, but they’re certainly better than anything American has done in the last decade.

  • Scott Charles

    If you love American, I’m sure you’d be happy traveling on Greyhound. American and their aging fleet of MD’s is an embarrassment to the American traveler. Add to that the continue complacency of their employees makes for a sweet exit of a brand that isn’t compatible with the current traveling market.

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