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Details, Benefits of U.S. Airline Mergers Are Still Murky
Recent Airline Get-Togethers Are High Profile.
But Are They Going To Be Low Impact, Mileage-wise?
May 10, 1998 - First it was Continental and Northwest.
It was billed as a virtual merger, because the two companies weren't being merged at all, although Northwest was taking a 14% equity stake in Continental. (Such equity stakes are often thought of as the "glue" necessary to bind companies together through the conflicts such alliances predictably give rise to.)
Next, two weeks ago, came the rumor, followed by the announcement, that US Airways and American Airlines were... what: merging, allying, cooperating? All of those terms were used, by one or more of the media.
And then, in what had become an inevitable next move in the chess game of airline partnering, United and Delta revealed their own plans to go it together.
We know that these alliances are not mergers, in the sense of Chrysler and Daimler-Benz, or Travelers and Citibank. Nor are they as comprehensive as the alliances between Northwest and KLM, or among the Star Alliance members (United, Air Canada, Lufthansa, Scandinavian Airlines Systems, Thai Airways, and Varig). And while they are less than mergers, they are somewhat more than opportunistic, short-term marketing tie-ups.
While the details and impact have yet to be determined, we can at least define these relationships in terms of their core components. And the two specifics almost always mentioned in reports of these get-togethers are code-sharing, and frequent-flyer program "integration."
Code-sharing is simply the use of airline A's flight number on a flight that is actually operated (terminal, check-in gate, aircraft, crew, etc.) by airline B. The alleged consumer benefit of these arrangements is in scheduling efficiencies. On a multi-leg trip, the code-share leg will be scheduled to make an efficient connection with the other legs, resulting in less time spent waiting for connecting flights, and a shorter flight time overall. More to the point, code-sharing allows airlines to extend their reach without the added financial burden of new aircraft and operations staff, and makes connecting flights more salable, as they are listed in travel agents' computers as through-flights.
What is more intriguing are the reports regarding the airlines' plans to cooperate in the area of frequent flyer programs. One frequently mentioned benefit of the enhanced cooperation would be, supposedly, the ability to transfer miles between accounts in the programs of the two cooperating airlines.
Here's the New York Times' take:
The major appeal of alliances to many passengers is the joining of frequent-flier programs, which allow members who belong to both carriers' programs to combine miles from each program.
New York Times - April 29, 1998
So, for example, a member of US Airways' program would be able to transfer some or all of his Dividend Miles into his American AAdvantage account. Clearly, this would be a boon to frequent flyers. The question, though, is whether this is what the airlines have in mind.
According to representatives at the airlines concerned, mileage combining, or transfer, is NOT being considered. That's for a number of reasons:
- Economics. Part of what makes frequent flyer programs economically viable is the "breakage"--the number of earned miles that never get redeemed. Allowing mileage transfer--which would likely be used to "top off" mileage to reach award thresholds--would reduce breakage, increase award usage, and thereby increase costs.
- Marketing. The whole purpose of frequent flyer programs is to reward customer loyalty. Allowing transfer dilutes that purpose.
- Operations. It's just too much of a customer service and systems burden to allow members to freely transfer their miles between programs.
In other words, the media reports have it wrong: There will be no mileage transfer between airline programs.
What will likely happen is very simply this: each of the airlines involved in these partnerships will participate in the frequent flyer program of their new partner. For example, Northwest will become an earning and redemption partner in Continental's OnePass. Which means that OnePass members will be able to earn OnePass miles for travel on Northwest, and use their OnePass miles to take free Northwest trips.
This is all to the good, since it creates additional opportunities to both earn miles and take awards in the affected frequent flyer programs. But it is not, as has been implied by much of the mainstream media coverage, mileage transfer, or even a step in that direction.
For the latest on these alliances, keep an eye on the websites of the players:
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