Randy Petersen's Opening Remarks – April, 26 2010

Randy Petersen's Opening Remarks – April, 26 2010

Did We Miss Anything?

Have you recently been entertained by the seemingly sudden turn of events resulting in rumors of a United/US Airways merger? The rumors seem to have come out of the blue considering all the constant speculation of a merger between United and Continental. While I hate to see airline brands disappear, I have long been a proponent of an industry that does no harm to a traveler’s frequent flyer account. For some of you, this latest merger talk is nothing new–you likely read my Twitter post dated Feb. 19, 2010, where I posted the following, “Just saw more airline merger comments by UAL CEO and everyone is thinking w/ Continental. I may be alone, but my money is on UA/US Airways.” At that point no one was mentioning US Airways, but then again, you pay for a subscription to InsideFlyer for a reason.

Here’s my take on this one. The merger is driven by United, it is clear that United would be the surviving brand, and no doubt in my mind, that Mileage Plus would be the surviving frequent flyer program. This means–all your miles will be safe, no worries, no dilution and no problems.

This merger makes sense these days and I think United has been posturing themselves for it. I don’t think they can afford Continental Airlines (known as the best-run major airline in the business) and this merger would allow comfort in remaining relevant to the industry since United does still smart by the merger of DL/NWA. And there is only so much low hanging fruit (read that as “affordable”). Yes, egos still remain in this industry. I also think that United’s CEO Glen Tilton would like to see something of a legacy left from his time in the industry and a merger is likely the only thing left for him to hang his hat on since leading an airline from bankruptcy is hardly legend, especially since he also led them into bankruptcy. Mr. Tilton is not a public facing CEO and I have no doubts that the power struggle of John Tague/Doug Parker would be interesting. Of the three (John Tague is currently the President of United Airlines), US Airways’ Doug Parker is easily the most public facing and seems to feel comfortable with the public, the media and the analysts and would be ready to step in to lead–and this would give a way for Mr. Tilton to leave the industry on an upbeat note. This leaves Mr. Tague (one of my very favorite executives in the entire industry) to actually continue doing what he does best–run the business.

With the merger of these two airlines, it is likely that no one gains more than the members of US Airways Dividend Miles. While members may miss the aggressive manner in which Dividend Miles has promoted earning Preferred status over the last few years, they won’t miss the attempts by Dividend Miles to dilute those very same benefits. We’ve seen “Save Dividend Miles” and we’ve seen “Save SkyMiles”, but to date, no express effort or need to “Save Mileage Plus” (although, I stand by to support that effort if necessary). With the recent changes in Mileage Plus relative to upgrades, members of both programs will be comfortable there. The biggest plus for Dividend Miles members might be that finally all the United award inventory will be shared and easy to access, something that has not been true in the past.

Overall, given that these two airlines are members of the Star Alliance and share similar partnership benefits already, this is as close to being a keeper and sleeper as they come with just a few small hurdles. Bottom line: I’m all in on this possible merger.

Now a few words about Continental and United Airlines. It was reported that Continental would make a bid for United Airlines. Frankly, I don’t think that Continental could afford United unless there was some unbundling of United before such a bid or as part of the deal. The reason is simple–the value of Mileage Plus adds a few billion dollars into the equation, a value that Continental doesn’t currently have or can calculate with their own frequent flyer program. United has for nearly 10 years prepared the spinoff of Mileage Plan to the public market, a la Air Canada Aeroplan. Frankly, if it had not been for the dot.com meltdown starting in 2000, Mileage Plus easily would be where Aeroplan is right now and perhaps even farther along. The point being that Continental can ill afford to pay the acquisition cost of United when United is holding this huge, though untapped, trump card. Anyway, that’s my basic view of that situation.

Bottom line: I would not be happy with this merger.

And speaking of missing something, I was visiting recently with an airline frequent flyer program when they reminded me that about now they would be gearing up to attend the Freddie Awards. Like others, I would also be curious to know which programs the actual traveling public might have voted for this year. I truly am sorry if a guilty little pleasure for our readers is missing this year. No one could have enjoyed it more than I have over 21 years, but true to what my personal mission is, I’ve never been more busy with my employees on ventures and work that is positive for them. If you like, why not send along an email to me letting me know who you personally would have voted for this year–you and I will have our own personal Freddie Awards.

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