Randy Petersen's Opening Remarks – March, 23 2012

Randy Petersen's Opening Remarks – March, 23 2012

Season of the Which

The year 2012 started out like any other year, mild turbulence with hints of headwinds. Now as the year continues, the headwinds are stronger and in some situations may turn into downdrafts. The issue at hand? Airline mergers, spinoffs and breakups. The two that are making headlines are American Airlines and Frontier Airlines.

Let’s start with Frontier. As I’ve said before about this airline, the current climate is acceptable and I will continue to grow my EarlyReturns account just as I have suggested for others. However, recent statements by Republic Airways Holdings’ CEO Bryan Bedford regarding Frontier Airlines’ fate are disconcerting. Putting Frontier up for sale so soon after the acquisition and merger with Midwest Airlines is one move, but to announce that Republic is forging ahead to make Frontier a “more pure low-cost carrier” is not what I signed up for. Sure, I want reasonable fares as much as the passenger next to me; however, I do not want my experience to be so raw that it becomes naked transit. From what I have gathered from the comments of Mr. Bedford, it looks like Frontier may be broken up for sale, may be sold outright, but in the meantime is being made into an ultra-low-cost airline in the same model as Spirit or Allegiant. I know Ben Baldanza, the CEO of Spirit Airlines, and he’s done an admirable job with that airline, and for his goals, I never have an argument with him. But, although I report on his airline’s frequent flyer program, FREE SPIRIT, I’m not an active member. It just does not appeal to me other than I do like the “attitude” of some of the terms of the program like an elite level of “Somebody” and the description of upgrades as “Big Front Seat.” I’m a traditional guy and like the heritage and history of changing award levels, annual requalification of elite status and all the other things that simply work for me. My concern, and I believe it is real enough to write about, is that if Republic can’t find an immediate buyer for Frontier (and I’ve suggested that Ben B. use up some of his cash and stock price power to acquire Frontier), that EarlyReturns will quickly turn into a frequent flyer program that I do not want to be a member of. I’m not talking about the great service I find on Frontier, but the basics of its frequent flyer scheme. Want to change an itinerary for an award ticket on Frontier more than seven days out? “Great, we value your business since you obviously have flown us enough to earn the miles for this award … no fee.” Want to change an award itinerary on Spirit in the same vein? “We’re ultra-low-cost–so you owe us $110.” Life happens. With Frontier, if you need to change a flight last minute? “Okay, we’ll get someone to help you and hope you don’t mind a fee for that of $50.” A Spirit last-minute less than seven days change? “Sorry Charlie, no change permitted, we really don’t care about changes in your life.” Okay, that’s a bit harsh on Spirit, but ultra-low-cost shouldn’t mean ultra-low-service. It’s my disconnect with some of the changes in the industry–the idea that an award is the same as you buying a ticket from an airline, and as such, all relevant rules apply. I’m in the business of being a passenger and at times, a very loyal passenger. And come award time, that is actually when you are thanking me for my business. Anyway, the point being–I’m now at the point of reviewing what EarlyReturns may become and am looking at how it fits into what I want from an airline. Might be too early to tell, but I’m close to telling Republic CEO Bryan Bedford … see ya.

Now on to American Airlines. There’s been many a word written that American Airlines simply cannot continue as is and there must be a merger in its future. Some seem to think that it’s a done deal that US Airways will buy American Airlines. I haven’t sipped that flavor of Kool-Aid yet. In fact, while I have written extensively in the past about that scenario, I recall well the time in the past when American Airlines actually had a formal relationship with US Airways’ frequent flyer program. In this scenario, unlike that of my concern with the future of Frontier Airlines EarlyReturns, I really don’t have any problems or concerns since I have little doubt that AAdvantage would be the surviving frequent flyer scheme. However, in reading every blogger’s prediction about this, I’m seeing a consistent oversight of what it might cost to acquire American Airlines. Every single blogger misses the hidden value that American has in AAdvantage, whose value alone as a spinoff I would guess to be approximately $6 billion dollars. What kind of bankruptcy judge would ignore that in any transaction? Which is why I think the demise of American Airlines is sort of Mark Twain-ish (“The reports of my death are greatly exaggerated”). I’ll let the airline experts do their own predictions and reasons for mergers; however, I’ll put my own spin on what I would do if I were king of the world, which of course I am not. I would certainly work toward workforce harmony, but for the future of the airline, I might split off the AAdvantage program in a similar manner as what Air Canada did with Aeroplan, using the assets to acquire either Alaska Airlines or JetBlue, thus beefing up market share in the face of other large industry mergers. I’d also try and pacify some of the labor issues by issuing some of the stock from AAdvantage to these groups so that they have assets other than just American Airlines to measure for workplace harmony. Whatever the solution, and I’m not the expert, I’m still not seeing American Airlines being bought up by US Airways. And I’m not worried about my miles even if I am wrong.

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