Preparing AAdvantage and Dividend Miles members for the coming changes.
American Airlines has a new logo and will soon be the largest airline in the world. On Valentine’s Day, US Airways and American Airlines announced their upcoming consolidation with the combined airline being called American Airlines. And although the merger isn’t expected to close until the third quarter of this year, members of American AAdvantage and US Airways Dividend Miles have already started getting some details about what to expect from the new AAdvantage program. The announcement of the merger came after months of speculation starting when American Airlines filed for bankruptcy protection in November 2011.
In a letter to American Airlines employees, AMR chief executive Tom Horton, wrote, “After months of reviewing a range of options, our Board of Directors, in collaboration with our creditors, concluded that this merger is the best next step for our company following a successful restructuring.”
American Airlines is currently the third-largest U.S. airline and US Airways is fifth and with this merger, the new American Airlines will surpass United Airlines as the largest airline in the world. The airline will be headquartered in Dallas-Fort Worth and will maintain all hubs currently served by American and US Airways.
US Airways’ Doug Parker will take over at the helm as the CEO while Horton will continue on with the company as a non-executive chairman for the next couple of years, enjoying his severance package worth nearly $20 million, including lifetime flight and travel benefits.
“We think we have an opportunity here to build the greatest airline in the world and restore American to the level that it was back when I worked there, when we were all so proud of the airline,” Parker said in an interview last summer. In 1986, Parker began his career at American Airlines as a financial analyst. He met his wife who was then a flight attendant, when working at American Airlines. So he knows the company. He also worked at Northwest Airlines and America West and was instrumental in the merger of America West with US Airways in 2005.
American Airlines and US Airways also have a history of providing benefits to members of both programs. In 1998, American enabled Dividend Miles and AAdvantage members who belonged to both programs to combine miles when claiming travel awards on either airline. The pooled miles could only be used toward a flight award on American Airlines or US Airways, not for an award ticket on program partners. The offer ended a couple of years later during a time that United made a bid to buyout US Airways.
US Airways was also once a partner of fellow oneworld airline, British Airways. The new American Airlines will be a member of oneworld, not US Airways’ current global alliance, the Star Alliance. In 1996, US Airways sued British Airways after that airline announced its alliance with American Airlines. In politics and airlines there are often strange bedfellows.
American Airlines is also known for rather uncomfortable pairings—take for example, how long American and British Airways fought over earning and burning miles over the Atlantic, even though the airlines were equal partners. And both airlines have made major blunders with their frequent flyer programs. American, with their decision to change their Miles With No Expiration (grandfathered miles) policy and US Airways’ decision a few years back to discontinue their elite mileage bonuses. Although there may have been good reasons behind both of these policy changes, it shows that each program at times makes decisions that are not in the best interest of their members.
But how will the merger between US Airways and American affect the over 89 million members of the new AAdvantage loyalty program? Let’s take a look.
Miles
Any time airlines mention a merger, there are those in the relevant frequent flyer programs who start worrying about their mileage balances. But we can safely state that your miles are safe and if you are a member of both programs with miles in both, you’ll have a nice little stash of miles in one program ready to use once the programs combine. The airlines are currently stating that everything with the FFPs is “as is” and members should continue with their memberships in AAdvantage and Dividend Miles as they have in the past. “At this time, each company will maintain its current loyalty programs… Existing miles will be honored,” reads an FAQ at http://www.aa.com/arriving. In past mergers, members of the relevant frequent flyer programs have had the opportunity to move miles between the two programs before the combining of their memberships but it’s too early to know when, how or if, that ability will be offered with this merger. With the Delta/Northwest merger, members of both programs started seeing benefits like the ability to receive complimentary upgrades as elite members and other elite benefits before the merger was complete, so time will tell what will come down the pike for this merger before the official consolidation.
Both programs offer the industry standard 50 percent bonus miles for purchased first class flights and 25 percent bonus miles for purchased business class flights so we don’t see a change coming here anytime soon for members of the new AAdvantage program. And both programs have very many ways in which to earn miles with some common partners making the transition to the new AAdvantage, in some cases, quite easy.
Along with knowing that your miles are secure, this is a very good time to take a look at your current mileage balances in both programs to determine if now is a good time to redeem some of those miles.
Awards
US Airways and American Airlines both offer off-peak award flights, something that Delta and United do not. US Airways has the best ongoing bargain to Europe with its 35,000-mile off-peak economy class award, but the award is only available between Jan. 15 and Feb. 28. Regular Dividend Miles economy awards to Europe are 60,000 miles (Low), 90,000 (Medium) and 125,000 (High). Other off-peak Dividend Miles awards include flights between the continental U.S. or Canada and the Caribbean for 25,000 miles in economy or 50,000 miles in first class (normally 35,000 or 60,000 miles for a Low award) and between North America or Hawaii and South America for 35,000 miles in economy or 60,000 miles in business (normally 60,000 miles and 100,000 miles for Low awards).
Off-peak American AAdvantage awards to Europe are 5,000 more than Dividend Miles’ off-peak Europe awards, but members have a longer window to travel. MileSAAver economy class awards between North America and Europe are 40,000 miles from Oct. 15 through May 15, representing a 20,000-miles savings from the usual 60,000 miles for a roundtrip economy class ticket to Europe. The most expensive coach flight to Europe with the AAdvantage program is 120,000 for a roundtrip AAnytime award. American AAdvantage offers several off-peak awards, but for coach flights only.
Some of the differences between the two off-peak awards offered include American only offers off-peak coach travel while US Airways offers some business and first class off-peak awards—although it very recently discontinued an off-peak 55,000-miles business class award to Europe—not long before the official announcement of the merger.
Along with American having a more generous off-peak window for travel, one-way flights are available for off-peak awards—not so with US Airways. US Airways has an added benefit for primary cardmembers of the US Airways Premier World MasterCard—they get a 5,000-mile discount on award tickets on US Airways flights, even off-peak awards. AA / Citi cardmembers can receive up to a 7,500 mile discount on award tickets but the discount is restricted to select destinations that change quarterly and does not include off-peak awards.
AAdvantage has a more traditional award chart while US Airways has a “Low, Medium, High” three-tiered chart similar to Delta’s. Also of note, US Airways currently does not offer one-way awards. Members can make one-way award flights, but must redeem the same amount of miles as a roundtrip award. It’s already known that the new AAdvantage will offer one-way awards. The FAQ, “Will American and US Airways combine their loyalty programs into one?” offers the following information: “Once the merger is complete, the new American will evaluate how best to structure its loyalty program. Ultimately, the combined company is expected to offer members more opportunities to earn and burn miles from an expanded global network of routes and partnerships, unmatched redemption options including flights, hotels, car rentals, vacation packages, one-way awards and lounge memberships, and much more.”
Since AAdvantage offers one-way award tickets, members can build an open jaw into their itinerary by flying into one city and returning from another city. Stopovers, however, are only allowed at North American gateway cities on international itineraries. Dividend Miles has more liberal routing rules that allow stopovers in an international destination. American AAdvantage members can bypass the North American gateway city only stopover rule by redeeming a distance-base award on oneworld partners, which allows multiple stopovers, as long as the flyer does not pass the 16 flight segment limit.
Dividend Miles also offers bargain mileage awards to North Asia for 90,000 miles in business class and 120,000 miles in first class. Compare that to AAdvantage’s MileSAAver awards to Japan at 100,000 miles in business and 125,000 miles in first, or to China at 110,000 miles in business or 135,000 in first class. There are some other Dividend Miles award bargains that will go away with the merger including the quirky fact that flying to North Asia on an award requires fewer miles than flying directly to Europe, even when you make a stopover in Europe on the way to Asia.
Members of the new AAdvantage program will continue to be able to redeem their miles for flight upgrades on paid tickets but it’s not clear what the co-pay will be on mileage upgrades and whether the fee will be waived for elites. American AAdvantage currently offers mileage upgrades starting at 15,000 miles plus a $75 cash co-pay on most discount economy fares within the continental U.S. and Canada. Dividend Miles’ mileage upgrades start at 5,000 miles plus a $25 co-pay for flights less than 500 miles within the U.S. and Canada. The upgrade co-pay is waived for Preferred members—American AAdvantage does not waive the fee for its elite members.
We expect the award flight search currently offered through American’s website to prevail because Doug Parker has stated that he learned his lesson with the merger of America West with US Airways—it’s best to use the larger airline’s computer reservation system.
American AAdvantage has a better reputation than US Airways for award availability. In 2011, AAdvantage members redeemed approximately three million roundtrip awards, representing approximately 8.8 percent of all passengers. In the same year, US Airways Dividend Miles members redeemed approximately four percent of seats as award flights. American had the second best numbers (Alaska Airlines had the best) and US Airways had the second to last numbers (JetBlue had the lowest award numbers). Time will tell how these numbers play out with the combined airline but common sense would seem that the new numbers for award redemption percentages will meet somewhere in the middle.
As a member of these programs, it’s time to take a look at your travel plans and take advantage of any deals you think might be going away once the merger is complete.
You should especially consider any dream award flights you had in mind with Star Alliance partners with your US Airways miles.
Fees, Policies and Customer Service
US Airways Dividend Miles and American AAdvantage have similar award fees, but there are some differences. US Airways charges an “Award processing fee” per ticket that is between $25 and $50, depending on the flight destination. The fee is waived for Gold elite members and above. Since this is a fee most carriers, including American Airlines, don’t charge, we expect (and hope) that the new American will eliminate this fee.
Both carriers charge $150 to cancel or change an award ticket (waived for Chairman’s Preferred and Executive Platinum members) but American does not charge for changes to the travel date, unless the change results in a new outbound travel date that is within 21 days of the original booking date. American also does not charge $150 per passenger like US Airways, but $150 for the first person on the booking plus $25 for traveling companions.
The quick ticketing fee is $75 for both airlines and the call center fee is $25 for American Airlines and between $30 and $40 for US Airways.
When American AAdvantage changed its policy last year on “Miles with No Expiration” that were earned prior to July 1, 1989, we theorized that converting all miles to expiring miles could be an indication that the airline was streamlining its expiration policy in preparation for an airline merger. Whether or not that was part of the reason behind the change, all miles in the new American Airlines will expire within 18 months without any earn or burn activity.
Along with the usual questions frequent flyers have whenever there’s a merger between two airlines, members of American AAdvantage especially have expressed their concern that American, known for good customer service will find that service standard being lowered by US Airways, which is known for poor customer service. Again, only time will tell which direction the new American Airlines will take. We do know that whenever there’s a merger, there are always complications introduced for travelers, usually around the complicated mess that combining technologies creates.
Credit Cards
Currently, US Airways partners with Barclays and American with Citibank for co-branded credit cards. We don’t know which company will prevail with the new program.
Something to consider, however, especially for AAdvantage members, is to sign up for a US Airways credit card now to get the sign-up mileage bonus so that those miles will be available to you when the programs combine. Currently the ongoing offer for the US Airways Premier World MasterCard is 30,000 bonus miles after your first purchase or balance transfer with an additional 10,000 bonus miles with a balance transfer within the first 90 days of owning the card. The annual fee for this credit card is $89 and it is not waived the first year. There are other US Airways cards with lower annual fees and lower bonus offers in case you prefer that or don’t qualify for the Premier card.
We won’t spend a lot of time looking at the various credit card benefits from Barclays or Citibank since the victor of this war will be the one to choose the benefits. However, it’s interesting to note that both cards offer discounted award flights to their cardmembers.
In the FAQ provided by American Airlines regarding the merger, under the question, “Will the new combined carrier continue a relationship with Citi?” the following is mentioned: While we don’t have specifics of what the new American’s loyalty program will include, [we] can tell you that over the past 25 years, Citi and American have together serviced millions of Citi/AAdvantage cardmembers. We are appreciative of their loyalty and believe there are even greater opportunities ahead.”
Our editor, Randy Petersen, in a recent Opening Remarks in this magazine said, “… maybe it would be positive for this program to shake things up a little and figure out a way to work with both banks for new offers.”
Elite
Both programs currently offer a 500-mile minimum for flights taken by elite members. The programs differ in that Dividend Miles also offers 500 minimum miles for US Airways Shuttle flights. We suspect that the shuttle 500-minimum will no longer be offered with the new program, but a lot of flyers would be happy if we’re wrong.
Currently, the AAdvantage program has three tiers and the Dividend Miles program has four tiers. Many have speculated that the new AAdvantage will adopt four tiers, at 25,000 miles, 50,000 miles, 75,000 miles and 100,000 miles—the same mileage amounts currently required by US Airways Dividend Miles for its elite program. But in a recent live Twitter chat with Vice President of Customer Care, Don Langford, he was asked if a fourth elite tier would be added. He replied, “We have no plans for a 4th @AAdvantage status tier.”
The current AAdvantage program’s three tiers are obtained at 25,000 miles or 30 qualifying segments (Gold), 50,000 miles or 60 segments (Platinum) and the final tier is obtained at 100,000 miles or 100 segments (Executive Platinum).
American AAdvantage members can also obtain elite via points—a way for those customers who spend more to reach elite faster—those traveling in full-fare coach and premium classes earn 1.5 qualifying points for every mile flown; discount coach travelers earn one point per mile flown while deeply discounted fares earn .5 points per mile flown. The point values match the miles needed: 25,000 points for Gold, 50,000 points for Platinum and 100,000 points for Executive Platinum. It’s likely that this points system, or another that awards members for spending more, will be adopted with the new program since this is a recent trend that we are seeing with other frequent flyer programs—money rules.
Elite mileage bonuses are one area where changes will likely be coming for current AAdvantage members, specifically, those who are Platinum members, earned at 50,000 miles. These members are currently receiving a generous 100 percent flight miles bonus while members of Dividend Miles who are Gold members, also earned at 50,000 miles, are getting only a 50 percent flight miles bonus. Perhaps those in charge of the new AAdvantage will give these members a soft landing of some sort, but the long haul for this benefit looks uncertain. Dividend Miles members currently receive flight miles bonuses that correspond with the miles needed to earn elite status: 25 percent, 50 percent, 75 percent and 100 percent.
Both programs currently offer lifetime status and this should continue. American AAdvantage once allowed all miles earned to count toward elite but this policy ended Dec. 1, 2011. AAdvantage offers a tiered lifetime miles program where members who earn one million miles reach Gold lifetime status and members who earn two million miles get Platinum status. The new AAdvantage program should mirror the current AAdvantage offer compared to US Airways’ more simplistic lifetime program of lifetime Silver status after one million miles. And after the programs merge, members will likely see a boost to their lifetime miles when lifetime elite qualifying miles from both programs combine. In fact, some members may find themselves suddenly qualify for lifetime elite status as a result of the merger.
The other important aspect that will be closely watched by elite members of both programs will be upgrades. There’s always the fear that as elite ranks expand, your chances of upgrades goes down. This is one area where members of both programs will be especially anxious and it’s an area where those in charge of the new AAdvantage will need to be especially vigilant to keep their best customers pleased.
American Airlines flyers will gain with this merger because there is just a slight overlap of routes making for a huge increase in the seats available. And just two years ago, US Airways added first-class seating to 110 US Airways Express regional jets that previously had only economy seats, adding the possibility of more domestic upgrades. With US Airways having a lesser percentage of elites than other legacy carriers, along with little route overlap, this is likely the best elite merger of the most recent mergers for frequent flyers.
American Airlines and US Airways have different policies regarding complimentary upgrades. American AAdvantage Gold and Platinum members do not receive complimentary upgrades except when traveling on full-fare economy tickets and Executive Platinums receive complimentary upgrades from all published fares. US Airways Dividend Miles offers complimentary upgrades to first class on flights within most of North and Central America, Mexico and the Caribbean to all elite members. American has been clinging to a somewhat outdated upgrade miles chit system and we expect that this will be updated when the new program is introduced.
It’s too early to know what exactly will be offered for elite members in the new program but we expect some announcements about the combined program before the merger is complete, so stay tuned.
Star Alliance vs. oneworld
Even though it is US Airways that is buying out American Airlines, the new American Airlines will be a member of oneworld instead of Star Alliance, the current alliance of US Airways. American Airlines was a founding member of oneworld while US Airways joined the Star Alliance in 2004, seven years after that global airline alliance was formed.
Obviously, the big adjustment here will be for US Airways Dividend Miles members who will have to learn the ins and outs of a new alliance and will be saying goodbye to the ability to use their miles on Star Alliance member airlines. The Star Alliance is the largest alliance with 27 member airlines serving more than 1,300 global airports while oneworld currently has 12 active member airlines with more than 800 global destinations.
US Airways Dividend Miles members will need to prepare themselves for the sticker shock of fuel surcharges on oneworld partner British Airways flight awards. American AAdvantage passes on the fuel surcharges for award flights on BA—although AAdvantage members have figured out how to avoid the fee by flying across the pond on American or airberlin. Iberia flights also require a fuel surcharge although it’s not as high as British Airways.
Global airline alliances offer alliance benefits to elite members of the member airlines. Star Alliance has a two-tiered elite program, Silver and Gold. Dividend Miles Silver members get Star Alliance Silver and Gold, Platinum and Chairman’s elite members get Star Alliance Gold.
Oneworld has a three-tiered elite program: Ruby, Sapphire and Platinum which currently matches up to American’s three-tiered elite program: Gold for Ruby, Platinum for Sapphire and Executive Platinum for Emerald.
We don’t yet know how the oneworld status will be divided if the elite program for the new AAdvantage program becomes four tiered.
But looking at the current offers, those who might be facing the biggest changes are the Gold US Airways Dividend Miles members. They currently receive a Gold Star Alliance membership that includes priority check-in, boarding, baggage handling, waitlisting and airport standby along with airport lounge access for the member and a guest when flying on a Star Alliance airline. If they are offered Ruby oneworld status, they would no longer get lounge access.
What’s Ahead
It doesn’t seem that long ago that consumers could choose from any of “the Big Six”: American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, US Airways and United Airlines. Northwest and Delta merged first in 2008, followed by Continental and United in 2010. Before that, American Airlines bought out TWA in 2001 and US Airways bought out America West in 2005, so both US Airways and American Airlines know a thing or two about merging airlines. Also, if two airlines must merge, US Airways and American Airlines are in a good position to do so. Between the over 900 routes served between the two airlines, only 12 are overlapping routes and none of the overlapping routes are international destinations.
Over the next few months, members of the two FFPs will learn more about what the new AAdvantage will offer as the merger continues—there are still the customary governmental approvals and closing conditions that must be met before the deal is done. And after the merger closes, a single operational certificate is expected within 18 months of closing the merger—but some changes for frequent flyer members will come sooner rather than later.
This is also the time to be verbal about what you want to see in the new program. Like we mentioned in InsideFlyer as the Delta/Northwest merger was playing out—frequent flyer programs have been known to listen to their members. While the decisions are being made on the combined program, you can let your voice be heard. There’s no guarantee that you will get what you want, but it doesn’t hurt to voice your opinions about the direction you would like the combined program to take. Email and use social media channels to communicate to those in charge of creating the new AAdvantage program.
You can follow the progress of the merger at http://www.newamericanarriving.com.
One more thought to ponder is the current trend toward programs tied into revenue instead of the antiquated idea of “loyalty” that American AAdvantage introduced in 1981. We think there is a very good chance that the new AAdvantage program will be based on some sort of revenue model, influenced by two things: 1) competition with US Airways’ main competitor, Southwest Airlines, having already moved to that model and; 2) other competitors of American are also making noises of some movement to that model. The new American will make a huge mistake if they proceed with a normal merger of frequent flyer programs and then within a year change again to a different model reflecting the new industry standard. The best advice we could give those crafting the new AAdvantage is to take the time creating the new program in a way that reflects the best of both programs currently, but also represents the best for the future of the program. We don’t think the customer base could handle back-to-back major changes to their frequent flyer program.
