American Airlines had been winding down its partnership with Alaska Airlines. American viewed Alaska Airlines as a competitor once Alaska acquired Virgin America. They emphasized the substantial route overlap rather than the unique contributions of each airline.
Now they’ve done a 180 degree turn. American sees Alaska’s strength up and down the West Coast and within the Pacific Northwest as complementing their biggest domestic route weakness. They see Alaska feeding their international flights at LAX, and partnering in Seattle opening he possibility of flying to Bangalore, India (and getting access to Alaska’s corporate clients in the Bay Area and Seattle doing computer programming business in the region).
For American customers the new partnership means:
- Earning miles and elite qualifying miles when flying Alakka
- Being able to continue redeeming miles on Alaska (which I find often has better premium cabin availability than American)
- oneworld elite recognition when flying Alaska (and possibly more to come)
- An American Airlines flight to India
For Alaska customers the new partnership means:
- Earning miles and elite qualifying miles when flying American
- Being able to continue redeeming miles on American (when there’s availability)
- Elite recognition when flying American
- A much bigger route network within and from the U.S.
Several observers have suggested the new partnership could be prelude to a merger. I do not see American able to pull that off. Their share price is too low to buy Alaska with stock, and their debt burden too high to do it with cash. And if they were going to merge they would be doing that now while they’re still certain that the current President is in office, meaning the current Departments of Transportation and Justice remain in place. A new administration is likely to take a firmer stance on anti-trust enforcement.
However the first place I’d go in predicting the future is actually devaluing of Mileage Plan the Alaska Airlines frequent flyer program. That’s the first thing many readers raised when the news came out, and they’re right to be worried.
- Alaska Airlines Mileage Plan still awards miles based on distance rather than fare paid. An Alaska Airlines analysis showed 79% of customes do better under a mileage-based program than a revenue-based one.
- Alaska charges fewer miles for the best awards Alaska already partners with many oneworld airlines that American partners with and premium cabin awards on partners are generally less expensive, often much less expensive.
- Alaska makes it easier to earn elite status with no minimum spend requirement and fewer miles flown.
A majority of non-elite frequent flyers who currently credit miles to American would clearly be better off crediting miles to Alaska – they earn more miles and it takes fewer miles to claim the best awards. Indeed, American Gold and Platinum members are often better off crediting to Alaska Airlines, too, for the more generous mileage-earning, more generous award chart, and for elite benefits.
Not only does Alaska make it easier to earn status for most customers, once they’re in oneworld that status will be recognized by American. Currently American Airlines Main Cabin Extra is available at time of booking not just to their own Platinum members but also to oneworld sapphire members (presumably the equivalent of Alaska MVP Gold). American Platinums cannot bank on upgrades. The key benefit is extra legroom coach seats. But Alaska elites will be entitled to those, too.
Alaska’s much more generous loyalty program would be a problem for American, drawing away customers, so we can assume that it was a stumbling block in the partnership. Therefore, since the partnership is moving forward they must have resolved the stumbling block.
Other concerns are that Alaska’s generous award chart (and stopovers even on one way awards) rest on the bilateral partnerships they have with each airline partner. Building a partnership through oneworld means adding a few carriers they do not currently partner with (e.g. Malaysia Airlines, S7); adding awards they do not currently support (many partner awards are limited to routes touching North America); and rationalizing their award pricing in all likelihood. Once they revisit award pricing and make it more universal it can only go up, not down.
There are also concerns whether Alaska can maintain all of its non-oneworld airline partnerships once it joins oneworld. There are plenty of oneworld airlines that navigate this, including American which partners with airlines like Etihad and Air Tahiti Nui. oneworld rules here seem more lax than Star’s, though there are some partnerships between Star and oneworld carriers such as Air Canada and Cathay Pacific (over certain routes) as well as Singapore Airlines and Malaysia Airlines (which used to be the same airline). Partnerships with carriers like Icelandair should be unaffected. If there’s a question it might be how extensive their partnership with Singapore can be.
For nearly 20 years I’ve been writing that opportunities that are significantly better than average in the industry don’t last. We don’t always know when an opportunity will end, just that it’s likely to. Alaska Airlines has a loyalty program that is more generous than peers. They say it’s a benefit to their bottom line, since they stand out from competitors and engender loyalty which is especially important fighting off Delta’s onslaught in Seattle. However oneworld will also benefit their bottom line (they believe) and their partner American will also help them ward off Delta in Seattle via access to an international and nationwide route network.
Gary,
What timeframe do you see this devaluation happening. I am sure Alaska airlines will give advance notice.
I have an award calendar booking coming up in the next two weeks.
Michael
Gary
What will happen with Alaska’s mileage arrangement with Singapore airlines if they join one world?
@Gary – what are your thoughts on the following (I hate what’s happening, btw):
– Will AS be forced to convert their program to revenue-spending as a condition of entry? I love how AS bucked the trend.
– MVP75K top elite status? Will a fourth tier be forced upon us?
– Will a form of EQD be added as a requirement?
– AS Miles are considered to have some of the most value in the industry. What do you see happening to award prices and availability?
– Could this move be attributed to Doug & co. scrambling to keep their positions at AA?
– How will this affect market fares on AS if they join an alliance? I view alliances as indirectly allowing for price manipulation – ALLEGEDLY. Thoughts?
I’m hoping AS has special rules for crediting AA flights to MP. This can limit the arbitrage opportunities. I just moved to AS from UA and so far have liked it. Sure, there aren’t lay flats and a limited east coast network. However, their MP program is what drew me in.
As far as I see, Gary’s only reason for stating that AS will devalue its program is things tend to revert to the mean, especially when it comes to airline ff programs. True, but he also says that AS views its ff program as a competitive advantage which I also agree with. Still, I don’t think AS will significantly devalue Mileage Plan.
It makes no sense for an airline to voluntarily give up a competitive advantage. It might reduce that advantage somewhat but companies and shareholders are served by maximizing rather than giving up their advantages..
Ceteris paribus, this is really good news for those who fly AA but prefer AS’s ff program.
P. S. AS has built a good deal of credibility with Mileage Plan(with the exception of a debacle with Etihad a few years ago). Making big changes in Mileage Plan risks losing that goodwill which makes up for other AS shortcomings.
Why does it seem like points and miles are devaluing faster than the rate of inflation? You’d expect the red hot competition in the market right now to drive perks up, but perhaps gaming is far too easy these days and sign-up bonuses are bigger. Truth to tell, I would love it for all major card companies to institute 5/24-type rules to stop the churners.
I understood your comments to be that Alaska will devalue because their points will suddenly be inflated. I think you’re assuming Alaska will award a mile per mile flown. That’s not been their history with American, has it? If I recall, it’s fare-class based. So buying something on the low-end of the ladder may only award 50% elite miles and 50% award miles. This would not make it advantageous for the occasional American flyer to credit to Alaska and American flyers who earn elite status would take a hit on mileage earning. There might be enough of a trade-off here that would prevent the points from becoming inflated.
That said, they probably will have to standardize their award chart vs the bi-laterals they have today which is probably not good news.
@Gary – I wonder if AS thought about the “devalue” issue and maybe addressed it with Fare Class-based mileage amounts, like other OW partners Y &B class is 100%, but most other classes below are 50% to 0% .
AS flier in V class flying AS SEAMSY and credit to MP – 100% of X miles
AS flier in V class flying AA SEADFWMSY but credit to MP – 50% of X miles.
I don’t know what earn will look like, I assume lower fares will earn a % of miles flown – but don’t forget easier elite status, no minimum spend requirement, valid on AA flights, and also that the miles earned are currently worth more due to cheaper award pricing
@John wrote “ It makes no sense for an airline to voluntarily give up a competitive advantage. It might reduce that advantage somewhat but companies and shareholders are served by maximizing rather than giving up their advantages.”
That’s true on paper, but what if the same airline is required to make “changes” to enter the alliance? Or to match the other carriers in the alliance?
Having said that, we have no proof that AS will need to alter their MP program, which I hope they don’t. But good things never last in the airline or hotel markets.
And they’re dealing with AA. That alone should be enough to make you pause for a second.
Alaska’s big competitive advantage in Seattle (and LA) (vs. Delta) is the quality of Mileage Plan, which engenders loyalty. AS still has to stand on its own, as OneWorld membership isn’t permanent and they have an obligation to shareholders.
I see it as much more likely that AS will devalue American earners through fare-class based distance multipliers (e.g., 25% for cheap economy fares) while keeping a distance-based chart and distance-based redemption. The pool of optimizers isn’t big enough to warrant earning on Alaska, and elites who travel mostly on American are always going to want AA status for upgrades (which presumably won’t carry over across the alliance, as they don’t do so now).
A lot of this is also taken care of behind the scenes in terms of transfer pricing — AA has to pay AS for every mile flown on AA and earned to AS. There was an assumption that AS was the agitator to join OW, but I don’t think that’s necessarily true. AA is capacity constrained at LAX, Phoenix is a terrible international hub, and AA needs to compete against DL and UA on the west coast. Then you add into the mix that CX, BA, and JAL all want better US-based feeder traffic, and you have other members pressuring AA to allow AS membership.
I don’t think the differential earning is going to be as big a problem as you think it will be, even if AS continues with distance-based earning — which they will do for as long as it is financially feasible. Mileage Plan (and it’s superiority to DL) are also seen as a big perk by AS’ business customers in Seattle.
I’m not concerned with devaluation. Alaska’s Mileage Plan is not really that good for AA customers because earning rate is way less on partner discounted tickets, making it really hard for AA customers to earn Alaska elite on AA flights. Plus, if they fly AA more, they will not get upgrades with AS elite status, at least not as high on the standby list.
“American sees Alaska’s strength up and down the West Coast and within the Pacific Northwest as complementing their biggest domestic route weakness.”
That is American’s own fault. AA is the descendant of PSA, AirCal, Reno Air, and America West. AA ought to own the West Coast. American had to blow it on the West Coast 4 times to be in the position they are in. This level of mismanagement is rather pathetic.
For sure there will be devaluation in the nominal sense that some routes are going to have miles increased, but the expansion of alliance network and multiple airline mix-and-match on a single ticket is far more useful. Currently the one-way stopover is useless. Even a semi-frequent flyer probably has been to the near-by of Tokyo, Hong Kong, or Singapore already. Single airline on a ticket and you can only stop at these hubs and the value is minimal. If AS would bring back the old days of Continental/US Airways/United whereby you can stopover any where in the alliance network, that would be the best value ever.
I think we’ve already been headed, for quite some time, to a situation where the price of premium international travel is better justified with cash payment than mileage.
All it will take , for me, to tip the balance is to impose the same conditions on award tickets as on revenue tickets. Non-refundability would be a biggie.
I can make an argument the airlines have the loyalty priority backwards by making it possible to purchase miles and obtain a ticket that is not only easier to change, but cheaper than a revenue ticket.
I realize capacity controls affect the equation greatly.
Miles are important and that’s what turned me from AS to AS in the first place. But, Alaska has superior customer service on the phones, at the gates, in the air and at baggage than AA could ever dream.
The fact they are dealing with AA in the first place gives me cause for panic.
@ VX_Flier — Gary is certainly correct in his view that outsized frequent flyer benefits always end. Alaska’s outsized benefits will certainly end, and their new partnership with AA has certainly hastened this demise. Hopefully, AS won’t go full “revenue-based” like everyone else, but my guess is they will within 5 years. That’s just “where the money is,” and airlines are businesses, not charities. The competitive advantage AS currently enjoys by being more generous is not equivalent to the advantage they will gain from partnering with AA — while also saving considerable money by reducing their award redemption costs. As an AS customer, it’s been a nice run. I’d like it to continue. But that doesn’t mean it makes sense for AS.
@chopsticks – Well said.
Agree with Chopsticks and have written before it been a fantastic run for me and my family due to the award charts, don’t get me wrong I am a MM on AS and loyal since 2002 so have earned all those miles plus back when you booked a flight you could buy additional miles heap I did which is why I am sitting on 2mm miles now. SOOO I need to look at booking forward but will wait till the spring to see how this irons out, certainly there are a great number of us loyal flyers in the same boat.
Merger financially I just don’t see it today, it could place too much debt service on the survivor and AS doesn’t have the depth in management to swallow AA.
As to the alliance I would have preferred one of the others AA just plain sucks internationally and as long as Parker is running the show it will continue to.
Gary do you see Parker staying ?
Agree with Paul on the CS. Miles AAhead should be their slogan
@Gary, does this mean British Airways’ Avios will (soon) be redeemable for Alaska flights?
@LukeVader – British Airways Avios have been redeemable on Alaska Airlines for years. You just need to call BA. Similarly you’ve been able to earn when flying the other carrier.
That is simply not true. MP is better for mileage earning IF YOU FLY ALASKA. If you fly partners there would be little to no difference, and sometimes even worse earning. I could see the requirements for elites status going up but there’s no evidence suggesting AS is going revenue-based.
@Luke Vader – they already are, actually
Alaska cannot go revenue based nor enact minimum spending simply because, in the global scheme of things, it’s a regional airline. You can realistically expect an AS customer that flies 40k/50k a year to spend $6,000 before taxes and fees when they are earning that status mostly flying between LA and Seattle or Seattle and Chicago or Anchorage and Portland!
And for as great as AS elite is, if you aren’t flying AS metal primarily, it makes no sense. You’ll want to credit to AA!
Will the award chart be devalued? Sure. But that was going to happen regardless!
@Gary/@JonW, I’ve only redeemed BA Avios on AA (so far). Good to know, thanks.
Any way to make something AWESOME… look bad ….
Another paid by Delta HACK
Get a life
Brilliant news if Alaska Airlines join oneworld – it’ll give BA Executive Club members another route to Hawaii whist earning tier points on the Seattle Hawaii sector.
They were hoping to join the alliance by summer 2021, but sadly suspect that timeline may slip due to COVID-19. No news yet from oneworld so guess they’re still going through ‘application & getting approved’ process.