How Airline Mergers Affect Credit Card Reward Programs

The airline industry has fundamentally altered the way people live and travel. By playing a strategic role in the globalization of other industries through the promotion of tourism, world trade, and foreign investment, the airline industry has led to economic growth. The recent airline mergers & acquisitions are highly strategic based on financial and competitive motives. In the context of strategic management, airline mergers aim at offering consumers a high quality, low-priced product. However, such fierce competition may not always be to the best interest of consumers.

The recent merger of United Airlines (UAUA) with Continental Airlines (CAL) is a fairly good example of the immense changes that affect credit card reward programs. The new carrier is expected to exceed Delta Air Lines as the world's largest airline and create the grounds for sufficient competition in its major markets.

The merger is regarded as beneficial to the frequent flyer programs because, according to the company officials, it will offer frequent flyers the prospect to earn and redeem miles in new international destinations with more carriers. Moreover, according to Ben Schlappig, a frequent flyer of more than 200,000 miles of travel per year, frequent flyers will be able to accumulate all their miles to one account aiming to add up to one million and earn lifetime elite status.

In regards to elite status customers, United and Continental officials claim that they will receive "unlimited, complimentary domestic upgrades on flights operated by both airlines when space is available." According to the president of Mileage Plus, Graham Atkinson, the merger will offer elite status travelers better rewards and significant benefits. Similarly, Continental's SVP - Marketing Programs & Distribution, Mark Bergsrud claims that the merger aims at offering to elite-level customers the best frequent flyer benefits through a complementary business network. The Mileage Plus and OnePass programs will merge into a new frequent flyer program that will accumulate miles held from each program allowing customers to pick up the pace to a free ticket.

However, there is reasonable doubt in the market suggesting that frequent flyer members may not benefit from the merger.

The merger is cutting down costs, although not to an extent as to make a huge difference in the cost structure due to the size of both carriers. Industry experts suggest that what is more likely to happen is that ticket prices will increase. The new airline will hold 21 percent of the domestic routes and Delta Airlines (after the 2008 merger with Northwest) is holding 20 percent. Therefore, with 40 percent of the market being controlled by two carriers is likely to reduce route and seat availability. Although frequent flyers are expect to have a priority in seats available, it will be more difficult to use their miles in the flights of their preference.

Another concern is the replacement of reward cards. In the case of the merger of Delta Airlines with Northwest Airlines, the Northwest Airlines Worldperks Visa was replaced by Delta Skymiles card. Similarly, the Continental World MasterCard will possibly be replaced by the United Mileage Plus Signature Visa. However, the new reward card may incur higher costs to some frequent flyers due to major differences between the two cards in bonus miles, additional miles offered and annual fees. Frequent flyers would need to assess if they are actually using their points. For business travelers this possibly won't be a problem. But for average travelers who are traveling once every year or two, accumulating points for a free ticket it will be harder after the merger due to reduced seat availability and higher ticket prices.

Finally, industry experts consider that the clash of culture will also affect frequent flyers programs. United Airlines is widely regarded as innovative and in its Economy Plus program offers seats with more space. Frequent flyers were allowed to upgrade before the merger or buy space at the gate upon seat availability for $20. On the other hand, it is also widely known that Continental upgrades are hard to get. Therefore, even if Mileage Plus and OnePass programs merge to a new frequent flyer program, will all benefits work to the benefit of consumers? Only time will tell.

Sources:

http://boardingarea.com/blogs/ onemileatatime/2010/04/29/unit ed-and-continental-to-announce -merger-on-monday/
http://www.eturbonews.com/1282 5/united-and-continental-upgrade-services-most-loyal-customers
http://www.time.com/time/business/article/0,8599,1986831,00.html
http://www.lowcards.com/blog/h ow-airline-merger-could-affect -cardholders-and-frequent-fliers/