AMR announced today that in a nod to shareholders they will divest of their wholy owned subsidiary, American Eagle.
Why do I care?
As airlines start to realize that they are not being properly valued as a whole they will continue to divest units of themselves in order to unlock greater shareholder value.
I do not want to see frequent flyer programs divested.
It is said that in this era of $100 oil that the only profitable airline operation is the frequent flyer business. Credit card companies buy billions of dollars worth of miles to throw at consumers as incentive to use affinity co-branded airline credit cards. The incremental cost to the airlines is minimal, the vast majority of seats given away as mileage tickets would not have been sold anyway.
Some programs have been estimated to be worth upwards of $20 Billion, far more than the airline itself.
The problem as I see it is that airlines still view mileage programs as a way to gain customer loyalty, and for the most part are very careful to preserve its’ value.
If the program is spun off into its’ own for-profit entity, the benefits of the program will surely be eroded…
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