THE BLOG
11/30/2011 08:38 am ET | Updated Jan 30, 2012

The Travel Detective On American Airlines' Bankruptcy, Mileage Programs And Industry Changes

Tuesday, American Airlines announced it was filing Chapter 11. This news hardly comes as a surprise given that American has posted losses 14 of the last 16 quarters -- losing $162 million in just the third quarter of this year. The bankruptcy protection move also forced out Chairman Gerard Arpey. Under Arpey's stewardship, American was the only major legacy airline in the U.S. never to have filed Chapter 11. He was proud of that. But this week, all that changed and Arpey is stepping down.

In the short run, fliers won't notice any changes with American Airlines. But what will happen for the employees of American Airlines and the stockholders? It's not great news, and it probably means American may have to become a smaller airline to survive.

What does this mean to travelers? I know what you're thinking. What about my airline reservations on American? And what about my frequent-flier miles? History would indicate, and American's statements have said, that there will be no disruptions. But is this for just the short term?

The bankruptcies of Delta, Northwest, Continental and United all proceeded without any impact on their basic flight operations or their mileage programs. Since the mileage program at American makes more money (and is worth more money) than the airline itself, I have no concerns about its viability as a financial and operating entity.

I do, however, have concerns about consumers' ability to effectively redeem miles. And I'm not just talking about the American AAdvantage program. I'm talking about just about all the major airlines. With airlines' shrinking capacity, that means fewer planes, fewer flights and fewer seats. That also means fewer revenue seats for the airlines, which have become increasingly reluctant to displace revenue passengers with award seats.

It's the basic law of supply and demand: The airlines have no problem printing more and more "currency" or miles. But the airlines also control the redemption of those miles, and therein lies the growing problem and frustrations.

The real bottom line here is that the real value of your miles -- at least in terms of redeeming them for a flight that you want to a destination where you want to go at a time and date you want to fly -- is decreasing almost exponentially. I'm not suggesting a run on the mileage programs -- that's almost impossible anyway since the airlines effectively control "withdrawals." But I am strongly suggesting that you develop a strategic plan for redeeming as many miles as you can -- as soon as you can -- even if it means booking 330 days out.

As for American, I regularly fly the airline, and I will continue to fly the airline. It needs our support. The last thing consumers need is another failure or another merger. Both negatively impact competition, and it doesn't take a math genius to run the numbers and realize that with fewer airlines, airfares have nowhere to go but up -- and mileage redemptions have nowhere to go but down.

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