Randy Petersen this morning at Frequent Traveler University made a point that I haven’t seen mentioned elsewhere about a potential American – US Airways merger.
American hasn’t been talking up the value of its frequent flyer program, Randy thinks it’s because they don’t want a narrative that they have valuable assets as they approach their labor negotiations.
Aeroplan, the stasndalone frequent flyer program associated with Air Canada, has a market cap of over 2 billion dollars. American AAdvantage is both orders of magnitude larger and also more profitable. On the other hand, the US market is more competitive than the Canadian market. Taking a discount for this, Randy thinks AAdvantage is worth 5 to 6 billion dollars.
And that US Airways won’t be willing or able to pay anything close to fair value for an American Airlines that includes AAdvantage.
If US Airways can acquire the airline with that program, they could presumably spin it off to unlock value and fund the merger. But if investors are savvy enough they won’t allow US Airways to get away with that coup. And if you’re making a bet you have to assume that investors and insiders are indeed that savvy.
Will it be the value of the frequent flyer program that stands in the way of US Airways acquiring American Airlines?