In the past twelve months we have seen major mergers and takeovers in the airline business. We had low fare king Southwest buy another low cost carrier Air Tran. We also had the big merger between United Airlines and Continental Airlines. Like many industries, the airline business is shrinking down to just a handful of carriers. Will that mean higher prices for us? Well, the airline industry has lost $50 billion in the past 10 years, including $11 billion of red ink in 2009 alone, according to the International Air Transport Association. So what changes can you expect?
Most of the articles around this topic discuss higher ticket prices, more bag fees, and ancillary charges both in the air and on the ground. Like many mergers and acquisitions, when two businesses collide there is the initial phase of cost cutting to figure out where the big money saves may happen in the business. After that comes the entire business transformation for longer term revenue growth and expense management.
One of the areas that I have seen little discussion around is the frequent flier programs. My sense is that it will be very easy for the airline businesses to go underneath the disguise of having fewer seats that they can allocate than before to satisfy free ticket redemptions. In addition, I think you will see the average ‘free’ flight move from 25,000 points in most programs to 30,000 or 35,000 points in order to get some cost save in the business. It will move even higher for ticket redemption for international flights and upgrades to first class in my opinion.
What the smart money move will be now is to redeem the points and use them sooner than later. Like any account that does earn interest, eventually these points will have less dollar value a couple of years ago than today. If you were thinking about saving these points for a rainy day, then the forecast for the next year is cloudy with a chance of rain!
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
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