American and Alaska Start Behaving More Like Competitors as Partner Ties Loosen

Remember how concerned the Department of Justice (DOJ) was about the American partnership reducing competition if Alaska and Virgin America were allowed to merge? Well, that was wrong. The merger has only helped to stoke competitive fires, and in recognition of that, American and Alaska are scaling back their partnership even further beginning January 1, 2018. This may have come as a surprise to a lot of people, but it’s not hard to see why this is happening.

What’s changing? Well, American AAdvantage members will now only be able to earn miles on Alaska flights if they’re bought as an American codeshare. On the flip side, Alaska Mileage Plan members will only earn miles on domestic American flights that are sold under the Alaska codeshare. (On international flights operated by American, Alaska Mileage Plan members will still earn miles as always.) Note that this applies to both redeemable and elite-qualifying miles. Also, reciprocal benefits for elite members including priority boarding/seating and free checked bags will go away.

What’s going on here? After the Delta and Alaska partnership faltered, American was waiting with open arms for that big lovable Eskimo. The airlines spoke glowingly about each other. Yet now, they’re taking a step back, because, well, they are competitors first and foremost… and now more than ever thanks to the Virgin America merger. In fact, without that merger, I doubt we’d see these changes.

I think this quote from the Alaska FAQ says it all.

Alaska and Virgin America serve 80 percent of the top routes that Mileage Plan members have historically flown and earned miles on with American.

If Alaska really serves 80 percent of the top routes that people earn/redeem miles on, then it has tremendous incentive to cut back the mileage partnership with American to push its customers on to its own aircraft. While we don’t know American’s percentages, there’s no question that its overlap must be far greater after the Virgin America merger as well. Since these airlines always want to put people on their own metal first, it makes sense to take away the incentives for people to do otherwise.

This doesn’t feel like the Delta/Alaska partnership which was clearly going to end at some point. To me, this looks like a resetting of the relationship considering the new reality of a larger and more competitive Alaska. There is still benefit from having the partnership, however, and these airlines can still leverage each other’s networks. Alaska will still have its code on American flights that go where Alaska doesn’t. Think specifically about flights beyond the Dallas/Ft Worth and Chicago/O’Hare hubs into smaller cities like Waco or Little Rock. At the same time, American has its code in the West on Alaska flights to cities it doesn’t serve, like Wenatchee or Ketchikan. They both stand to benefit from this kind of partnership, and in fact, it helps increase competitiveness in the US industry by making both airlines more relevant in places where they otherwise would not be.

Now that the codeshare is the gateway for earning miles, I would bet that we see changes to which flights and routes see the codeshare. It will become a much more strategic weapon to help gain presence, especially for Alaska.

This does hurt both airlines in some ways. The current Alaska loyalist who needs to fly outside of the West Coast frequently may be pushed into the arms of Delta because there aren’t mileage earning opportunities with Alaska in as many places domestically anymore. This also takes away the ability for Alaska loyalists to fly the American transcons in the premium cabin from LA and San Francisco to New York. So yes, this will hurt some. But with less risk than there used to be thanks to the massive expansion by Alaska through its own growth and through acquisition, the math must show that there’s more to be gained by Alaska by scaling back this partnership than there is to be lost. The same goes for American.