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With Southwest Takeover, Whither AirTran Frequent Flyer Credits?

With Southwest Takeover, Whither AirTran Frequent Flyer Credits?

Today’s announcement that Southwest will acquire AirTran for $1.4 billion raised eyebrows. While the move is consistent with the industry trend toward consolidation, no one I know was anticipating a Southwest-AirTran tie-up.

The get-together also raises questions, not least for members of the two airlines’ frequent flyer programs.

Answers weren’t immediately forthcoming. The news release was terse at best, offering only this: "The carriers’ frequent-flyer programs will be combined over time, as well."

Still, we know how the combination is likely to play out, and what events might intervene to change the outcome.

Rapid Rewards + A-Plus = ?

The typical merger scenario—think Delta and Northwest, or United and Continental—has two mileage-based programs being consolidated into a single mileage-based program. While the combined programs may have different rules and policies at the margins, they share a common currency, miles, and are therefore easily combinable.

Can the same be said of Southwest and AirTran’s programs, neither of which use miles as the basic unit of earning?

As it happens, AirTran clearly had Rapid Rewards in mind when they designed their program, so both airlines’ programs use credits as their loyalty currency. And their award charts are essentially the same, too.

A-Plus members earn one credit for every one-way AirTran flight, and need 16 credits, amounting to eight round-trip flights, for a round-trip award ticket.

In Southwest’s program, members also earn one credit for each one-way flight, and also receive a free round-trip award ticket after eight paid round-trips.

There are some disconnects. AirTran operates a proper business class, so upgrades and business-class tickets are available to A-Plus members but not to Rapid Rewards members. Assuming that Southwest keeps to its all-coach product, that will be a downgrade for A-Plus members transitioning to Rapid Rewards.

On the other hand, Southwest’s expiration policy is more consumer-friendly than AirTran’s, giving Rapid Rewards members 24 months to reach award thresholds before credits disappear, where AirTran expires credits after a draconian 12 months if members don’t have elite status or a program-affiliated card.

Overall, the two programs are more similar than they are different. And access to Southwest’s much larger flight network, for earning and for rewards, should go a long away toward mitigating any loss of benefits

Which Rapid Rewards?

There’s another program-related variable in the merger scenario that warrants mention. Without disclosing details, during the past year Southwest management has confirmed that a redesign of Rapid Rewards is underway. And in November 2009, Rapid Rewards’ chief Ryan Green told me that the new program would be launched "sometime this year."

If that’s still the schedule, and given that we’re already on the verge of this year’s fourth quarter, it might make sense to introduce the new Rapid Rewards (assuming the current name will be retained) slightly ahead of the merger with AirTran, and transition both existing Rapid Rewards members and AirTran A-Plus members to the new Southwest program at the same time. Two birds, one stone.

That could constitute a major change, both for Southwest and AirTran customers.

My prediction is that the new Rapid Rewards will be a revenue-based program, like Virgin America’s Elevate and JetBlue’s redesigned TrueBlue. Such programs offer much more transparency than traditional schemes, but also limit the opportunities to leverage the programs to yield outsized value.

But let’s not get ahead of ourselves here.

For now, what is most important to AirTran loyalists is that they can expect an orderly transfer of their credits to Southwest’s program.

And the value of their credits should remain roughly the same, at least while the current Rapid Rewards program remains in place.

If and when Southwest launches its revamped program, there will no doubt be an exhaustive discussion of the merits of the new versus the old programs, and how the change affects the value of previously earned Rapid Rewards credits.

Today’s merger announcement means that AirTran customers will now be part of that discussion.