I’m perusing though The Wall Street Journal today and noticed a news piece that mentions a plan by US Airways for a public offering. Since this blog is not about the general financial market, but rather about the topic of frequent flyer miles, something mentioned in the article caught my eye. It mentions that Derek Kerr, the CFO of US Airways “was considering selling frequent-flier miles to its credit card issuer …” That would be Barclays’ (since Bank of America is exiting the picture) and would be similar to virtually every other major airline that has sought or is seeking liquidity in a tight credit market. Chase recently bought $600 million of advance frequent flyer miles from United Mileage Plus and Chase has worked similar deals with Continental as has American Express and Delta, etc. So, no ground breaking story there. BUT. But, it begs the question of would this be a smart move by Barclay’s and that answer is mixed. If we look at the recent decision (a very bad decision IMHO) by US Airways to dimiss the value of their elite-level program for it’s most frequent flyers, that decision may come back to haunt US Airways in this matter. While US Airways can claim that they have detected little or no loss of elite flyers to other airlines now offering a much richer elite level program, it is always difficult to know if those saying they are or have left will actually do so. So, one can easily determine there is some loss, thought perhaps not the complete loss that might be depicted on various Web sites and passenger action groups like SaveDividendMiles.com. But, there is little doubt that there is some bleed to the elite ranks at Dividend Miles.

It should come as no surprise that elite members have the highest concentration of program credit cards and of course typically the highest annual spend. This means that with the exit of any elite flyer because of this change to the elite-level program of Dividend Miles, there will likely be an exit of critical spend for Barclays and their relationship with US Airways. So, with very needed revenue from the elite flyer gone, so goes very needed revenue from the bank of Barclay’s. What exactly does not US Airways understand in this whole picture.

So, I think that the very next move for SaveDividendMiles.com to suggest to those registered for that effort, is to let Barclays know exactly how they feel about the “value” of the US Airways Dividend Miles program given their latest “cutback” of benefits. If US Airways won’t listen, then maybe they will take a call from the Chairman of Barclay’s Bank when they are discussing this advance purchase of miles as indicated in the WSJ article. In some respects, I hate to suggest such actions because it may put US Airways in a situation they had not anticipated, but, the reality is that they themselves put themselves into this situation by blaming their elite flyers – that it costs to much to keep their loyalty. Elites are much more than about the BIS (butt-in-seat) miles that most connect the programs to.

Now, taking this topic a little farther, I wonder if US Airways has been doing much thinking lately about this. If they made the right decision, then it has not had any effect at the Rio Salado headquarters. But, if SaveDividendMiles.com has some merit, then perhaps there is a solution almost at hand. Use the advance purchase of miles by Barclay’s into a plan to return the elite-level benefits to the rightful owners and simply angle in a take-up of the Barclay’s card for that requirement. In other words, acquire the Barclay’s card and we’ll pretend that nothing ever happened and we’ll even retro back any elite bonus miles to Aug. 6th. Small favor to fix a huge problem for US Airways. BUT. And there’s that word again. US Airways and Barclays should not and I repeat, NOT, grow complacent that this is a fix for this change. It’s a temporary band-aid, but it’s one that i think is even easier for other programs to adopt than the complete exit of elite bonuses – and I’m not wild about suggesting that.

SO, moving along on my plastic thoughts idea, the above got me thinking about the nearness of the Delta-Northwest merger which by all accounts is done with, just awaiting the “paperwork.” In InsideFlyer, I wrote that in a variation of the cola wars, it was likely that American Express would win the shootout of the credit card supremacy battle over US Bank on the exclusive spending sponsor for SkyMiles. I was thinking recently that that suggestion might not be exactly true. OK, I thought that in the heat of the battle of the words being poured out about all the airline mergers at that time. Now that I’ve had a chance to think a little more, I’m thinking that there should be two banks in the new SkyMiles program. I would suggest to SkyMiles (hey, this is free advice, just like I’m giving to US Airways above…) that they convince American Express that’s it’s OK to not be the Supreme Commander of the plastic wars with Delta. While American Express has a very excellent product – they aren’t a bank. That’s right, while SkyMiles can pummel you with offers to acquire a “credit” card, they don’t perform at all in offering you a “debit” card and if you’ve read anything up on that topic, debit is very much alive and well. In fact, in a report I read recently from the Federal Reserve (don’t you read their stuff?), I noticed that from 2003 – 2006, that credit card use remained steady at 23% of total spend (vs. debit cards, checks and ACH/EBT) over those four years while debit card use rose from 19% to 27%, besting credit card use and trailing only slightly checks at 33% and they should overtake that in the next two years. The facts indicate that debit card use is extremely high and if you look over at American, Continental and United, you’d see that they all have a bank issued debit card that earns frequent flyer miles. It would be foolish for Delta and even for American Express to ignore this very positive partnership, one in which both US Bank and American Express could live equally happy since it would be given that they do not compete on the same product offer. Now, American Express MAY believe that they can convert possible debit card users in the SkyMiles membership base to their credit card, but I’ve got to say, “it ain’t so.” So i suggest that both brands of partnerships and SkyMiles and WorldPerks executives think about this and make a good decision for all members of these programs. And there is more to this. US Bank can offer other types of products and services in the financial area that American Express can’t or doesn’t, so no one has to blink.

And that my friends are my thoughts on plastic.