FleyeSkyHigh

I’ve been involved and an observer to negotiations between AA and some larger corporate customers regarding the Airpass program. AA has drawn a line in the sand in that they absolutely will not and cannot extend Airpass contacts past their original end date (inclusive of the standard one-year extension option). In essence the only thing they are offering is to “waive” the nominal cost/fee of the extension option that exists in the contracts already (which normally was a maximum of a onetime $600 fee). That does nothing to help companies that already were into the extension period of their contract and little to help those that were approaching the 1-year mark. AA is also standing firm that per the contract language only a single extension will be allowed per contract so for those negotiating with AA don’t take a three, six, or nine-month extension without demanding a 12 month extension as now all extensions will be at equal cost (zero).

In addition, AA is also offering to allow AAirpass customers to roll existing funds in an expiring contract (which they already allowed) to a new contact BUT is now also offering to count those rolled funds towards the minimum threshold for a particular threshold (which they did not do before). For example, if a contract had $8,000 remaining, a company would “only” need to cough up an additional $2,000 to meet the $10,000 minimum contract threshold. Further, AAirpass previously offered unpublished discounts to the standard $0.40 base mileage multiplier rate for larger commitments and they are now also allowing rolled funds to count towards that threshold (so for example, if a larger corporation had $6.5MM left in a contract then would “only” have to wire over an additional $3.5MM) to lock in whatever base multiplier that applied to their $10MM annual commitment contact (which is meaningfully less than $0.40/mile). AA also has indicated that they have their hands tied at least for the next 18 months with regards to changing any of the new higher rate bands which took affect in early 2020.

In the first couple months of the pandemic Airpass was throwing around CK and EP status extensions but that was all quickly shutdown by the AAdvantage business unit and will not be repeated. As I have previously suggested I believe AA’s inability and inflexibility with regards to Airpass is that the programs have been used as collateral against various loan commitments or the modification of the program terms is covered by covenants of existing debt obligations.

In my opinion, the Airpass program, which use to be quite useful, will slowly die and is basically being killed off by a change in direction for the airline. Over the past several years the Airpass program was already falling out of favor with in the organization. It had been bounced around a bit within the company and finally was absorbed into the business unit that primary handles Business Extra and Meeting Services and based on my dealings with the company Airpass is definitely not a priority (despite the cash it has on the balance sheet but that of course is countered by the liability of the few remaining uncapped contract holders). The industry has experienced a paramount change in short order due to the pandemic and Airpass doesn’t fit with the direction of the airline and where its leadership is taking the company. Private and charter travel is picking up the high dollar business traveler and the legacy carriers are more and more focusing on the commodity business and leisure markets. Business commercial air travel is no longer the cash cow that it once was a decade ago to the legacy carriers. Despite all the money AA spent on a new website for Airpass last year, I believe the program will sunset over the next several years once any collateralized obligations expire.