WSJ: A Frequent-Flier Takeoff?
 

THE WALL STREET JOURNAL

September 28, 2007

AMR Should Consider Push By FL Group to Jettison Airline-Loyalty Program

Should frequent-flier programs jettison their airline owners? As backward as that may sound there may be more value in airline-loyalty programs than in airlines' core businesses. Air Canada, the one big carrier that has separated the two, has proven this. So perhaps it is no wonder that Iceland's FL Group has its harpoons aimed at AMR, parent of American Airlines, in which it is one of the biggest shareholders.
The Icelandic investment firm, which last year targeted European carrier easyJet, wants AMR to split off its AAdvantage miles program, which has 57 million members. Setting aside FL's frustration with AMR -- the shares have plunged nearly a third since the firm began building its 9% stake in December -- the Air Canada precedent makes a split-off worthy of consideration.
Two years ago, Air Canada, a unit of Ace Aviation Holdings, launched a public offering of its own miles business, Aeroplan, which now has nine million members. The stock has doubled and Aeroplan's market cap today is 4.4 billion Canadian dollars (US$4.38 billion) -- more than triple that of Air Canada. On that basis, investors value Aeroplan members at C$488 each.
Apply that valuation to AMR and AAdvantage's market cap would be a whopping $28 billion. Now that figure probably is a stretch. AMR's frequent fliers do about a third of the business Aeroplan's clients do. Aeroplan also enjoys special tax advantages as an income trust. Still, even if one assumes the value of AMR's business is a third of Aeroplan, that is certainly material for a company with a $5.5 billion market cap.
Of course, it is hard to know exactly what the value of AAdvantage is. AMR doesn't break out the division's results. So FL may just be another frustrated airline investor. But AMR would be remiss if it didn't at least consider the option of an AAdvantage split-off and open its books to investors.

http://online.wsj.com/article_print/...585741881.html

Tenacious, link doesn't work. here is a working link to the article.

also, per the Newsstand forum rules, you should edit your post to not include the entire text of the article.

a related and more in-depth article from the WSJ today: