Downgraded: Toyotas in rental car fleets
Bad enough that Toyota’s massive recall is affecting so many vehicle owners. But it’s affecting rental cars, too. Enterprise, for example, has removed 83% of their Toyotas, but that leaves 17% in the fleet. If you’re given a Toyota at the rental counter — any rental counter, not just Enterprise — you may want to request documentation that the recall repairs have been completed.

Downgraded: TSA’s notion of a background check
You really can’t make this up: An applicant for a TSA job who had been convicted of robbery when he was 18 (and who omitted it from his job application) was denied a secure-access badge to the Richmond Airport in Virginia. But the TSA wanted him hired, and demanded that the airport overrule its existing security protocol to issue this man a badge. Words fail me.

Downgraded: Airline seats
Speaking of recalls, Air Canada, ANA, Continental, JAL, KLM, SAS, Singapore, and Virgin Atlantic have seats on their planes that are subject to a recall. The manufacturer, Koito, was found to have fabricated flammability tests. And when I say “fabricated,” I’m not kidding: They “manipulated computers so normal figures would appear on monitors when officials from the ministry observed the testing procedures.” But take comfort: As long as the seats aren’t set on fire, you’re fine! (Bonus: Toyota owns 20% of Koito.)

Downgraded: Sleepytime on American Airlines
American Airlines will start charging $8 to buy a pillow and blanket. Yes, yes, it’s another fee, another downgrade. But whatever. I’ll wear a sweater.

Upgraded: oneworld
Downgraded: SkyTeam
Sure enough, American Airlines and the other members of the oneworld alliance pulled it out, keeping JAL in the alliance. At first, it really looked like Delta and their SkyTeam brethren were the ones to convert the ailing Japanese carrier to their side. But no. I called this one wrong. Delta has expressed its regrets, and plans to invest in its own brand instead of other companies. Frankly, that’s probably a smart move.

Japan’s most famous (and, recently, most beleaguered) airline, JAL, has apparently opted to leave the oneWorld alliance for SkyTeam. Viewed through an USA-based frequent flyer lens, that’s a win for Delta (and potentially those who hold Delta miles), and a definite blow for American Airlines and their mileage addicts.

Delta and its SkyTeam partners didn’t just win this on their good looks and winning personality. They are offering a bailout package of nearly $1 billion. (American and Texas Pacific Group offered to invest $1.1B; I’m not familiar with the details of the deals, and that’s not my concern here. And nothing is signed yet — AA says they’re still negotiating.)

The combination of JAL and Delta would be a formidable force, if traffic remains at current levels. One report estimates the JAL-enhanced Skyteam market share at 62% of traffic between the US and Japan. Star Alliance (United, ANA, and Singapore) hold 31%, leaving a mere 9% in oneworld (entirely AA).

But JAL has signaled that it would drop 30 (or even all) of its international routes, ceding that traffic to alliance partners and codesharing instead. And Japan’s other major airline, ANA, is looking to snap up routes and landing rights which JAL gives up. So those market share percentages are far from set in stone.

In the long run, the decrease in competition is bound to exert upward pressure on trans-Pacific fares. The deal will need to undergo antitrust scrutiny, of course.

Intermediate-term losers here are American Airlines’ loyal customers who use their miles to fly to Asia. A major mileage redemption opportunity for AAdvantage mileage holders is about to disappear, either through JAL’s switch to SkyTeam, or their erosion/implosion. If you’ve got American miles, your currency is about to lose value, as you’re about to lose some redemption opportunities.

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Alliances of global airlines — oneworld, Skyteam, and Star Alliance — are under attack. Attached to proposed legislation to upgrade the air traffic control system, a new proposal could be the death knell for the alliances — or at least the end of their legal presence in the United States.

Rep. James Oberstar (D-Minn.), a longtime critic of the alliance system is harnessing unease in Washington D.C. about the competitive impact of international pacts to back a bill that could have a drastic impact on existing and planned airline cooperation.

The chairman of the U.S. congressional committee that oversees airlines is pushing an aviation bill that would automatically withdraw antitrust approval for alliances within three years, although they could be restarted under more stringent rules.

The bill is attached to a $70 billion proposal to modernize the creaking U.S. air traffic control system, which gives it a greater chance of becoming law.

Its provisions could lead to the rolling back of the antitrust immunity, or ATI, already in effect for members of the Star and SkyTeam alliances. It could also derail efforts to expand these groupings and extend immunity to members of Oneworld, the smallest of the three.

Remember that Oberstar is the same legislator trying to block liberalization of airline ownership rules. I would argue that alliances would never have become necessary if nations — like the US — had more reasonable cross-border ownership rules. The alliances are a way to give the companies backdoor merger benefits (e.g., “revenue sharing” on trans-Atlantic routes) alongside the efficiencies that come with aligned schedules.

So what happens if alliances are declared a monopoly in the US, or elsewhere? Frankly, it could be a good thing for passengers, as long as codesharing isn’t entirely eliminated in the process. Alliances may have benefited travelers where schedule alignment and frequent flyer partnerships are concerned, but they’re legal oligopolies. They admit as much: That’s why they require antitrust immunity in order to function.

If airline alliances were to disappear, international passengers would likely see some inconvenience at first. But how much inconvenience? Global lounge access? Priority tags on your luggage? Really, what would change? And for how long? Over time, airlines would negotiate bilateral partnerships in lieu of broad alliances.

And what about the upside? As it stands, alliances are essentially a legalized price-fixing scheme. They’ve always been for the convenience of the airlines, not the passenger. So eliminating price fixing sounds like an easy win for the consumer.

Oberstar may be wrongheaded with his advocacy of protectionism, but he may be onto something with regard to alliances.

Unable to find agreement to merge (thankfully), Continental and United have announced plans to partner, with Continental joining the Star Alliance in 2009, subject to regulatory approvals. With alliances being mutually exclusive, that means the SkyTeam alliance, with Delta and Northwest anchoring the North American members, will lose a major player.

In an e-mail to Mileage Plus members, United is pitching this as a benefit to frequent flyers, with an increase in mileage (and status) earning opportunities. Codesharing would commence upon approval, and Continental would align its schedule to coincide with United and Lufthansa, the two anchors of the alliance.

For frequent flyers in the two programs, there are questions that arise: United is pitching the reciprocity angle, where you receive and accrue benefits in either program, but Continental and United have very different programs, especially in terms of how status miles collect (where you buy the fare matters to CO, not to UA) and how upgrades are obtained (“unlimited” on CO, based on status, vs. certificate-based on UA).

And then there’s this: “Internationally, Continental and United will establish joint ventures that will allow us to cooperate with each other and with other Star Alliance airlines throughout the world.” Will these “joint ventures” be a new airline, like British Airways’ OpenSkies?

Stay tuned. Either way, changes afoot.

US Airways announced an $8 billion cash and stock bid to buy Delta out of bankruptcy. If it goes through, the new company will fly under the Delta banner.

It’s pretty remarkable that US Airways is doing this, since they’re not even finished digesting their previous merger (when America West bought the old US Airways and took over the older rival’s name.)

The merger would mean a 10% cut in capacity (i.e., fewer seats, higher prices, fuller planes) and inevitable job losses in cities served by both airlines. Consumers and employees are likely losers here.

Two questions on my mind:

1) Will the emergent Delta be a member of Star Alliance or SkyTeam? I’d put my money on SkyTeam, given Delta’s size and international presence, compared to US Airways.

2) Will this announced offer lead to more mergers? United+Continental has been talked about for some time, though the latest buzz has United going private. But airlines are making money, for now, and the impetus to merge has faded somewhat. US Airways is striking now, while Delta is still in bankruptcy court, and control of the company rests with creditors.

We’ll see what happens.

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Reader Anton writes:

Is there any difference (in your opinion) in per-mile value depending upon a) alliance (Star vs OneWorld vs Skyteam) or b) individual airline?

E.g. what is better 100,000 Delta miles, 100,000 United miles or
100,000 Continental miles (for simplicity, let’s assume you are
non-elite in all of those and that the above miles are all you have in
each program)

Good question, Anton. Yes, I think there is a difference in value between programs, but it’s not easy to quantify. Prepare to geek out!

Redemption rates
Short answer: Yes, there’s a difference. Different airlines charge different amounts for similar tickets. But one airline may cost more for one route, and less for another, especially on international routes and in premium classes. For example:

• Flying from North America to Europe in economy class costs 50,000 miles for a typical coach ticket on American, United, Delta, and Continental, to name a few. If you’re a resident of Europe, Lufthansa charges 60,000 miles for the same itinerary. Bizarrely, they charge Americans only 50,000.
• Business class for the same US-Europe itinerary is 90,000 miles on most airlines, but for a few short weeks, United still only charges 80,000. (United is raising the price to 90,000 on October 16, so book quickly if you want the lower rate. See here for details.) But Northwest charges a full 100,000 for the same ticket. Europe is no value on NWA.
• Business class from the US to Australia with United miles (post October 16): 110,000 miles. With American miles: 125,000 miles.
• Chicago to New York area airports on American: 15,000 miles (limited time short-hop rate). Continental: 20,000 miles. Everyone else who flies nonstop (United, Delta): 25,000. On a percentage basis, that’s a big difference.

So, some airlines have “bargains” for certain awards, making those miles worth more than others for those awards. And if you fly those routes, you get more value for your miles.

But… it would be nearly impossible to come up with a one-size-fits-all formula that accurately reflects the differences between programs. Why?

Besides redemption rates, I’d suggest that there are (at least) three other variables that affect comparisons between programs: 1) accrual ease, 2) route network, and 3) redemption ability (award supply).

Accrual ease
If you’re looking to choose a program in which to accrue miles, mileage-earning opportunities matter. You want to be able to earn points easily. JetBlue’s program lets you earn miles in one of two ways: flying JetBlue, or by using their credit card. Not a lot of options there.

At the same time, you could make an argument that excessive accrual opportunities are bad for the program in the long run. Miles function like a currency. If airlines increase the number of miles in “circulation” too much, without award supply moving up similarly, then you’ll have more miles chasing fewer awards. This is what’s happening now, actually: People have the points, but can’t get the ticket they want. The imbalance creates inflationary pressure, meaning that airlines will want to raise the “price” of their award tickets to even out supply and demand.

But in your example, Anton, you have 100,000 miles in the program of your choice, and you’re looking to cash things in right now. So, despite mileage accrual’s effects on your experience with a program, let’s put accrual aside.

Route Networks
Where you fly matters, both for accrual and redemption. If your miles don’t get you where you want to go, then who cares? And this throws a wrench into any efforts to create a formula. One program may work great for one person, but not for another.

Let’s say you want to fly regularly from Los Angeles to a city that’s not a huge hub. Like, say… Tegucigalpa, Honduras! In such a case, you’re probably better off joining a program with an airline in the oneworld (e.g., American) or SkyTeam (e.g., Continental, Delta, Northwest) alliances, and not Star Alliance (e.g., United, US Airways). Star Alliance doesn’t fly to Honduras (though United has a separate side partnership with Central American carrier TACA).

Even domestically, route networks vary. You can’t visit North Dakota with Southwest Airlines Rapid Rewards, for example.

For what it’s worth:

• Star Alliance airlines fly to 842 destinations
• oneworld covers “over 600″
• Skyteam claims 728 airports.

Redemption ability/Award availability
You can’t buy anything if there’s nothing on the store’s shelves. But it’s really hard to accurately gauge just how easy it is to grab award seats. And airlines aren’t talking. They’ll tell you how many tickets were redeemed with miles, but how many tries did it take? Was it the first choice? How far in advance were reservations made?

InsideFlyer tried to put airlines to the test, but their methodology isn’t foolproof. So we’re stuck with anecdotal evidence: Some airlines are notoriously difficult for cashing in miles (Continental) while others have a better reputation (American, Southwest).

So whose miles are worth the most? Sorry to waffle, but it really depends on you…

(image: Alex Segre)