Sept. 27 (Bloomberg) -- AMR Corp. shareholder FL Group hf urged the owner of American Airlines to spin off its frequent- flier program to increase returns to the carrier's investors.

FL Group, AMR's second-largest holder, said AAdvantage is worth more split from its parent and could add more than $4 billion to shareholder value. Reykjavik-based FL Group said today that it owns 9.14 percent of AMR, the world's biggest airline.

A 47 percent drop in AMR stock since mid-January that FL Group said cost shareholders almost $5 billion prompted the request to AMR Chief Executive Officer Gerard Arpey and its directors. Air Canada's parent spun off its frequent-flier plan in 2005, and United Airlines parent UAL Corp. said it may ``unlock value'' in assets such as its Mileage Plus.

``AMR believes that, long term, there is greater value to shareholders in keeping all the parts together,'' Ray Neidl, a Calyon Securities analyst in New York who rates the company's shares a ``buy,'' said in an interview. ``American's management is determined not to sell off the assets.''

Frequent-flier plans help airlines attract customers and also get revenue through partnerships with retailers and credit card companies.

``It's a great business because it generates lots of cash, lots of revenue,'' said Jacques Kavafian, an analyst at Research Capital Corp. in Toronto. ``It's the kind of business you never really lose money at. As long as you're selling miles, you are earning revenue, whether people redeem the miles or not.''

AMR, based in Fort Worth, Texas, rose 25 cents to $22.02 at 4:07 p.m. in New York Stock Exchange composite trading.

`Careful Consideration'

``Our board and senior management regularly give careful consideration to the best use of our strategic assets and the impact that those decisions might have in the long run for our shareholders,'' Tim Smith, a spokesman for American, said in an e-mailed statement. He declined further comment.

AAdvantage is the largest and oldest frequent-flier program. It has grown to more than 57 million members worldwide from 283,000 when it began in 1981. In 2006, members redeemed more than 142 billion miles to claim in excess of 4 million awards for flights, upgrades and car rentals. Miles also can be earned and, in some cases, redeemed for shopping, dining, magazine subscriptions and even charitable donations.

``They started off as a loyalty program, but have become much more than that,'' said Dan Kasper, a managing director of LECG Corp., a legal and economic consulting group. ``Now it's sort of a multifaceted marketing vehicle for a whole variety of business entities. They've created almost a new currency so that people can accumulate credit you can use in a lot of different ways.''

`Not Mission Critical'

FL Group believes it would be easier and more profitable for AMR to spin off AAdvantage over other assets. The airline should retain control for the ``short to medium term'' and consider an outright sale later, the investor group said.

``It is not operationally linked to the rest of the airline,'' FL Group Chief Executive Officer Hannes Smarason said of AAdvantage in an interview today. ``It is important because it's one of the key things that keeps customers coming back. But it's not mission critical in terms of keeping planes in the air.''

FL Group pushed its proposal in meetings with AMR management last year and again recently, he said. After management didn't act, FL Group decided to make the plan public and go directly to the board.

``Other shareholders have applauded the initiative,'' Smarason said, declining to name them.

Other Airlines

ACE Aviation Holdings Inc., the owner of Air Canada, raised $202 million two years ago by selling a 12.5 percent stake in its Aeroplan frequent-flier program. ACE now holds 31.1 percent of Aeroplan, which has a larger market value than its parent.

Glenn Tilton, chief executive officer of United Airlines parent UAL, said in July that he was considering ways to ``unlock value in assets,'' including the carrier's Mileage Plus unit. Qantas, Australia's biggest airline, said in May that it was reviewing its frequent-flier program and had met with Aeroplan to discuss spinoffs.

Bear Stearns analyst Frank Boroch estimated a market value of as much as $22.8 billion for Mileage Plus in a July report. UAL's board is meeting this week in San Francisco. United spokeswoman Jean Medina declined to comment on the board's agenda.

American Assets

Other assets held by American include its American Eagle and Executive Airlines regional carriers, its maintenance operations and American Beacon Advisors Inc., an investment management company that oversaw $57.9 billion in assets as of Dec. 31. AMR doesn't break out financial information for the units.

In 2000, AMR spun off its 83 percent stake in Sabre Holdings Corp., then the world's largest travel-reservations company, in a transaction valued at $5.7 billion.

AMR agreed to sell Executive Airlines in 2002. The sale of that unit, which makes flights in the Caribbean, wasn't completed. The carrier considered a sale of Beacon, then known as AMR Investment Services, in 2002.

American Eagle, AAdvantage, Beacon and the maintenance operations could attract more than $5.5 billion in a sale, Daniel McKenzie, a Credit Suisse Group analyst, said in a Sept. 25 report. That compares to AMR's market value of $5.5 billion.

FL Group, with assets valued at $5.1 billion at the end of June, also holds 23 percent of Finnair Oyj and 32 percent of Northern Travel Holding, the owner of Sterling, Scandinavia's largest low-cost airline.

In 2004, the group invested in EasyJet Plc, Europe's second- largest low-cost airline, as part of a strategy to diversify its holdings. The company sold the 16 percent EasyJet stake earlier this year and bought Dutch beverage maker Refresco Holding BV.

FL Group said today its AMR holdings increased to 9.14 percent from 8.3 percent at the time it sent the letter to the carrier's board.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

Last Updated: September 27, 2007 16:26 EDT