So American Airlines has some “new” ideas for its AAdvantage loyalty program. They were announced earlier this week and lots of people have written a variety of stories, ranging from rants to unsurprisingly waffling series of notes about why to switch to another program followed immediately by why not to. I’m going to skip all of that this time around in favor of making just three simple points about the change:
It was inevitable
We’ve known for a long, long time that the program would shift to revenue-based. The company has not been shy about discussing that. The only reason it took this long was to allow the merger integration to take priority and IT infrastructure to be properly upgraded to support the new business rules. Expecting that it would be substantially different than what Delta and United are doing was foolhardy.
And, FWIW, we also know that “basic” fares are coming so try to not freak out too much in a few weeks or months when those details are shared.
It is boring
There is virtually no creativity in the changes. Not that I was really expecting any, but I had a sliver of hope that things would be different in one way or another. Upgrades for top-tier elites on award tickets is probably the closest thing to that in my book, and that’s a nice nod to those customers, but the overall changes really are boring. In one discussion online a friend suggested:
In any event, now the big three have done what I think is a service in a perverse sense. With no really significant differentiation in FFP, the equation for most will truly be schedule, price and the intangibles. FFPs are now mostly irrelevant (with some exceptions no doubt). YMMV.
The only problem I have with this view is that it ignores the history of the programs whereby 5 or 10 years ago they were also all pretty much the same on the basic earn/burn rules. They were just all different than they are today; plus ça change, plus c’est la même chose.
So much hype, so little substance
Boarding Area alone has had 20 posts about the changes since announced earlier this week by 13 writers (21 & 14 now, I suppose). Apparently the changes are so massive that it needed multi-part, detailed analysis on why to leave, quickly followed by why to stay. Which is just stupid. All that hype, so little substance. Yes, the changes do matter for many passengers. But doing the math on where you fall in the spend v earn scale is really easy.
If you buy expensive tickets the changes are likely good for you. If you buy cheap tickets the changes are likely bad for you. Besides, haven’t the airlines been telling us for a long time now that co-branded earning is the way to go??
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What’s new this week is changes to elite, not earn and burn, AA already announced back in November going to revenue-based for flights in the second half the year, all that’s new there is the date-certain of August 1.
Elite is changing. None of it surprising or creating, but minimum spend for status + 75k tier and new formula for prioritizing upgrades, these last 2 have the effect of substantially reducing the value of lifetime status (certainly consistent with AA’s direction, what have you spent lately?).
And elite programs definitely were NOT the same in the time frame you’re talking about. DL/CO/NW with complimentary unlimited upgrades, UA then moved in that direction, AA followed for top tier only. DL had a top tier at 75k, which even came with lounge membersihp. UA did SWUs with minimum fare requirement (although midway through 2003 offered no minimum fare ‘sweet spot’ certificates). AA was top tier upgrades on any fare, and in fact a dozen years ago if you used those domestically they confirmed into revenue inventory [domestically, outside of the premium transcons, AA has long made most of the cabin confirmable upgrade space].
There are still modest differences in the program. First, I described the changes. Then I offered my own followup thoughts. Then I offered a post working through my own thinking about whether it would push me somewhere else, and the changes don’t. So snark all you like, I share my thoughts on my blog… often as they come to me. 🙂
There is virtually no surprise in the changes to the elite program from a qualifying perspective. Despite your constant insistence that revenue-based is bad for the programs and the airlines and how it ruins the “margins” that has not proven to be true by any of the numbers the companies are sharing nor in the obvious trend of the industry to focus on spend over time/distance as a measuring stick.
For upgrades the specifics behind the rules change but only in so much as they now align with the unsurprising changes to the way status is calculated.
Change? Yes. Surprising? No.
The shouting about it all is silly.
You both may be right.
The changes have created a less loyal customer base (more transactional / “which airline is best for this particular trip”) from which airlines can extract more money out of (Since I’m less loyal, I will buy / pay more for the better service (non-stop, upgrade, reliability, etc.) than I would have 3 years ago when I was loyal to airline X)
If the above is right, I think it works well for DL and UA (the former wins on service/reliability, the latter on network) but wonder if AA can pull this off given that they don’t really have a differentiating value proposition.
Well said Seth!
Yeah the changes to the upgrades is something, IMO, should have happened a long time ago and is now the most fair across the big three. UA’s policy favors full fare on the current itinerary which is fine until you fly through IAD and it’s all YCA fares. DLs policy with upgrading to E+ = I’m not interested.
I think the bloggers for the most part ignore the fact that for a lot of people there is minimal choice when it comes to airlines thanks to geographic dominance at various hubs you may be based at which drive the majority of business travel. The airlines know they can limit differentiation and conform to one another without a big impact at losing their “loyal” fliers
Who’s shouting? I prefer to think of my posts as amplifying. Four months after Delta had moved to revenue-based earn fewer than 1 in 4 members even knew anything had changed. So I’m first off writing to inform. Then, as I say, sharing my reactions and then my thought process about how I personally respond to the changes (if at all).
I think if you read what I’ve written on the AAdvantage changes there’s very little in the way of histrionics. As for ‘surprises’ while I had heard rumblings of August 1, American originally announced they’d make the move to revenue-based in LATE 2016 (and there was some internal speculation that they might not actually hit that on the IT side) before moving to a narrative of “second half.” And while I think any observer saw minimum spend towards status in the cards, that they did EXACTLY what Delta and United do isn’t a surprise exactly, it’s what Scott Kirby has been saying he wanted, but there was also a reasonable chance that the voices inside the airline who wanted their own version of this might convince him.
So it’s highly interesting and major changes — even ‘going third’ rather than pioneering changes — are still a big deal when it comes from the largest frequent flyer program.
As for the advisability of the changes, I think any analysis does need to look at earn and burn separate from elite. Though as I’ve written many times there’s little need to incentivize filling marginal seats when there aren’t all that many marginal seats to fill. Scott Kirby thinks revenue-based changes will drive profitability, but PRASM is down at both Delta and United and Delta says that their SkyMiles changes aren’t a driver of what they argue is a price premium they’re able to obtain. Delta says their flight product drives the premium, not SkyMiles. [Also notable that American has had higher operating margins than United… I’m not suggesting this is the result of a miles-based program, but rather a revenue-based one doesn’t flip it.]
Whether American sees it this way or not it’s a cost-cutting move, not a revenue-enhancing one. That may be fine for where they’re at in the cycle.
In any case, the volume level in my posts about AAdvantage changes is far lower than the snark in yours.
You’re taking this mighty personally, particularly as my comments were not all about you.
As for the PRASM drops, look at the bigger picture. The whole industry is feeling that as capacity is growing far faster than the economy in the face of significantly lower costs encouraging smaller players to grow while they can afford to do so, seizing market share along the way. Find me anyone who thinks it is tied to the FFer program changes; I’d be very impressed if such exists.
I assumed that your response to my comment was indeed about me 😉
You jelly bro?
This is the most relevant post re: AAdvantage program change I’ve read for the past few days.
I am just curious how the doj is thinking about these three. To me all similar not just ffp but everything else. And it seems to me that they have some market power now. Maybe I am wrong. In the end I think Aa lost its edge over delta except some geographical dominance and alliance advantages but isn’t that also leaving to some sort of monopoly power in certain markets?
I think that further consolidation with one of the big 4 would be hard to get past the DoJ. I think that with four major airlines and half a dozen smaller ones it would be difficult to argue that there is not competition in the market.
I dunno – AA’s change is boring in that there is little innovation. But, its also meaningful, in that the last of the big four have made it clear that they will be revenue based earning (unsurprising), and to the extent of the big 3 (leaving Southwest out for obvious reasons), if you want status, you have to show them the money. The key point that I take away from the changes, is status. Would AA not have moved that way, have prevented smaller airlines not to? no. Is this a signal that AS will move in this direction? I wouldn’t make that assumption either (although I see no reason why not). But, really, AA was the penultimate bastion for mileage runners (despite our dwindling numbers), and that’s kind’ve a big deal, considering the true remaining bastion now, at least in the US, has a significantly smaller route network.
Worth shouting from the roof tops? perhaps not. But, maybe worth a moment of silence, as mostly the end of an era. Perhaps though, that, is even to hyperbolic.
FWIW, the smaller airlines went revenue based first. The majors followed B6 & VX (and then WN) down this path.
It is true that AA was useful to some mileage runners, but so much has changed about the industry and the programs that focusing on that segment for anything seems quaint to me. Not saying I like that development – I don’t and I’ve lamented it many times – but that’s what is happening now. Being surprised by it shows that one isn’t really paying attention to the market overall.
I wasn’t trying to imply that AA’s move was a surprise. I think the only surprising part of the entire announcement for me was the ability to use 500-mile upgrades on award tickets… which is interesting for them to give EXP’s that benefit, despite EXP’s never getting 500-mile upgrades (or at least I don’t recall ever getting any – I jumped right from UA 1K to AA EXP).
Seth as usual you are the voice of reason.
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