Two parables from frequent flyer history tell us a lot about the AAdvantage devaluation that was announced this week: that the fault for it lies with you (mass noun) and why American doesn’t take as much heat as programs that devalued earlier and thus gets away scot-free.
Why American Gets Away With Devaluing Now
Two decades ago both United and Northwest were on the verge of introducing Saturday night stay requirements for domestic saver awards. The idea was that they didn’t want mileage tickets to be used by business travelers who would pay more, so they wanted to segregate business travel (at the higher mileage level) and leisure travel (at the saver).
I remember an executive from Northwest telling me back in 2002 that they had gotten wind of United’s plan, and decided to let United go first.
United did roll out the change. Customers were up in arms, and a letter writing and phone campaign got United to abort the move before it was even implemented.
In the meantime, though, after United made their announcement Northwest made theirs. To Northwest flyers this was terrible, of course, but expected since United had already done it. United bore the brunt of the criticism. Northwest’s changes took. Continental did the same thing. Eventually so did US Airways. And those Saturday night stay requirements remained in place for years — Northwest’s only went away with the Delta merger (one of the few bright spots that resulted for Worldperks members).
Not only did United and Delta move to revenue-based mileage earning first (and American won’t follow for a year), but both devalued their award charts first — we haven’t seen a big award chart devaluation from American since they introduced one-way awards. And now that American has devalued, we can see they were careful to offer an award chart that’s still a little bit better than United’s and Delta’s (indeed, American still has a chart).
I’m deeply disappointed by the AAdvantage program changes and I’m precisely the consumer hurt the most by the award chart changes. Despite my best efforts to spend miles quickly I have a seven figure balance that doesn’t start with a one. I had large balance with American and with US Airways, so of all the airlines to merge this combination was not a convenient one for me. And I like to redeem for international first class awards the most — precisely the awards taking the hardest hit.
Cathay Pacific First Class
And yet it’s been so expected for so long, we’ve had a reprieve largely because of the focus at American on merging with US Airways, and they came in behind their competitors that they get away with it. Of course consumers used to win when they objected to loyalty program changes, and they don’t today. We don’t have the leverage we once had.
Why the Devaluation is Your Fault
I’ve said over and over for many years that any opportunity that’s orders of magnitude more generous than the median offering is ripe for devaluation and won’t last, so enjoy it while it’s offered but expect it to go away.
American AAdvantage first class awards are the most glaring example of an opportunity underpriced relative to the competition so it’s little surprise that those are the awards that took the biggest hit (bludgeoning, really) when American announced their new award chart going effect March 22.
In order for it to have made sense to American to continue being more generous than the competition, they’d need to see a return on the additional marketing spend.
During the Great Recession programs were for the most part more generous. Hilton stood alone devaluing back then. And Hilton Senior Vice President Jeff Diskin was remarkably honest about why they did it.
We were and have been, sort of “over indexed” for some period of time in terms of the value of some reward properties, and frankly we weren’t getting credit for that. Because what the research pointed out is what you do with your points is of great interest to you when you’re looking to shop with them. People are looking to shop with them because they are looking to offset the cash outlay with whatever points they’ve accumulated. So everybody is within the same environment which is very difficult for people within the hotel space. What it does is basically focus on the return on spend that members get. And being over indexed in terms of the base level doesn’t give you enough payback because not enough people can understand or know what it is.
That’s fairly dense corporate-speak but he’s saying that Hilton was offering more value than the competition, and consumers didn’t really ‘get’ that. They pay attention to the value of their points after they’ve already stayed enough to earn them and look to use them. So Hilton wasn’t getting enough extra business from their generous loyalty program. As it result it didn’t make sense for them to keep being so generous.
American must believe that consumers weren’t giving them enough exta business to justify their relative generosity. They’ll lose some business with the devaluation, but not enough that it’ll matter relative to the cost savings they’ll achieve.
I’m going to be less loyal. I’ll still fly American and earn top tier status with them, but I fly behind just the 100,000 qualifying miles a year required for that. I’m now much more likely to give that incremental business to other airlines based on schedule and price, and even to buy the occasional discounted premium cabin ticket on another carrier — and certainly not to spend more to stick with American.
No doubt there are others like me, but not enough others. So it’s ‘your’ fault, the broad you of airline customers, that fail to reward a generous program enough to make it clearly worth the generosity to American. Hilton told us that 5 1/2 years ago. American just reminded us.
Lessons for Programs and for Members
Members: if you do not want programs to devalue, reward the ones offering the greatest value with your best business.
Programs: if you don’t want the greatest heat when you play Lucy to your members’ Charlie Brown with the awards football, don’t lead the charge. Let other programs move first.