What the New American Airlines Revenue-Based Frequent Flyer Program Really Means (and How They’re Deluding Themselves)

American Airlines announced that August 1 is the date they’ll begin to move to a revenue-based frequent flyer program. The method for earning miles on American’s own flights changes on that day.

The airline’s President, Scott Kirby, has told investors that a revenue-based frequent flyer program will drive higher revenues. That’s unlikely to be true.

A shift to revenue-based mileage-earning for flying will save American money as a result of less marketing spend. But it’s not going to mean higher revenue for the airline.

  • American will be giving out fewer miles. To receive the same number of miles in the new program, customers will need to spend about 20 cents per mile on their tickets (the actual amount varies slightly based on elite status). Not only are average fares lower than that, revenue per available seat mile has been falling.

  • The miles they’re giving out are worth less after they devalued the AAdvantage award chart. Miles don’t go as far, especially for premium cabin international awards, since the March 22 award chart changes.

  • The change doesn’t even benefit high revenue flyers, because at the same time they’re awarding miles based on the price of a ticket they’re also taking away the big mileage bonuses for premium cabin tickets which have been a major driver of American’s awarding more miles from flying — even aside from those miles not going as far as they did three months ago.

Delta says that the shift to revenue-based earning isn’t driving a revenue premium for the airline. They have better on-time reliability and a better flight product. That’s why people choose Delta, not the SkyMiles program.

United followed Delta with a revenue-based program because it’s what former CEO Jeff Smisek wanted. But United certainly isn’t earning a revenue premium at all, and their operating margin is substantially lower than American’s.

These changes only have limited impact overall, however, since the bulk of miles are still earned for things other than flying and these revenue-based changes don’t change the value of points earned via credit cards, banking, online shopping, etc.

American is also changing its elite program to both have a minimum spend requirement for status and to reallocate upgrades to high spenders. Kirby believes customers will spend more, buy up, in order to meet these requirements. However Delta isn’t seeing a revenue premium from their change to require minimum spend for status, and again United has done this and doesn’t earn a revenue premium at all.

Meanwhile some customers will book away from American — perhaps not intentionally in protest, but customers who didn’t used to consider even looking at options with other airlines will no longer have as strong an incentive to stick with the airline. These might even be lower revenue flyers, but it’s still revenue, and they were booking seats American anticipated not being able to sell at a higher price if at all.

They’re flailing around trying to figure out how to boost passenger revenue in a new environment where near-walkup tickets aren’t always more expensive than advance purchase ones, and where they’re no longer able to segment business travelers from leisure travelers and charge more to the former while still competing for the latter.

Meanwhile they haven’t managed to offer a consistent product across their fleet — whether it’s bringing legacy US Airways domestic aircraft up to American Airlines standard (not just extra legroom seating, but power ports even) or finishing up the conversion of angled business class seats to lie flat.

They actually manage to focus on on-time departures so much that they frustrate customers while not even besting rivals.

If American wants to earn a premium for their product, they need to offer a product that’s better than their competitors. Even if it’s a smart thing to do spending less on marketing their product isn’t going to drive revenue increases.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Gary you should really spend some more time editing your copy. This is really poorly written and difficult to read.

  2. Amen, brother. As a marketing professional, I’ve scratching my head for a couple of years on the thinking that providing less differentiation of your soft product is a good idea. It doesn’t make any sense, especially when your hard product isn’t as good as one of your competitors and your service is worse than at least two of your competitors.

    It’s the primary thing (but not the only) that makes me think Parker hasn’t figured out how to run a real airline yet. He’s still treating this thing like it’s CACTUS, and that’s two mergers ago.

    I’m an EXP and a pretty big spender outside the once a month trans-Pac flyers, so I’ll probably be relatively okay. I might be even better off if there are EXP’ers that don’t have the spend. But it’s still a terrible marketing plan, he’s lying to his investors (there is already empirical evidence that it isn’t going to drive revenue) and his ‘me too-ism devalues the brand.

    Staying miles based, improving the hard product, together with the better service that we’re getting over recent years could move the needle. This won’t.

  3. Goodbye, American, after 40 years flying monthly. You cannot devalue me .

    But it’s an interesting business plan to devalue lifelong customers, so let’s see how that’s works out for you.

  4. If American is paying attention to these post. I agree. My opinion I get much better value from United. Yes united my earning potential on points is higher. United card 1.5 miles per dollar for all spend. Chase ultimate rewards gift cards at office supply is great. United has options yes non united flights are more points but I earn more points. I clearly see options. American sucks with seeing options for other carriers. American card sucks with earning points compared. I won’t use Delta, they are still A awful earn and spend value on points. I like the airline but hate the points. I like star alliance. One world just devalued their relationships even though American claims they are not following the posted rules. If you have an alliance it should be an alliance. My only challenge is Philadelphia is home to More American flights.

  5. @gary
    Probably tje best summary piece you wrote about this issue
    Parker knows it will not drive revenue but by the time that is clear he will probably not be there to take responsibility so he does not give a hoot
    I emailed american telling them will no longer fly them ( been PLA and EXP for the last 10 years) and their reply was that they are trying to become the best airline in the world and how the new platinum pro level brings them a step closer to that goal…it is impossible to argue a point when the other side is in denial and completely disconnected from their pax
    Stay tune for PHXIAH reader reply defenfing his boss parker….

  6. Spot on Gary. Guess after an excellent (and all first class travel 5 years on American) United gets another crack at my business. On the plus side, at least $mi$ek is on his way to federal prison. Glad i got to fly that glorious A321T to JFK quite a bit!

  7. I agree with you. ORD is my home airport and have been an AA faithful for roughly 5 years and fluctuate between Gold & Platinum status. While I have expected these changes, it’s still disappointing that they didn’t differentiate themselves a bit. I fly 100% for vacation/leisure and I buy discounted first on nearly all those flights. With the devaluation earlier on the redemption side and now this, going forward i’m buying purely based on price and time. AA may win some, but I have already booked 2 round trips (for 2 people) on UA this week. They were $30 cheaper. Normally AA would get those even though they were more expensive.

    A second main reason I’m leaving is continued deterioration of AA customer service since the merger. AA used to be fantastic in empowering their agents to fix problems. Whether it was irrops or customer service, AA usually made right their mistakes (and even issues that weren’t their fault). It took 4 months to get a $88 reimbursement check from AA for delayed baggage. I’m on month 3 of waiting for a “promised” refund for a change fee I was wrongly charged when a weather waiver was in place. There has been a distinct culture change at AA and that is “we’ll help the customer when it’s convenient and cost effective for us and at our timeline”. I still feel that most front line/phone employees want to help, but they just can’t….and that’s sad. I know the “one-time exceptions” add up, but i feel they have gone the way of UA. After UA’smerger I think most would agree their customer service went to basically the worst in the industry. They are getting better, but I don’t like AA following this direction. I have several friends that work at Willis tower and have confirmed they had higher than anticipated defections by HVC’s post merger. I think if AA continues on their course, they will too. UA & DL continue to improve their operations and i think AA will have an even harder time than DL & UA in winning lost customers back.

  8. Maybe you’ve published it already, but I’d love to see a comprehensive United vs American showdown. I’m Exec Plat based in PHL and my main destination (every other week) is Chicago, in addition to lots of West Coast travel and several trips each year (on an economy fare budget) to Europe. That pretty much rules out DL, as good as they are operationally (and it sounds like their top-tier service is far and away the best) since I fly nonstop as much as possible. AA has been very good to me overall the last few years (I’ve been able to upgrade across the Atlantic every trip the last few years), and will obviously continue to have a massive advantage in nonstops from PHL. I spent about $25K on them TTM so I should continue to get decent upgrade priority.

    But with the coming changes (8 to 4 SWUs being the cruelest in my opinion) I am definitely reevaluating whether United will offer the best package for 2017 and beyond.

  9. The devaluations will eventually come back to haunt these airlines. Any loyalty they earned over the years is out the window. Besides the devaluations the way AA has crammed in more seats on their planes is just criminal. I flew on the 777-300 in economy last week and their 10 across economy seating is beyond ridiculous. They could barely get the carts down the aisles and if you’re in the window seat forget about getting out of your seat for the duration of the flight. There was one row with two seats and the flight attendant kept running over the foot of a handicapped person sitting in that seat. It was really terrible. My flight was a domestic flight but it was same aircraft used to Sydney. I would never fly AA to Sydney or any long haul route in economy. Even their biz class seats were crammed in and tight.

  10. These changes having nothing to do with creating revenue (and the airlines know it). That’s just the spin.

    They are all about reducing costs, by reducing benefits.

    And where you going to run to? They are precisely three airlines that work for my travel patterns (95% for work, 100K+ miles annually, all in lowest Y by company policy, mix of domestic and international longhuals.) Those are AA, DL, and UA. And they all have the same policies/programs.

  11. One point that is relevant is award availability. American is super stingy with domestic awards so even if you can find a TATL, you can’t get there without a revenue ticket.

    Checking next April for 2 tickets, no domestic economy, and business (at the new 32.5K rate for 3 class) is only available on Saturdays. My coach flying friend says he’s focusing on United now because their availability (he says) is so much better.

  12. In the next earnings call someone needs to ask Kirby how he anticipates that switching to a revenue based ff program will increase revenue. Analysts are usually interested in things that will purportedly increase revenue. Once we have Kirby’s explanation, we can end all of the speculation and see if his statement makes sense.

    It seems to me that there are only two ways, perhaps there are others, that a revenue based ff program increases revenue: (1) attracting more customers, and (2) getting customers to pay more that they otherwise would. The first is unlikely because all of the US majors operate under the same system so there is no incentive to switch to a different carrier because of a revenue based ff program. Furthermore, the first airline to go revenue based, Delta, apparently did not attract new customers because it claims it saw no revenue increase from changing its program. So if Kirby is relying on getting existing customers to pay more, I’d like to see his explanation for that.

    As far as Delta’s statement on the affect of its program change on revenue, however, I wouldn’t take its word for anything if the CEO was swearing on a stack of bibles. Yes, I know. Honesty and integrity are part of its core values.

  13. At least in my opinion, these changes seem to be designed to thin the elite ranks, just as United’s were. They must think they will cull the roles of low spending elites by making these changes. I think that is true but the unintended consequence (as it was with me and UA) is that they also lose corporate customers that have a choice of carriers.

    Delta does its own thing and at least in this area doesn’t seem to be copying others. It’s mind boggling to me that UA and AA think they run an operation that can rival Delta’s.

    It will be interesting to see what happens in the next downturn. The industry is already getting competitive and I think fuel prices only have one direction in which to move now.

    the other interesting this is how much can they devalue and change their mileage programs which are worth billion(s) and still not have an affect on the assets long term value? How can that be measured objectively? Delta keeps pushing the envelope to find out and I suspect they will continue to do so.

    -David

  14. Don’t forget the SWU devaluation for EXPs from 8 to 4. $12K is generally what I spent to get EXP, but in 2002 – 2005, it was $3K to get EXP. No mo’ double bonus miles.

    Again, the consolidation of airlines into oligopolies under the Obama communist progressives. What’dya expect? Dump Uber; I meant to say, Saudi Arabia Taxi LTD based in Bermuda to avoid taxes—that would be a start to bring it back to the way it was.

  15. I’m a lifetime Gold who has frequently earned Platinum status in recent years. My husband and I fly almost exclusively in paid First. Since my lifetime status will be devalued and AA is now awarding miles in the same fashion as DL and UA, I won’t make any effort to keep my business with AA anymore. It’s a total waste for me. I’ll just travel with whatever airline has the cheapest fare and best routing for each trip.

    I used up most of my accrued AA miles this year in advance of the devaluation. So basically I’m done with being loyal. See ya, AA.

  16. I think that every misses the point with these devaluations and changes that are coming….

    1. Miles on the books are liabilities which are reported each and every tax year, getting the number of outstanding miles down helps the bottom line.

    2. Outside of about 0.5% of business travelers, you DONT make their profit…especially with most individuals here who buy discount tickets day in and day out. Or “mileage run”. You only make up about 2% of the EBIT. So where do you think the other 98% is coming from???

    3. It allows them to REALY focus on the individuals and corporations who DO spend higher dollar amounts and actually contribute to the airlines profits. They want to reduce the hoards of EXP and PLAT which in turn allows the airline to again provide a HIGHER level of service to those individuals, and not have over half the plane board when EXP is called….they will also be able to offer other items such as last minute buy ups to First class, etc.

    This really effects a large number of people, that I understand. And reality is that if AA is cheaper you and I know you will still pick them. Its funny to me that everyone here complains about the changes and how they will no longer spend their money on them. But reality is you are NOT money makers for them, contrary to whatever you think. You are actually more like money losers to them, and they will be happy to see you gone and letting your mileage expire.

    If all of the big 3 are offering the same mileage plans, then they are all on level playing ground. Don’t kid yourselves and state that your changing to Delta or United, etc. They are all crappy and we all know it.

  17. @strato
    Not nexessarily if it cost you more to achieve it and you get less once you do…..it all goes hand in hand
    Overall even those who will achieve status will be worst off

  18. @melissa
    I didn’t know that uneducated rednecks read this blog as well
    You can not imagine how stupid throwing obama into this mix makes you look, when a “communist” regime would actually not alliow private monopolies to flourish but also since both the DL/NW and the UA/CO mergers started or completed before obama….
    Now go back to your militia training with M16 in case the givernent comes to take your hard earned american white trash miles

  19. Why one is expecting thinning of the elite ranks? Nowadays AA is selling GLD to select customers for just $299 upfront (without any additional requirement of flying) and was giving plenty of PLT challenges last year without any cost.

  20. These filthy racist Obama haters just can’t imagine how anyone can call them racist since they all have black friends (no, really, they say that!). But not a one of them can even define Communist. I was really hoping Sanders got a whack at them because finally they’d be exposed to the whole world (and not just AM talk radio) while chewing their legs off in public. There are no stupider people on the planet. We’re not even a modern nation until they;re flushed. Hopefully Trump will take them all down the sewer with him.

  21. @Melissa I realise the easy option is to attack someone you don’t like but how about you attempt to engage a brain cell or two before you type – most of the mergers that got us to where we are now weren’t under an Obama administration or even a Democrat administration so I’m not really sure where you’re going with this. Leaving aside the fact you clearly don’t understand what Communism is, just how loudly do you think conservatives (presumably like you) would have been bleating about “Obama’s socialist agenda” if his administration had blocked the “free market economy” that has resulted in where we are now?

  22. @David,

    I agree with you 100%. I am already making plans.
    –For international long haul flights to Asia, premium economy with Asian Airlines (JL) or (CX) until 2/18 when my EP Expires. After that I will consider switching to another alliance.
    –For international long haul flights to India, premium economy on BA until 2/18 when my EP Expires.
    — for USA and Canada flights. American airlines until 2/18 when my EP expires. Then Jet Blue or Alaska or Air Canada. Jet Blue preferred due to nicer seats.

  23. So what I predicted over a year ago, has finally come to roost. Should anyone be loyal to just one airline? Now that all the programs are so much alike, why bother? The lower level status, gives you what? A free bag and early boarding. Forget upgrades, there are so many high level elites on a flight, no way anything is left for the lowly elites. One can get the same benefits from the airline credit cards. So, why bother?

    But it will change. The first down turn in the economy and the airlines will panic big time! That could happen as fast as the Jan. 1, 2017. For European travel, it is happening now. The State Dept. puts European travel on alert, and traffic drops. What do you think happens with a downturn in the economy?

    As far as Delta? Why anyone thinks that Delta will admit that going revenue based has affected their bottom line…..you are just gullible beyond belief?

  24. @Doug,

    How were Frequent Flier programs before the Democrats and Obama got power in 2006? Far better. Then the progressive leftist commies and anti-white racists imposed draconian legislation (like ObamaCare), QE money printing with zero to negative interest rates, digitization of revenue/income products (like your free video watching without purchasing the hardware) and stagflation; i.e., zero growth. What you are left with are private inflation models denying you the free Cathay Pacific 1st class flight with Krug, PJs and Caviar except for the 1/10th of the 1% who don’t even need the FF Miles.

    Write down all of your financially uneducated opinions as you want, call me a redneck, or other… in the end you will fly coach even more, or you won’t even fly at all when your high LDL cholesterol test comes in. Don’t worry, I’ll tell the chef getting tucked in by the hot Asian Cabin Crew on CX. Gary will be in the Eremites Suite. You’ll be angry at on an iPhone with a pain in the neck.

  25. @Ziggy

    Most of the airline and hotel M&A weren’t under an Obama Admin or the Democrats? Hahaha. A real intelligent comment when Google visits the White House 500+ times and your FF program just got gutted to keep you and your Obama-ites out of my Cathay Pacific seats. Come up with another one, I’m getting my Cappuccino wearing my PYE IN THE SKY after take-off. You’ll be get the plastic cup with spring water in coach more often now….calling me more names pressing buttons.

  26. Delta-Northwest was in 2008 under the Bush Administration

    United-Continental was in 2010 under the Obama Administration

    In legal terms there was little basis to reject either. And in policy terms the depths to which the airline industry sank made both desirable from the perspective of ‘saving’ the carriers.

    Both administrations, though, have opposed the one thing that would really boost competition in the industry: allowing foreign ownership of US airlines.

  27. @melissa
    At this point I ( and probably most in the forum) can only feel sorry for you….
    You should seek help….

  28. @melissa
    By the way, since we are derailed off topic by your red brain
    The most obese and unhealthy poorest states are the deepnred in the deep south so , again, your racism is obscuring the facts…….
    I will keep flying, economy, business, etc etc but on foreign carriers instead….aeromexico, lan, etc etc
    Now go get a gun, thats what you do on sundays for fun right?

  29. No better example of the deranged 30-40% of the country than self-parody Melissa. When these morons are more engaged than sane modern people we end up with President Trump. As they teach in the schools of all the modern nations now, America’s rednecks are the stupidest, most malign know-nothings on the planet now, literally destroyers of civilization. SPLC “Terror from the Right” documents they commit more terrorist acts than any religion, nearly one a week since OKC. They are at war with modernity.

  30. Most of the airlines (not to mention pretty much every other large corporation in the world) think that value and cost are identical. But most people don’t live that way. So the result is that fewer and fewer employees and customers feel any loyalty to these huge businesses. Somebody mentioned the panic that will ensue among the airlines during the inevitable next downturn. I can only hope that our government refuses to bail them out as we did after 9/11. The notion that Obama is somehow responsible for the decline in the value that airlines give their customers is pretty silly. I can only think of two things that Obama has done that have any impact on air travel. One is not starting another war in the Middle East and the other is approving one merger. And if Trump is elected, does anyone think that the airlines are going to start treating their customers like human beings? Maybe the drop in revenue that will occur after Trump builds his wall and bars all Muslims will prompt the airlines to give away seats.

  31. A high percentage of my miles and points come from credit card spend. I live in Chicago and have a lot of UA and AA miles. Since I am lifetime plat on AA and have a basically free citi prestige card for lounge access I think it is worth about $50 to fly AA over UA. I have no way of earning any status on UA.

    I fly 8-10 time per year and redemptions on AA have been almost impossible for about 9 months, at least where and when I want/need to fly.

    I am now concentrating my credit card spend on earning Citi thank you points which are used to buy AA tickets at 1.6 cents per point. These tickets earn mileage and I upgrade to first class on longer flights with business extra upgrades. Otherwise I am in economy plus or the exit row.

  32. Melissa obviously went to Trump University. Maybe she’ll post her picture with her and the Donald cardboard cut out.

  33. Just got off a 757 flight and like American it was not the same as other 757s or been other metals. No entertainment system on a 5 hr flight again and their internet access would not work. Good thing I had 3 newspapers.

  34. @Melissa this is a travel blog not a presidential bashing blog not a democrat or republican bsshing blog. Let me make it clearer for you.

    If I wanted your political opinions I would not be a member of this blog. I am here for discussions of travel related items. In others words keep your political opinions out of travel blogs.

    When you want to trash talk the presidency or the congress who actually make the laws then go to the blog “I am not politically correct but have no knowledge of what I am talking about”

  35. Everyone. Please bring the focus back to travel and the topic at hand. This isn’t Slate or Salon. Please?

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