More Revenue-Based Changes Coming to AAdvantage in 2018 and 2019

On this past week’s earnings call, American Airlines Senior Vice President of Revenue Management called out changes being planned for the AAdvantage program in 2018 and 2019.

Answer a question about all of the efforts they have in the hopper to increase revenue from customers, Casey summarized:

I think we have a number of initiatives that are part of our portfolio that have been rolling out that are all designed around increasing yields. So Basic Economy, all right, that increases yields, because while we were matching the fares before, now 50% of the people that were buying these fares before are not going to be paying more than they paid.

So that’s the increased yields. Premium Economy, which we’re going to roll out in the wide-body is again increasing yields. This is really a leisure product. And we’re seeing people buy up from economy into the Premium Economy cabin. That’s going to increase yields. We now have the leading product – business class product among U.S. carriers in the long haul and we’re seeing tremendous demand which is allowing us to actually sell up through the fare ladder into the premium cabin. That increases yields.

All the initiatives we have in the sales organization side is getting a better share and we’re seeing it today in our high-value channels. All of that increases share or increases our yield premium. And on the RM side, we’ve made a number of changes both in terms of our infrastructure and to our business process, which is all designed around selling out more effectively, which will increase our yields. And we have a host of initiatives coming in the AAdvantage program later in 2018 and 2019, which are going to attract more high-yield customers which is going to increase yields. So I think we got a big portfolio of initiatives that are all designed around increasing yields.

(Emphasis mine)

Along with basic economy (offer a product so bad that some customers will spend more to avoid it) and premium economy (a little more comfort that customers will pay for on international flights, without being good enough that business class customers ‘trade down’), there are several changes to the AAdvantage program planned for 2018 and 2019.

These are changes designed “to increase yields” just like basic economy and premium economy are. They’re revenue-bsaed changes that are meant to attract high spending customers.

Except of course that none of American’s changes to date have rewarded high yield customers, those customers have just been punished by changes (e.g. more miles for award tickets, less availability, fewer systemwide upgrades) less.

Casey didn’t share what these changes will be. We’ll find out in due course. There are, however, changes I think are more likely than not American could make designed to extract more revenue from frequent flyers:

  • Systemwide upgrades good for only one class of service. With the rollout of premium economy to the international fleet, you’ll have to buy premium economy to upgrade to business class, thus charging customers more who want to upgrade.

  • Domestic premium economy A year and a half ago then-President Scott Kirby said that premium economy would be coming to American’s domestic fleet sometime in 2017. A couple of months later Kirby talked about this bringing changes to elite benefits which they’d have to notify members of in advance.

    Delta sells their extra legroom seats as a separate cabin, and ‘upgrades’ members to it. We know from investory day that American plans to offer free drinks and dedicated overhead bins to their Main Cabin Extra extra legroom seats. And American has talked about treating it as a separate cabin. Perhaps buying these seats will be necessary to be eligible for domestic upgrades.

  • Further changes to earning by fare class maybe elite status will require more miles, easy to hit on premium fares, or the lowest fares won’t earn full elite qualifying miles.

It’s not 100% clear what American has in mind that will make the program more revenue-based than simply having copied United and Delta with awarding miles for flying based on ticket price rather than distance flown and imposing minimum spend requirements for elite status.

At some point customers just leave, something we know anecdotally is already happening but that in the aggregate American says is not.

As for what changes will actually get rolled out, Don Casey has let us know we’re going to find out.

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 »

More articles by Gary Leff »

Comments

  1. “increases share or increases our yield premium” The problem is: customers (including me) do not get it. We think they don’t care about us. Well they don’t care about us. They just want to increase share or increase yield premium. It is not about us or what we need or want. It is about them. That is where the disconnect is. The sooner we, the customers get that, the sooner we will quiet complaining. They only have one thing on their mind. We customers have a totally different thing on our mind.

  2. Do the folks at AA read your blog? They are idiots.

    Just like the comment before this. They are looking at things from their viewpoint, and not the customer’s.

    They are clueless. And will lose even more customers over these changes.

  3. I’ve already left. It was a tough decision just because doing nothing about it was easier than doing something. Tired of the “tweaks” and “increased yield”. Luckily I am able to fly Alaska and got a status match. So far (1 year) it has worked out for the better.

  4. It will be November in a couple of days. To think there could be meaningful changes to the model (for status) in 2018 that to date have not yet been announced is super unfortunate – and borderline ridiculous.

    Perhaps I need to take a pause on planned Q1 ticket purchases until the (further) dust settles.

    I’m sure that’s what they were going for. Keep seats unsold so they can sell them for higher yields closer to departure. Good luck with that model.

  5. Count me, an Executive Platinum for most of the past 20 years, as one of those (perhaps many) customers who now are flying mostly other airlines, especially on international business class flights. When I can occasionally use my AA miles and co-pay to secure domestic upgrades at the time of ticket purchase, I’ll do so. Beyond that, it’s good-bye AA and hello Alaska (with a nice status match), JetBlue and whichever international carriers are offering the best deals for business class travel.

    Now, will such changes in flying habits really impact AA if enough people switch? I kind of doubt it. AA is part of an oligopoly that’s severely limited at least domestic competition and is doing it’s best to limit foreign competition. It could be that it’s in a no-lose situation, since Delta and United are going down similar paths.

  6. These executives are idiots. All of the continual cutting has just lead to me to choose to — drum roll please — stay home more often. Not much profit for them in that I guess?

  7. Do these upper middle management guys know they have created large groups of people who now hate to fly?

    The obfuscatory Casey’s writing is unintelligible. Of course, does it matter what anyone says since changes seem haphazard, seldom according to plan and always, always to the customer’s disadvantage and shareholder’s benefit.

    “What fresh Hell is this?” Dorothy Parker’s famous substitute for “Hello” in answering the phone.

    Right now, every trip is an unpredictable — usually miserable — experience.

    Only those people for whom flying is a necessity have a hope for better days, as they engage in the preferential treatment quibbles and quarrels.

    My goal is always to get on a foreign carrier as quickly as possible and get away from the “legacy 3” (what legacy is that?) as quickly as possible — any Asian carrier or BA directly out of Phoenix.

    Good luck road warriors.

  8. I’ve always said for those that thought those swus would be y to j going forward, they were naive. Of course it’s going to be y to pey. That was common sense.

  9. Baseless speculation. No info here. Of course revenue management is going to be looking at changes to increase yields. That’s their job. That’s the job of a for-profit, publicly traded company.

    Just because the changes have not benefited you personally – is not to say that have they haven’t benefited some. You aren’t the target customer type.

    EXP here, mostly lowest Y travel, sometimes in W, never paid J or F. Only change that’s mattered to me is the 8–>4 cut in SWUs. And AA’s SWUs are still more useful than UA’s equivalent (fare class restriction) and DL’s, where I wouldn’t qualify for top tier. Domestic upgrades? meh.

    A lot of people don’t care about RDMs. I am one of them: devalue that part of the program as much as you want – it’s largely irrelevant to my choice in carriers.

    Want to positively impact the utility of the AAdvantage program, Gary? Stop pushing AA credit cards with massive miles bonus. Flooding the market with currency units does not make that currency more valuable.

    (and absolutely cracking up at the poster above who is fleeing the US legacy carriers to BA. lol – BA is worse than AA, DL, or UA in literally every possible measure.)

  10. I think they will aim to begin simplifying the entire concept. With revenue based rebating and a-la-carte offerings, are fare buckets needed anymore?

    Does status matter anymore when those with high mileage balances can just pay for upgrades on demand with their large rebate balances?

    In a way I prefer this kind of system as it’s focus is on a single dominating factor rather than on us hacking the system. I will admit however this would probably be bad for the blogosphere.

  11. Yep, “funny Bob, I find that BA suits me 10X better than AA for a variety of reasons”, also.

    I see you must be a product of the Casey school of management as well as writing: “Of course revenue management is going to be looking at changes to increase yields. That’s their job. That’s the job of a for-profit, publicly traded company.”

    Gosh, I guess you and Casey forgot in the job description: longevity, permanence, customer loyalty, staff loyalty, stability, reliability, growth and long-term yields in publicly traded companies.

    Southwest has managed all of the possibilities and increased yields very nicely thank you. I’m not crazy about fiesta boarding, but I don’t dread the experience of flying with them.

  12. Doug’s job is to provide value for shareholders, which is generally done by increasing revenue and profit. As long as he feels the changes won’t negatively impact- no matter the impact on the customer- these changes will keep coming. Especially when most of the US3 changes are quickly copied by each other.

    If the general feeling is that big corporate contracts aren’t going to shift to other airlines, and that most leisure travelers are going to prioritize 1) price and/or 2) convenience regardless of any AA changes, we can expect these changes to come.

    More competition would help. But with the US3 controlling so much share, it’s a tough industry to try to compete in.

    I think Doug’s talking points would say that they are investing in the product (new aircraft, interior upgrades, lounge upgrades, food, etc.), and that for those customers who want to pay real $$, they will get a good experience.

    All that said, the focus on the customer is obviously missing. We’ve all had experiences where we’ve thought… ‘wow, I’d never run a business that way’. And for the most part, we keep coming back for more.

  13. Translating Bob, AAdvantage is not a loyalty program today. It was created as such, until the airlines realized it had great potential in its own right as a profit center. Airlines did not have to fly so much; just sell the miles to others. So let’s be clear about this, AAdvantage is a revenue enhancement program. Customer loyalty has nothing to do with it.

    The credit card companies are getting screwed by buying miles with diminishing value, and the customers are simply guinea pigs, going where the carrot leads them. As banks fail to reach marketing goals by giving away less valuable revenue-enhancement miles, they will realize other enticements have more enduring value.

  14. As I just posted on an earlier topic, the board of AA (and frankly the entire industry) will be very sorry they didn’t preserve the tremendous loyalty (if not addiction) they used to have with their customers.

    It doesn’t take a brain surgeon or business expert to see what can happen. This is an industry that is ripe for disruption.

    Let’s see, is there anyone who:

    * Has some expertise in converting vertically integrating a core need of their underlying business (huge server and computing power) into their #1 and only profit center (and backbone of the commercial Web).

    * Has an additional, essential need – for cargo to get to every corner of the country if not the world.

    * Is already running and expanding their own commercial fleet, generating valuable institutional knowledge

    * Has enormous sums of capital to burn

    * Has an established subscriber base of millions of potential self-loading freight that could be given perks or “status” on this airline as part of their subscription, or credit card, or whatever.

    Etc Etc. My prediction is that Amazon will get much more involved in aviation one way or another. Just on Friday, their market cap went up about $65 billion – the ENTIRE value of Federal Express.

    Is it that much of a stretch? Say Prime customers get to sit in the extra legroom section. Or perhaps they flip the script, it’s Amazon Prime Airlines, you can ONLY fly them IF you are a Prime customer and its all extra legroom. Maybe they run combi aircraft. Or whatever the scheme might be.

    Or maybe they decide to put their second headquarters in Texas, like so many companies have and where the biz climate is so much more attractive, and just swallow up AA like a feeder fish.

    Really think some these things can’t happen? Who knows, let’s see who the customer for this rumored 767 order is?

    You heard it here first.

  15. Agree about BA: flew Heathrow/Istanbul recently on BA. A three hour international flight. Not even free water. They couldn’t figure out to charge any of my cards: too bad. Just off a nine hour Transatlantic fight and thirsty? Too bad.
    And that was just the tip of that crap iceberg.

  16. When I have the choice between AA Basic Economy and Southwest Airlines, I now choose SWA. I travel shook much, I deserve to be treated like the ELITE member I am. The new basic economy fare takes that away from me, even though I’m Platinum Pro. SWA treats me do much better for the same low price. When basic fare allows Platinum members the standard benefits of economy is when I’ll switch back, assuming AA didn’t take to long to realize their disloyal treatment of loyal customers is a bad idea.

  17. When I have the choice between AA Basic Economy and Southwest Airlines, I now choose SWA. I travel so much, I deserve to be treated like the ELITE member I am. The new basic economy fare takes that away from me, even though I’m Platinum Pro. SWA treats me much better for the same low price. When basic fare allows Platinum members the standard benefits of economy is when I’ll switch back, assuming AA didn’t take to long to realize their disloyal treatment of loyal customers is a bad idea.

  18. Autotext botched my initial response. So to repeat…

    When I have the choice between AA Basic Economy and Southwest Airlines, I now choose SWA. I travel so much, I deserve to be treated like the ELITE member I am. The new basic economy fare takes that away from me, even though I’m Platinum Pro. SWA treats me much better for the same low price. When basic fare allows Platinum members the standard benefits of economy is when I’ll switch back, assuming AA didn’t take to long to realize their disloyal treatment of loyal customers is a bad idea.

  19. It would be nice if the things they did to add value for high revenue travelers were net gains, not returning things they took away.

    If you’re reading, AA, here are a few suggestions:

    1) Remove the 75k mileage cap on tickets. If I buy a really expensive ($8k+) ticket as an EXP, you’re reducing my earnings because I spent too much. This has happened to me a few times already. What are you doing?!

    2) Borrow a few ideas from Jetblue’s Mosaic program around giving your most elite flyers some freedom from change and refund fees. If I’m spending $20k+ a year on you, why are you hitting me up for a $200 fee and playing games when I cancel a flight? It’s annoying — don’t treat me like you don’t know I’m spending megabucks on you.

    3) There’s not much value in your elite status for someone who flies a lot and almost always buys premium cabin. Upgrades aren’t worth anything to me since you mostly only have 1 premium cabin and I’m in it with my dollars. You already give me Flagship lounge access on the majority of my trips (transcon and int’l). I get the early boarding, fast security, extra bags, and free food/drinks with the ticket I buy.

    4) Fix your irregular operations policies for paid premium cabins. Putting me in coach when you’ve got upgraders (or staff) in premium sucks. Not refunding my fare difference when you downgrade me to a single cabin flight sucks. I always buy premium, I bought premium, and you didn’t fly me premium — you’d be crazy not to fall over yourself to make it right for me.

    5) Jetblue Mint is going to eat your lunch on domestic non-transcon flights if you don’t get your act together. I book away from you (and pay much more) to fly them on those routes already, and they’re more routes every time I check. Figure out how to compete.

    6) The international 757 and 767 product is disgraceful. Get it up to the level of your 772s (if not 77Ws) or I’m booking somebody else. LA’s 787s or A350s are a vastly better ride to South America. Europe was way too LHR-centric before Brexit, and now it’s even worse with BA trashing their “Club Europe” premium cabin service. Figure. Something. Out.

  20. @RJR — “It’s called Fucking GREED.”

    In polite circles, it’s called business.

    The idea is to make passengers pay for the services you receive. If you want a Spirit-like fare, expect Spirit-like service. If you want to fly first class, pay first class fares. For those of us used to “doing better than this” — aka, buying cheap fares and flying up front — the gravy train has largely ended.

    While the disruption isn’t pleasant, no one is really entitled to more than they pay for. Airline margins aren’t huge, and they’re under pressure now from rising salaries (you can’t pay employees bankruptcy-era wages when you’re making solid profits) and gradually rising fuel prices. So fares are going to rise. That’s free market capitalism. If you want something else, you can try Venezuela.

  21. My reading is that AA’s plan is to incentivize more companies to sign contracts forcing their employees to fly AA, thus providing a captive customer base. They’ll go after the no-loyalty price-is-paramount leisure passengers with Basic Economy, and try to upsell anyone in coach to buy up to Premium Economy.

  22. @iahpdx

    What AA is doing to the AAdvantage program seems quite similiar to Venezuela.

    Venezuela printed money like AA does miles for short term return (from credit card companies) as they devalue the it to a level where there is less and less demand.

    Venezuela lost business partners as each became harmed by their tactics. Even middle class loyal citizens moved away further hurting their country long term.

    AA seems like the current management is willling to destroying term loyalty for a couple short term bucks. Obviously it is good for their short term stock options…

    So was the tactics as other companies that didn’t go well long term.

    Loyalty is a business Advantage AA was a leader in to develop long ter shareholder value.

    To me, it feels like the current management is doing something simiar to taking a loan on a 401k that was invested in for years as a big short term show of extraveganve on thier earnings. Stealing from the value their predicessors built and devaluing the currency their customers invested into. That sounds a lot like Venezuela to me….

  23. I’ve already moved $20k of spend to United this year. The only reason I continue to fly AA is comp upgrades on transcons and I’m assuming they’ll gut those soon too.

  24. Why validate possible awful changes by mentioning them, specifically the one class systemwide upgrade?

  25. Get rid of all FF programs. They no longer serve any useful purpose to the flying public, other than a source of angst. Force the airlines to compete on PQS – price, quality and service. The paying customers can Pick any two.

  26. Right now I clutch at FF programs for one reason: to stay away from the claustrophobic 17″ wide 29-32″ pitch seats crowded into planes and filled totally. I would never submit myself to these conditions on a train, commuter train, bus, car, or meeting room. I certainly don’t do so willingly on a plane. These rush-hour subways in the sky are more hellish than I can handle.

  27. I’m mostly gone, went from EXP three years in a row to just 18k EQM this year. I’m LT Gold, and there are some flights where schedule requires me to take AA or WN, but 70% of my business has gone to DL/AF/VS.

    I’m going to downgrade my credit card in March and give up the Admirals Club, and use the $400+ I save from that to buy some domestic F when I can do a 3-segment day (120 BA Tier points). 5 of those days and 4 IB flights and I will have BA Silver with lounge access and MCE at ticketing again, although no upgrades.

    I’m really not sure how AA is making more profit from me this way.

Leave a Reply

Your email address will not be published. Required fields are marked *