Randy Petersen Calls Me Out: Should American Make a Revenue-Based Frequent Flyer Program Their IT Priority?

They say you should never pick a fight with someone who buys ink by the barrel. Nevertheless last month I called out Randy Petersen‘s September editorial in Inside Flyer for suggesting that American get ready for a revenue-based program right away… contra the statements made by the airline’s CEO that the focus now is on merging two airlines and that decisions about those sort of changes come later.

Randy follows up by calling me out in the opening to his October issue of Inside Flyer, and says he wasn’t advocating that American adopt a revenue-based program, just that they build the IT infrastructure now to do so.

He has this to say about me.

He’s a wonderful person and a smart frequent flyer–and I don’t understand why people at times refer to him as “Mr. Fancy Pants”–he’s never come across to me as a GQ kind of guy. …

…Seriously Gary, that is so yesterday. Minutes later, I began the ‘blog scan’ part of my day (made easier with the new front page of BoardingArea) and there it is, on one of the most popular blogs for road warriors in the entire world–“Why American Has Its Frequent Flyer and IT Priorities Right (and Randy Petersen is Wrong)” Gee, Gary, couldn’t you have toned it down just a little? Maybe said, “I found Randy Petersen’s recent editorial to be of interest, here’s my take on the topic …” But NO, Gary declared I was wrong. Wrong in front of more than 50,000 people. So, okay, I take the obligatory chill pill (I eat a piece of chocolate) and read about how wrong I am. Apparently Gary loves to see huge public companies blunder their IT expenditures. Maybe he and Carl Icahn are shorting American’s stock? Who knows

Here’s what he wrote in his original editorial:

If anyone reading this were CEO for the day, would you not have the topic on your plate right now? Or would you rather in two years, when you decide to move to a revenue-based program because your major European partner, British Airways is doing so, spend a few hundred million dollars to redo the database and technologies?

And Randy says in his October editorial,

I believe that the technology required for American’s future should be a topic now, regardless of the future of the loyalty program. I implore Doug Parker to tell the truth, that they have indeed considered a revenue-based program.

Now, as Randy knows, they certainly have had this on the table in the sense that they’ve spent time thinking about it, talking about it, walking through what it would look like. It would be impossible not to have.

It was on the table at US Airways, once of the first programs to expand redemption tiers beyond the traditional two — the move that Delta is extending to five as they get closer to revenue-based redemption. And American has followed that lead.

And as shrewd business people, they watch the competition and moves in the industry closely. I never suggested that American wasn’t building the architecture to better track revenue by customer. AAdvantage made a big database transition nearly a year ago, something that had been several years in the works, and it provides them a much greater ability to do just that.

Parker never said “we don’t even spitball ideas like that.” He said, in effect, ‘we’re not going revenue-based now, because we have bigger fish to fry.’ And they do:

  • Merging hundreds of IT systems active between three – not two – airlines (America West, US Airways, American)
  • Merger frequent flyer programs to create a customer database of over a hundred million members
  • Obtaining a single operating certificate for two airlines
  • Integrating passenger systems and reservation databases.

All while integrating operations, policies, workforces, and trying their darndest to obtain the benefits that the merger promised and that senior leadership will be judged (and bonused) on. And while not angering customers too much.

Parker said ‘not now’ to a revenue-based frequent flyer program, and that’s the right move. He didn’t say “let’s not think about tracking more information about our customers.”

They’re building the systems to port Dividend Miles membership over to AAdvantage, and they want to get that right. It’s hard enough to do that, and harder still to go through a multi-year process like Delta and Southwest did to rebuild their loyalty programs at the same time. There’s no reason you need to do that simultaneously. And there’s not obvious IT advantages to such a full speed ahead big bang, the kind of thing they’re trying to avoid after having seen United implode operationally as they combined with Continental.

And while merging the two loyalty programs, their new systems should be flexible, so that if a day comes when they realize that their competitors’ loyalty program decisions were wise, they don’t then have to begin a three-year process of building a new system, spending hundreds of millions of dollars to do so.

Remember, Randy, they aren’t building a brand new system. They are keeping the basic architecture of the larger airline. Meanwhile, they have not far off of a thousand systems to integrate, of which this is just one.

Gary’s kool-aid is the mantra “integrate before we innovate.” Gary, change the flavor, a revenue-based frequent flyer program is no longer an innovation. Gary is never wrong, but I will be proven to be right at least 51 percent of the time.

It’s not my kool aid, it’s American’s mantra. And innovation doesn’t just mean “doing cool things no one else has done before.” It means “pursue changes.” They want to get the integration right, they do make some changes at the margin while they go, but they’re following the merger script. Do you really want to throw on more IT projects, and more uncertainty? Personally, I’d rather fly an airline whose systems work and that gets me going on time.

I’ve long taken my miles advice from Randy Petersen’s shop. But not my IT advice.

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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  1. It’s painfully obvious there was a “create controversy” segment of the seminar at the boarding area conference. Feel like I’m watching sweeps week of my local news in 1992.

  2. gleff, is Randy Petersen going to finally give you the keys to the HOM as part of his succession plan for this game “after Randy”? You seem to love the publicity even more than Randy. ­čśÇ

  3. Why not just move fully to EQP? Fewer points for discounted economy, maybe tweak it so that full fare economy matches discounted business/domestic first class.

    Just north of the border, Air Canada already does it with deep discount Tango at 25%, flex fares at 100% and full fare economy at 125%. That already approximates revenue generation, but without the IT requirements.

  4. BA recently has had a touch of one of those Simon Cowell TV shows where they engineer some sort of drama among the judges anytime things are flagging on the content side.
    Almost every week now, it seems one blogger is picking a dispute with another BA blogger.

    FWIW, I think you are right re: AA

  5. Folks,

    I don’t understand this post.

    I don’t understand the premise that anything other than revenue based makes immediate sense for the airline. While I understand the intellectual argument “take 10 $4,000 accounts and make them $6,000 accounts” has it’s adherents, it pales into nothing versus taking one $40,000 account and making it $60,000. It’s called concentrating on your most valuable customers. I am in the latter category (bias) and have never understood why airlines ever pursued the first over the second. Apparently they increasingly agree.

    Secondly, I run a large multinational IT shop. There is nothing more inherently difficult between “design me a new system and make it future proof and then migrate” versus “take three existing systems and make them compatible without changing anything too significant and then migrate”. If anything the latter is more difficult because arguments about “compatible” are longer and more protracted than arguments about “new and desired”.

    I understand the continental merger was a mess. That doesn’t mean it was the wrong approach. It just means the people who did it should be fired.

  6. You’re right, Gary, that AA should concentrate on getting the IT right for what must be merged and for significant operations a decision has been made to change. It will be stunningly lucky if all THAT goes well; adding optional or “maybe someday” IT projects would only increase the already too-high probability of an IT crash-and-burn.

  7. Why on earth do you and other bloggers think you have any clue as to how to go about merging and developing IT systems for this or any other merger? Please stick to blogging about those areas in which you have expertise and can impart wisdom.

  8. Randy: “Hey Gary”
    Gary: “Yea?”
    Randy: “You know how we can increase page views? Pretend like we are arguing.Just pick any subject, it doesn’t really matter.”
    Gary: “Wow, great idea”

  9. The abysmal IT support for DL and UA’s revenue-based programs (not counting spend on partners, etc) demonstrates the importance of putting development effort into this in advance. It would be best for readers of this blog if AA never switched to a revenue-based program, but if they’re going to do it eventually then it’s best if they can get the IT support right.

  10. The article says that BA is possibly moving toward a
    revenue-based system. Isn’t the Tier Points system already that?
    I hope it is not going go get even tighter.

    What with increasingly valueless Avios, the only reason to keep up Silver Tier status is lounge access, prevferential check in, and some perksfrom One World partners. If they set the bar any higher,theywill force a new cost/benefit analysis.

  11. The IT issue is overplayed. I suspect the main reason they are not doing it is to different. The thing is that those customers who have so much to spend that they will make out like bandits under the new program don’t acfually need frequent flier programs that much. Sometimes it pays to be different.

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