The story broke last night at Traveling Better: American AAdvantage has outlined some of the changes they’ll be making to their program for 2016 and beyond.
I brought the details to American for confirmation, and they did not deny the changes. Instead, spokesperson Barbara DeLollis relayed that they “don’t comment on rumors.”
Nonetheless, and while I’m sure there will be a fuller picture shared by American going forward, here are the details as I understand them:
- Elite status earning remains very similar to what it is today with no minimum spending requirement for status. They’re eliminating the third qualifying method, ‘points’, while making elite qualifying miles easier to earn (a system similar to United’s). Executive Platinums will start with only 4 confirmed upgrade certificates per year rather than 8, but can earn more.
- American will be going to a revenue-based mileage-earning system a year from now copying Delta and United. Golds and Executive Platinums will get a bigger bonus for flying, while Platinums will see a reduced bonus (not surprising, since the 100% bonus for Platinums was too generous).
- We don’t know anything yet about changes to the award chart or restricting benefits on basic economy fares.
From what I understand they view the program as an improvement for high spend customers, while lower spend customers won’t do worse with AAdvantage than they will with the already-gutted Delta, United, or Southwest programs (though in the case of United, award availability on Star Alliance partners is far better).
Elite Qualifying in 2016 for 2017 Status
There are no changes to American’s status levels (there will still be 3 levels: Gold, Platinum, Executive Platinum). Those levels will still require 25,000, 50,000, and 100,000 miles. Qualifying on segments instead of miles will not change.
American is eliminating their third method of qualifying for status: elite qualifying ‘points’. They had an either-or system of miles flown or miles adjusted by type of fare. Those are being combined, with expensive fares earning more qualifying miles than before.
I would regularly buy some expensive fares, some cheap fares, and the expensive fares didn’t help me earn status faster as a result. That changes going forward.
- Full fare first and business class (F, J) will earn 3 qualifying miles per mile flown
- Discount first and business class will earn 2 qualifying miles per mile flown
- Full fare coach (Y, B) will earn 1.5 qualifying miles per mile flown
- Discount economy will still earn 1 qualifying mile per mile flown
Partner-earning charts haven’t been released yet, but will be adjusted along these general lines.
Elite benefits from one year will expire January 31 of the following year, instead of February 28.
Executive Platinums will no longer automatically earn 8 confirmed systemwide upgrades a year. They’ll earn four — with the opportunity to earn more.
Gold and Platinum members will earn 500 mile upgrade certificates for every 12,500 qualifying miles earned, rather than 10,000 (but of course qualifying miles become easier to get especially on higher fares). Beginning in 2018 the counter will reset to zero on February 1 instead of March 1, to align with changing the end of the elite benefits year.
Late 2016 Redeemable Mileage Earning Goes Revenue-Based
American will adopt a system very similar to Delta’s and United’s for earning redeemable miles based on the cost of a ticket in “late 2016.”
Since American has three elite tiers rather than four, you get somewhat different winners and losers. Golds get a bigger mileage bonus than they do today. So do Executive Platinums.
Platinum members — earning 50,000 to 99,999 qualifying miles per year (with no elite level in between) — see their mileage bonus reduced.
Revenue-Based Redemptions are a Mistake, But it’s a Mistake the Other US Airlines are Making Too
Going to a revenue-based system will mean that miles are no longer earned based on distance. Less than a year ago AAdvantage President Suzanne Rubin wrote,
As the largest airline in the world, with a global network that spans 54 countries, our frequent flyer program must also be the best in the business. A mile flown continues to be a mile earned in AAdvantage, and now we’re going to reward customers even more when they purchase a First or Business Class ticket.
Just a year ago declared that in a ‘best in the business’ frequent flyer program, a mile flown must earn a mile. So American AAdvantage appears to be shifting strategy, no longer seeking to be the ‘best in the business’.
There’s nothing sacrosanct about a ‘mile’ but it is a proxy for how much of one’s life a customer spends with an airline. It’s a mistake to reward directly based on spending because it reduces loyalty to a transaction, and because it misunderstands where a customer’s value actually comes from. “Rewarding high spend” isn’t the same as “incentivizing more spend at the margin.”
- A flyer may buy one expensive ticket with you because you are the only airline who flies non-stop on the route. Does it make sense to reward them? Rewarding that customer gets you nothing incremental in return if they’re going to pick your airline anyway. (The same applies for business travelers who are part of many managed travel programs, who may not even be choosing the airline they fly.)
- In general a high revenue passenger is probably better for an airline than a low fare one. But a high fare passenger may trade off with another high fare passenger (for instance buying the last last seat available on a flight that would have been purchased by someone else). That high fare customer wouldn’t actually be profitable in an economic sense (opportunity cost basis).
- On the other hand a low fare passenger may fill empty seats and be pure profit. American’s President Scott Kirby made the point during their 3rd quarter earnings call that when they offer rock bottom fares they aren’t losing money on passengers because it is very inexpensive to carry an incremental passenger filling an empty seat. (Of course if revenue management gets things wrong then the cheap passenger could displace a high fare passenger.)
- Low fare customers may also engage with an airline’s ancillary products. Base airfare isn’t the only contribution to revenue that matters, and other products are often higher margin than the actual airline seat.
- Third party partner customers are profitable too. A member who carries an airline’s credit card and uses it, credits points for their non-air travel to the program, and uses their shopping portal may be a more profitable customer than a high fare one.
The program needs to try to influence incremental business. It may reward a high spend customer but not get additional business from that customer than they’d have already gotten. Meanwhile it might be possible to move the needle with other customer segments.
We Really Aren’t Being Told About 2016 Changes Yet… Seriously?
American has spent the past year and a half rebuilding trust after eliminating distance-based oneworld awards and increasing the price for ‘AAnytime’ awards (spend more miles for more award space) without notice.
If they’d confirm these specific changes now, I think that’s mostly ok. But it’s already November. The information started to leak out last night. American has said that they planned their integration strategy with US Airways around the idea that 90% of people don’t start booking tickets until inside 90 days from travel.
People are already buying 2016 travel, and at least in the case of systemwide upgrades for top elites American is changing the benefits that will be earned from that travel. I really do think they should have announced that change earlier.
Changing the elite bonus for Platinum members from 100% to 60% in ‘late 2016’ concerns me as well. They really should wait until the 2017 elite year to do that.
Members flew in 2015 to earn their 2016 benefits, and that includes 100% bonus miles from flying to continue through February 28, 2017. An announced intention to take that away a few months early is dirty pool. (There’s no recourse, of course, and American even changed the AAdvantage terms and conditions to “disclaim any duty of good faith and fair dealing as well as any implied contractual terms or obligations.”)
The biggest changes affecting the most members – elimination of points qualifying (offset by what many will see as an improvement for high revenue flyers) and moving to revenue-based accrual (coming with a year’s notice) – don’t raise this same concern.
Several Unanswered Questions
Of course we don’t really know how to evaluate these changes with only half the story. It’s about earn and burn and we know how status and miles will be earned and not about changes to redemption. How much those revenue-based miles will be worth in the future is an open question.
Ultimately these changes are probably as good as it was going to get – both in terms of notice (we do get a year warning they’re going to revenue-based earn) and changes (they really aren’t changing the elite program much). At least until any next shoe drops either in terms of award chart changes or restricted program benefits or mileage-earning on ‘basic economy’-type fares.
And while I think I know some of the answers, I don’t yet have confirmation on several important questions such as:
- What changes will be coming to the award chart?
- How do Executive Platinums (and Concierge Keys) earn more systemwide upgrades? What are the thresholds? Will those systemwides change at all (their terms and conditions, eg valid on all published fares)?
- Does American believe it will be awarding fewer miles for flying once it makes the shift to revenue-based earning in late 2016, since break-even earn with current system is at an average fare higher than American’s current passenger revenue per available seat mile divided by its load factor?
- Will current premium fare redeemable mileage bonuses continue in 2016 (at least until switch to revenue-based)?
- Is there any change to Citi/Barclays qualifying miles earning from their premium co-brand cards?