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.