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.
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.