A year ago American filed with the SEC that credit card signups were lagging and materially affecting their revenue projections. United also said credit card signups were disappointing for them. But it’s difficult to know the numbers behind this.
American used to offer a ton of financial data on AAdvantage in its SEC 10-K, but they no longer do. In general airlines provide very little specifics relative to the multi-billion dollar revenue contribution the programs are making.
So we get broad pronouncements and that’s it. Although it’s pretty clear that MileagePlus revenue is stagnating and that any growth at all is coming from the sale of miles to Chase for Ultimate Rewards points transfers.
American acknowledged in their 10-K filing this year that they face significant competition from bank points programs, and that this is an area of risk for their loyalty business.
In this morning’s American Airlines earnings call we were told,
- They are seeing double digit year over year card acquisition growth. That’s off a low base, since a year ago card acquisition was so low as to trigger an 8-K filing with the SEC. But they say they’ve recovered.
- Spend growth on their cards is outpacing GDP growth though we don’t know by how much and this isn’t surprising based on broader trends.
One airline analyst asked, “Why not offer consumers a fair rate [for sale of miles]?” He was seeing some of the high prices charged for miles, and couldn’t imagine anyone taking advantage of those offers. In fact American does sell miles for a lot less than they used to, very regularly. This wasn’t mentioned in response.
Instead the airline talked about the loyalty program’s contribution to the business. But the underlying question really was, why not sacrifice margin for revenue growth?
There are really no barriers to entry for large companies like banks to get into the travel loyalty business, so the idea of better than 50% margins seems unsustainable. American discloses that as a material risk. Why not sell miles cheaper, or increase the value of miles (stem the reduction in value at least), to win business or prevent loss of business?
That’s the question airlines are going to have to grapple with in the next couple of years or they’ll find their multi-billion dollar frequency business at risk.