Two parables from frequent flyer history tell us a lot about the AAdvantage devaluation that was announced this week: that the fault for it lies with you (mass noun) and why American doesn’t take as much heat as programs that devalued earlier and thus gets away scot-free.
Why American Gets Away With Devaluing Now
Two decades ago both United and Northwest were on the verge of introducing Saturday night stay requirements for domestic saver awards. The idea was that they didn’t want mileage tickets to be used by business travelers who would pay more, so they wanted to segregate business travel (at the higher mileage level) and leisure travel (at the saver).
I remember an executive from Northwest telling me back in 2002 that they had gotten wind of United’s plan, and decided to let United go first.
United did roll out the change. Customers were up in arms, and a letter writing and phone campaign got United to abort the move before it was even implemented.
In the meantime, though, after United made their announcement Northwest made theirs. To Northwest flyers this was terrible, of course, but expected since United had already done it. United bore the brunt of the criticism. Northwest’s changes took. Continental did the same thing. Eventually so did US Airways. And those Saturday night stay requirements remained in place for years — Northwest’s only went away with the Delta merger (one of the few bright spots that resulted for Worldperks members).
Not only did United and Delta move to revenue-based mileage earning first (and American won’t follow for a year), but both devalued their award charts first — we haven’t seen a big award chart devaluation from American since they introduced one-way awards. And now that American has devalued, we can see they were careful to offer an award chart that’s still a little bit better than United’s and Delta’s (indeed, American still has a chart).
I’m deeply disappointed by the AAdvantage program changes and I’m precisely the consumer hurt the most by the award chart changes. Despite my best efforts to spend miles quickly I have a seven figure balance that doesn’t start with a one. I had large balance with American and with US Airways, so of all the airlines to merge this combination was not a convenient one for me. And I like to redeem for international first class awards the most — precisely the awards taking the hardest hit.
Cathay Pacific First Class
And yet it’s been so expected for so long, we’ve had a reprieve largely because of the focus at American on merging with US Airways, and they came in behind their competitors that they get away with it. Of course consumers used to win when they objected to loyalty program changes, and they don’t today. We don’t have the leverage we once had.
Why the Devaluation is Your Fault
I’ve said over and over for many years that any opportunity that’s orders of magnitude more generous than the median offering is ripe for devaluation and won’t last, so enjoy it while it’s offered but expect it to go away.
American AAdvantage first class awards are the most glaring example of an opportunity underpriced relative to the competition so it’s little surprise that those are the awards that took the biggest hit (bludgeoning, really) when American announced their new award chart going effect March 22.
In order for it to have made sense to American to continue being more generous than the competition, they’d need to see a return on the additional marketing spend.
During the Great Recession programs were for the most part more generous. Hilton stood alone devaluing back then. And Hilton Senior Vice President Jeff Diskin was remarkably honest about why they did it.
We were and have been, sort of “over indexed” for some period of time in terms of the value of some reward properties, and frankly we weren’t getting credit for that. Because what the research pointed out is what you do with your points is of great interest to you when you’re looking to shop with them. People are looking to shop with them because they are looking to offset the cash outlay with whatever points they’ve accumulated. So everybody is within the same environment which is very difficult for people within the hotel space. What it does is basically focus on the return on spend that members get. And being over indexed in terms of the base level doesn’t give you enough payback because not enough people can understand or know what it is.
That’s fairly dense corporate-speak but he’s saying that Hilton was offering more value than the competition, and consumers didn’t really ‘get’ that. They pay attention to the value of their points after they’ve already stayed enough to earn them and look to use them. So Hilton wasn’t getting enough extra business from their generous loyalty program. As it result it didn’t make sense for them to keep being so generous.
American must believe that consumers weren’t giving them enough exta business to justify their relative generosity. They’ll lose some business with the devaluation, but not enough that it’ll matter relative to the cost savings they’ll achieve.
I’m going to be less loyal. I’ll still fly American and earn top tier status with them, but I fly behind just the 100,000 qualifying miles a year required for that. I’m now much more likely to give that incremental business to other airlines based on schedule and price, and even to buy the occasional discounted premium cabin ticket on another carrier — and certainly not to spend more to stick with American.
No doubt there are others like me, but not enough others. So it’s ‘your’ fault, the broad you of airline customers, that fail to reward a generous program enough to make it clearly worth the generosity to American. Hilton told us that 5 1/2 years ago. American just reminded us.
Lessons for Programs and for Members
Members: if you do not want programs to devalue, reward the ones offering the greatest value with your best business.
Programs: if you don’t want the greatest heat when you play Lucy to your members’ Charlie Brown with the awards football, don’t lead the charge. Let other programs move first.
This shows you do not understand fundamental supply/demand dynamics.
If demand for the more generous programs increase, then there is a an incentive to reduce those benefits since demand is so high. Demand rises, prices rise.
American would be much more likely to keep its generous ff program if people didn’t use their miles, rather than abuse it.
@LR demand alone doesn’t get you there, but the point is the demand isn’t there. My Hilton point is that there are information challenges, consumers don’t really know the difference. And American presumably believes offering a better program doesn’t attract enough consumers to justify the expense — they’ve got a couple of years of data comparing their program with the results United and Delta are seeing. I’m not certain they’re RIGHT, I’m just trying to offer some insight into motivations of the programs.
Parker constantly says he wants to be better than the other legacy carriers but he consistently does things that sets American on the same level as them.
Personally I fly only on miles and the the airline gift cards that are reimbursed by credit cards offering that type of credit. Although clearly I’m not that profitable of a customer, I am helping the airlines I frequently fly by constantly “paying them” through my active credit card business. Southwest and American probably get 1000’s of dollars in value from me each year from Chase and Citi “on my behalf.” In other words I’m paying them through my partner activity. If they devalue, they are getting paid more per flight through this partner activity.
Points and Miles are a form of global economy. Currency speculation, inflation, deflation and arbitrage all apply. The major problem, for all of us, is that there is no relatively stable currency in which we should hold our reserves. As a result our goal has to be spending rather than saving. If we ever lose sight of that, well, we’re toast.
The economy will have a downturn in the future, travel utilization will fall off and the providers will cut costs again but they W I L L sweeten their offers to the travelers still out there.
I never fly Delta for business or family travel anymore after the massive devaluation. I stay much less at Hilton’s after their massive devaluation. I will fly American less after this gutting of premium cabin value.
These airlines are gutting their award charts so much faster than the pace of inflation that miles are becoming less intriguing relative to cash back cards on spend.
Hi Gary,
I have to dispute your statement ,quote “….and I am precisely the consumer hurt the most by the
award chart changes “.
Look at what they did to us,Canadian.
Michael at YUL.(Aadvantage lifetime Gold )
One of the most laughable points on this chart is the increase in the miles required to travel to Africa. Aside from a few new destinations with QR, AA’s Africa destinations are *all* on British airways, and from what I’ve seen, they *all* come with big fuel surcharges. It doesn’t really matter if Africa went from 100 to 120k, then, becuase in either case, I’m not looking to burn a ton of miles for the opportunity to hand BA 600 bucks.
The basic fact of the matter is that the airline companies have reached an equilibrium where, on a scale of 0-10, they can devote level 5-7 resources to competing compared to devoting level 7-9 resources competing when there were 7 major airlines. Now there are only 4, and the consumer has suffered. All those losses the airlines accumulated over the early 2000s will be easily offset by 3-4 years of profits, and there will be no looking back after that. Let’s hope Starwood/Marriott does not trigger a wave of consolidation in that industry.
Almost daily drumbeats of downgrades Parker is making to American. He only knows America West and that’s what he’s making American.
Pity he’s too dumb to understand that the Advantage program was the one most singular advantage AA had over the competition. And it’s the most-loyal business customers he’s driving away with this move.
The fault for all this lies with the banks. Half AA’s income is from selling miles to Citi and Citi is getting hosed by Parker. The banks need to go after these con men.
I only flew AA the last year or so because of the miles premium. When that goes away in the second half of the year they’ll need to be the cheapest in order for me to fly them due to their unreliable regional operations that have invaded my city since the merger. I had more trouble with AA and 2015 irrops drama than in 12 yrs with UA
Not sure how you are precisely the consumer most hurt by this. If you have a crooked number 7 figure balance you can’t use, this will help you to use it rather than keep accumulating. I assume you got this balance off the backs of your readers who click your affiliated links? Hard to get that kind of balance from credit card sign ups and if you have that many miles your not buying tickets.
@Flewis,
Think Etihad or Qatar to Africa…to avoid BA fuel charges
I disagree. American is devaluating its AAdvantage program because in the US we only have 3 global carriers so it doesn’t have to worry about competition like it did when NW, US and CO were around. That doesn’t mean that AA won’t launch saver sales to destinations where it has excess capacity (like UA does with Europe and Hawaii every spring).
@Marriott Marty – booking Etihad means two separate awards (US-Middle East / Middle East – Africa) so additional miles.
@fathiss – I did not get any of the miles from credit card referrals. I earned the miles via flying, credit cards, checking account, etc. and remember that US Airways miles were combined into AAdvantage.
What comes with the 110,000 miles from 67,500 is next year, American will dish out a huge promo for Lifetime PLTs and EXPs, from which 220,000 miles can be earned with doing practically nothing (like a 30th anniversary using 30 partners), and then Gary will be all over it as a super promotion, loving American Airlines….kiss, kiss, kiss.
I quasi-support the 110K premium price for CX, but really think it should be 87,500. I do not support 4 SWUs for EXPs at 100K, 2 at 150K, and 2 more at 200K. 125K and 150K would be more reasonable.
Blame ObamaCare, that’s what’s really doing this…the costs of forced, non-negotiable health insurance to AA are astronomical bringing in US Airways. I say that because UnitedHealth announced dropping the ACA (ObamaCare) days after AA’s official devaluation announcement….no doubt their FF miles devaluation did them in.
You can disagree that ObamaCare has anything to do with this. I claim it has EVERYTHING to do with this. We don’t need socialized, bad-attitude patients who watch The View to be flying, or finding out how to fly, in First on Cathay Pacific, etc., causing “unintended”, unethical problems.
Quote: “Pity he’s too dumb to understand that the Advantage program was the one most singular advantage AA had over the competition. And it’s the most-loyal business customers he’s driving away with this move.”
My question: where is the most loyal business customer going to go? Basically, now that all three legacies are more or less equal, it really doesn’t matter anymore. Just pick whichever airlines gives you best value vs. cost. Or pay a little extra to ensure you reach at least a decent status with one of the three to enjoy the last remaining perks (like free upgrade to premium economy, or lounge access).
@margaret the Affordable Care Act had nothing to do with this. The vast majority of American’s employees are unionized and received health benefits prior to the Act’s passage.
1. Suzanne Rubin of AAdisAdvantaged can’t be trusted since last time AA devalued overnight (Stopover and Explorer awards) w/o any advance notice!
2. Hilton can’t be trusted since it devalued “massively” w/o any considerations to its loyal members.
3. Delta can’t be trusted since they don’t publish any award chart and almost no saver awards.
PERIOD.
@margaret
There’s definitely one person who has a bad attitude. Hint: check your bathroom mirror.
LR is completely right. Bloggers continue to overhype the allure of flying first class using miles and points, complete with nice pictures of their favorite cabins, and increased the demand for F redemptions.
The informational challenge now is that non-travelers will read a blog like this one and follow its advice to sign up for a few credit cards (using my links so I can make $), earn bonus miles for doing so and use them to fly intercontinental F for free. A few years ago only loyal customers would have redeemed F, and the calculus for the airline looked better; now that cats and dogs are doing so, AA is adjusting to the new reality.
The reason for underpriced F — to repay very loyal customers who would earn that many miles — has been totally eroded by bloggers.
Obviously, blogger are the ones at fault!
The problem is AA does NOT offer a superior product relative to Delta (for example). Much worse operational performance, no baggage guarantee, much less partner availability, worse premium cabin food, etc. etc. etc.
Downgrading the award chart and award miles earning in the middle of their merger with US was, frankly, idiotic. Yes, the award chart might be slightly better than Delta or United, but that doesn’t want to make me or any of my friends stay with a comparitively rock bottom airline.
(Typed from LAX terminal 6 baggage, now waiting over 50 minutes for baggage delivery – along with over 100 other passengers.)
@Maarten, I contend that the three legacy carriers are not equal. AA is unquestionably inferior to DL in every category I can think of except it offers the ability to fly first class. Please correct me if there are other areas where AA beats DL. So DL would be an obvious option for anyone with a choice (a non hub captive). And I say this not because I have any love for DL. In fact it is just the opposite since I view its management as basically dishonest. By reverting its ff program to the mean, AA eliminated its biggest competitive advantage as tassojunior asserts. Not a good way to grow the business IMO. If indeed that remains a valid objective in the oligopoly that the industry has become.
I can guarantee AA will lose about $30,000 in Business/Shared BA revenue with the changes from my side; crappy earnings on BA, and even worse AA Ops, but we dealt with that because of AAdvantage, now that AAdvantage basically sucks, no need to fly them.
My company spent about €30,000 this year on shared revenue Atlantic flights on BA/AA, w/ the new award structure we will fly whichever EU carrier is cheapest.
We generally try not to fly US Airlines to EU because they have no responsibility to get us there, we fly EU from US to EU because they either get us there or pay €600; on the way home we’ll fly a US airline because again €600.
AA just does not have a good enough Airline or route structure or Codesharing to command these kind of changes. Most AA codeshares are 1.5x more $$ and they just do not codeshare enough places.
Horrible move that will cost them $$; don’t care about the EVIPs, mine never clear anyway.
Personally, I wish the airlines/hotels, etc. had never started giving miles away on credit card spend and credit card sign up bonuses. Bottom line, if airlines wanted to reward their most loyal customers you would only earn miles based on the dollar amount spent. Period. All the rest, including awarding extra miles based on status, are just fluff. But, that ship has sailed.
This change needs to be challenged in court. Those of us who accumulated miles under an AA Promise of specific rewards have been defrauded. If any lawyer wants to go ahead with clasd action, I am in.
Oh we were enjoying too many generous first class redemptions were we? Well, who were the ones touting them and imploring us to sign up for credit cards to get the miles for them?
@Sammy Eppel under the Supreme Court’s Northwest v. Ginsberg ruling you pretty much have no shot.
Valid points Gary, but as the voice with the most sway with AA which could most drive whether they get negative or just neutral press, I don’t think your readers agree with you… AA should be reprimanded for copying Delta just like UA was.
Well I can’t speak for all customers, but this move has a profound effect on me. No way in heck am I going to seek to accumulate miles from flying (that’s different from accepting the miles I happen to earn with them when they offer the best combination of convenience, comfort, and price) when I know I:
(1.) Can never again trust them enough to assign future value to accumulate miles.
(2.) Cannot earn enough miles with them to have any reasonable hope of future long-haul First class awards on desirable airlines.
(3.) It no longer makes any sense to go out of my way to fly 100k miles a year (business travel alone almost never gets me there) with AA.
(4.) Almost all of the most desirable premium awards cost such a high amount of miles relative to economy awards going forward that they provide little outsized value but on the other hand economy awards on long flights aren’t very attractive to me. And it is sure to get worse and worse in the coming years.
(5.) I am lifetime Platinum making the extra effort to get to Executive Platinum a ridiculously dumb thing for me to strive for in the future revenue based earning landscape.I’
(6.) International airline options offer better value for my dollars, why in the heck would I fly AA instead for the paltry earnings and benefits in the new landscape?
So I don’t trust any of the US airlines including AA any more and earned aspirational awards are going to be so few and far between as to be a non-factor in my flying decisions going forward. There is no question that I’ll be flying less and spending much less with AA from now on. And just because most customers catch on to scope of the program devaluations much more slowly doesn’t mean it is not going to eventually cause them to fly less with AA. There was a time when I flew mostly international carriers to international destinations. It was the AAdvantage program benefits and awards that caused me to shift to them. Now it is the lack of benefits and my distrust of the airline (which is something they’ve earned now) that will cause me to return to those old flying habits.
I was a Hilton fan before that massive deval, and the subsequent give-away of status. They did get extra business from me for sure. I’m in a pretty similar boat with American, but I suspect much more of my travel is discretionary than yours, so I will be pulling back from AA. That’s not retaliatory, it’s just not worth it any longer.
** I’ll still fly American and earn top tier status with them, but I fly behind just the 100,000 qualifying miles a year required for that. **
Did you mean beyond?
A 7-figure AAdvantage balance that doesn’t start with 1? Wow, and yes you get stung pretty good by this. When you need to start burning and need volunteers, just let me know 😉
I don’t understand two things:
1. How is obtaining top-tier status a form of negative reinforcement? Seems like a reward, unless this was a *very* small percentage of overall flight spend.
2. By eliminating loyalty to everybody, aren’t you signalling that reward programs have no bearing on your actions? If everybody took this advice: why wouldn’t airlines eliminate the programs entirely?
Seems to be that switching to the program that offers the most valuable loyalty program 100% (and switching away when they shaft your rewards) is a stronger signal that this stuff matters to you, and more importantly, affects their bottom line.