At an event at Southern Methodist University alongside former American Airlines CEO Bob Crandall, current CEO Doug Parker defended the move to award miles on the basis of ticket price rather than distance flown. And he did it by attacking the mileage run.
He doesn’t describe revenue-based programs as trying to incentivize greater wallet share from high yield customers. He simplistically says “those who pay us the most money are the most valuable” which is demonstrably false. Throwing rewards at people whose business you will earn either way just raises your costs.
Instead his defense of revenue-based programs is that they eliminate mileage runs.
“All of our customers are valuable, but those who pay us the most are the most valuable,” he said. “That’s the behavior you want to reward. You had this really perverse thing going on where we had people wanting miles so badly that they would do these mileage runs — looking for the cheapest fare they could find to go to who-knows-where and back.
“And that didn’t seem right to us. The dollar-based plan makes much more sense. We’re in the right place now.”
Of course flying to earn miles for free trips — the classic mileage run — was dead long before American adopted a revenue-based frequent flyer program last year. Miles simply weren’t worth enough any more to cover any value for time on top of the fare. And the days of generous route bonuses or systemwide double and triple miles bonuses were long over.
What still existed was mileage running for status, if you’re going to fly 90,000 miles a year anyway flying that extra 10,000 miles to earn top tier elite status can make sense. And while there’s now minimum spend requirements for status, flying that last 10,000 miles with a mileage run can still make sense.
Indeed, the way qualifying miles and dollars are awarded on partner flights mileage runs make sense in a totally different way. You no longer give American Airlines business filling up cheap seats that might go empty and earning status. Instead you buy a discount business class ticket on Qatar, earn qualifying dollars and miles more rapidly, and Qatar buys you miles from American.
Parker’s view is such a departure from United years ago,
PremEx2000
Does United frown on “mileage runs”? Next week, I’m flying to Singapore and back in a couple of days just for the miles — and I’m flying on a really inexpensive ticket.Randy Petersen
Ohhhh, good question…..Robert Sahadevan
It’s allowed in the program. Have at it!!!!!!Randy Petersen
Straight from the boss….. I guess that’s an endorsement to fly….Jim Davidovich
We appreciate loyal customers!!!!!
Meanwhile Parker “groused that American should have called them dollars instead of miles 36 years ago.” And says,
“We’d like to turn AAdvantage miles into Bitcoin so that everything that you buy is with AAdvantage miles”
The event was held on Wednesday at SMU’s Brierley Institute for Customer Engagement, created with a huge donation from Hal Brierley a consultant who helped build early frequent flyer programs for American, Pan Am and Continental and started e-Rewards and e-Miles.
Airline miles have been enormously profitable. I hate the narrative that those of us who use them well are somehow fleecing the poor airlines
1) Good thing those big bad mileage runners can’t drive AA out of business anymore. Now we can be more confident in Doug Parker’s earlier prediction that AA will never lose money again. Because the mileage runners.
2) “…Who knows where and back”. Places in your own route network Doug Parker. Don’t disparage the cities you serve, it makes you look like a fool.
3) No mention at all that 2/3 of all AA miles are earned for non-flying related activity?
What a POS. Fine, I’ll just earn the AA miles via my 10th Citi AA Plat card for 10 x 65k miles. I’ve MS’ed each and everyone of them. Yeah yeah I know it hurts Citi more than AA, but I’ll be sure to redeem them for at least 7 CPP
Gary, you are hurting your credibility when saying that companies should not reward their customers who are paying the most. This is just common sense, even though it hurts me personally as a mileage runner. Your logic around not rewarding customers for an expensive ticket because they have no choice is is counter-intuitive and mean and definitely not a way to run a “loyalty” program.
I don’t want to be overly critical, because otherwise I like your blog, but this false argument is annoying.
@ucipass I am not saying ‘companies should reward those who pay the least’. I am saying ‘companies should incentivize incremental business’ — they should use their marketing program to generate additional business they wouldn’t have otherwise earned, not to ‘reward’. That’s basic business school.
Put another way, the CEO of an airline selling billions of dollars of miles should have a more nuanced understanding of the business, not just slogans.
In any case American doesn’t reward high spenders more than before. They just have devalued rewards for those customers less.
That’s right, he won’t mind people doing MS at walmart to make thousands, as long as he can sell that scrip currency to the banks and turn around to devalue it even more. Airline miles are the zimbabwe dollars of travel.
“while there’s now minimum spend requirements for status, flying that last 10,000 miles with a mileage run can still make sense”
But this is good for the airline … they’re incentivizing flying you wouldn’t otherwise do while still ensuring that they’re not giving status benefits to people who fly 100k miles at 2cpm. Yes, before they were still incentivizing flying you wouldn’t otherwise do, but allowing people to do that devalues the status to the point where the real HVF don’t place as high of a value on it. Now they can look their 100k 15cpm fliers in the eyes and say look they’re still spending almost as much as you on a cpm basis even though they did a few mileage runs…
@ucipass – Gary’s point its highly salient and I think its important to realize that there is a difference between a marketing program and a rebate program. Frequent flyer programs used to be marketing programs, with miles and status a tool to drive incremental and future behavior. Now, all of them are pretty much on the path to becoming rebate programs, a kick-back or reward for something you did in the past.
A DFW-based heavy business traveler is going to fly AA *no matter what* and AA has to put essentially zero effort into earning their business. Any sort of rebate or kick back is nice, but a nonstop DFW based flyer is paying higher fares, so you’re giving them a higher kick back to do whatever they were going to do anyways.
Now contrast that with a non-hub flyer, like SFO. This person has to make a conscious decision to fly AA over UA. Even buying the same type of expensive ticket that person is generating lower RPMs than the DFW based flyer (roughly same $ of fare over longer distances), and because they earn mileage based on the price of the ticket, a lower CPM as well. So you have a perverse situation where this customer, who is arguably more valuable from a long term and loyalty perspective (and roughly equal on an ROI perspective), but is rewarded significantly less than before for that loyalty. This is the person who AA is most at risk of losing their business, but is doing less to retain their business than before.
I’m wondering why you thought award availability would be better after Jan 1. Wouldn’t it make sense to do it before to minimize the hit from the change in accounting? Or is it that Wall Street will dismiss the drop in income due to the accounting change and it will give them a chance to show some revenue if they redeem miles.
I too agree with civet five yes Virginia there is a difference. Going back as far as I go I remember when Eastern Airlines came out with the upgrade program. It was first come first serve for unsold FC seats, they coupled that with blank tickets, simply made a reservation or walked up to the gate wrote out your ticket showed you special card and your in ! Great program and I never failed to get upgraded.
Now it has spawned a whole industry of hackers. Who’s fault lies with the airlines coupled with cc companies. does anyone remember the cost of Green Stamps or Value stamps which grocery stores used once to get customers. then the light bulb went off and consumers found what the real cost were and the programs tanked. What would the real cost of a FC seat be today sans all these incentives ? Hell club rooms were truly private then invitation only. I remember when I “earned” a card for Braniff. whooa
To make a valid comparison to Bitcoin, it must either have a stable value or go up in value. Bitcoin may fluctuate in value, but for the most part, it has grown exponentially over months and years.
But, if he is speaking in terms of his perspective, then he has already succeeded. From AA’s perspective the miles are exactly like Bitcoin: Customers have paid AA cash or cash equivalent in return for Miles that will vary (historically, decrease) in value over time, and may even expire worthless, like mine have.
Curiously, the CEO of Chase doesn’t like Bitcoin as an investment.
DoUgIe was probably holding a drink when he said that….keeping his legacy going….
I went from being PLA or EXP for 10 years, to zero miles this year….
He has no idea what henis talking about but he gets an erection every time he copies delta and united
Parker…Christ Almighty what a douche!
Dougie should worry more about what a horrible operation AA runs. The sheer number of delays and cancellations I’ve experienced ‘didn’t seem right’ to me. Stop obsessing about the 0.5% of his customers who like to fly around for no reason and try to get an airplane to the right place on the right day.
Airlines make money by selling their miles, redemption is hard and constantly devalued. Many people simply lose track of their miles and lose them. For decades airlines have made huge bucks on these programs. If they didn’t…….they would have been gone years ago. It is almost fraud at times what the airlines get away with……especially when they pass along taxes and fees and dreaded surcharges and extra charges! Let me cry tears for AA and the other airlines. Someday, if they do not watch themselves, they will come under federal regulation or be sued for fraud.
@ Gary — “In any case American doesn’t reward high spenders more than before. They just have devalued rewards for those customers less.”
Bingo. You inadvertently proved Parker’s point. Airlines don’t hate mileage runners. But they see zero reason to incentivize them to travel because they buy low fare tickets (nobody “mile runs” on high fare tickets). Airlines don’t make money selling low fare tickets; they make money selling high fare tickets. I think this may be Airline Economics 101.
Oh, sure, you can craft a scenario where an otherwise high-spending pax buys a lower fare ticket because of his frequent flyer status. That’s great in the micro sense for the airline. But in the macro sense it’s not. For every pax that provides incremental revenue to the airline that way, there are probably 3 pax that then exploit the same loopholes to travel for less.
I know that I’ve been exploiting airline frequent flyer loopholes for more than 30 years. You probably have almost as long an experience. You probably also realize that it is now much harder to exploit these loopholes. And that’s because of the rule changes you say “hurt” the airlines. That doesn’t seem like a very compelling argument, does it? I’m pretty sure those rule changes hurt me as a frequent flyer gamer; I see no evidence that it has hurt any of the airlines I “abused.” Especially since there is exactly zero evidence that any airline in the past decade that has reduced frequent flyer benefits (and I think the list pretty much includes EVERY airline) has financially suffered from that decision.
I’d like to see miles become more like Bitcoin too. Wouldn’t it be great if miles became MORE VALUABLE over time?
Bitcoin is by design a deflationary currency.. AKA the opposite of an airline mile, which the fiat issuer has an unlimited supply of, and can continue stacking inflation until the things are worthless.
The only thing similar between airline miles and bitcoin is, well… Nothing. Airline miles are not fungible, divisible, transferrable (realistically), scarce, nor durable. They meet 0 of the criteria of being a currency.
Show me an airline program where there are only ever a certain number of miles in the entire system at any given time, and I’ll start drawing comparisons to bitcoin.
American Airlines and their GARBAGE Aadvantage program is Dead to me. I hope they burn in hell. I no longer do business with them.
Doug Parker said “You had this really perverse thing going on where we had people wanting miles so badly that they would do these mileage runs….”
Perverse? Really? Your customers are flying by rules set by your airline. But to say “Perverse” in a statement is odd, if not delusional.
Why is Parker still here? I know their stock price and profits ensures his position, but he’s an odd man with a lazy vision that mimics instead of leads.
Oh well. I’ve abandoned my EXP and defected to AS. I’ll be happier once I find a purpose for my AAdvantage Miles.
It is kind of perverse how I would fly 30K to 50K additional miles a year just to make Executive Platinum. Since I had to fit the “mileage runs” into weekends since I work, I never paid the cheapest fares. Moreover, since I was so busy trying to maintain status, I accumulated miles instead of flying.
However, as iahphx points out, my flying has no value to AA. So of course, I will stop due to the changes in the AA mileage program.
I am sure that would make Doug Parker very happy.
Who put these bozos in charge at AA?
AA just runs a terrible operation. I had a simple three day trip to Chicago. Outbound, the delays were only a couple of hours, and I did just make it to my meetings on time. On the return, there were four delays, which went to 15 1/2 hours when the crew timed out and evidently nobody else could be found to fly the plane out of their major hub airport. They did put me up at a hotel overnight and gave me 15,000 of their nearly worthless miles, but forced me to miss a day of work. Would someone tell Doug Parker to stop worrying about a tiny percentage of people getting more value than he’d like out of his airline, and start worrying about the vast numbers who are tired of the constantly descending quality of his airline’s operations.
Bottom line as I see it: the devaluation of the Big 3 US airlines’ programs has cost them customer loyalty. We all now have no loyalty to one but divided our interests to include even budget and foreign airlines. AS, CX, SQ, IB, BA, WN, B6, LH – you name it. I stay active in all these programs and more because the legacy carriers have little value to me.
Dougie, please don’t attack us “perverse” people. We pay for our tickets with real cash and have to juggle our schedules to make the flights. Why won’t you focus on the real things that matter? Such as the board says flight departs in 1 minute but there is no plane there. Why don’t you fix that?
Why do you load up the ramp with wheel chairs and block the ramp so we have to squeeze through a tiny space? Can’t you use common sense? Why can’t you stop the gate lice and make group 1 stand in one group and make group 2 stand in another group and so on? What are you doing about that group 5 or 8 or 9 person who stands all the way in front blocking group 1 from boarding? Why did you devalue the miles? Why did you reduce 8 System Wide Upgrades to 4? I had 132,655 butt-in-seat miles last year and over 100,000 miles every year for the past 7 years. This year, I have only flown 17,000 miles on AA. Dougie, the list goes on and on and on. Why don’t you focus on your operation and focus on your customer and respect your customer instead of calling us perverse. You are pi _ _ ing us away and in doing so, you are losing money and you are not getting my money. Leave us alone.
(1) AA does not understand what is loyalty.
(2) AA does nothing about gate lice
(3) many seats broken or noisy or inflight entertainment do not work
(4) Most AA gate agents, flight attendants have really bad attitude, are rude and condescending, don’t welcome us or thank us for our business. Learn from JL CX SQ QR EK EY KL
(5) Reduced System Wide Upgrades (SWU) from 8 to 4
(6) No availability for SWU’s from any city to any city anywhere even though the cabins are wide open no matter this week or next week or 300 days in the future
(7) No / rare upgrades at 100 hours out, may happen as soon as boarding commences even though many seats open
(8) Devalued the award chart, American Airline miles are basically useless
(9) No MileSaaver awards available for anytime during the year to anywhere in the US or world. When I call EXP desk, “there are plenty of AnyTime awards”. No, you advertised MileSaaver, so I expect MileSaaver availability
(10) If MileSaaver is available, by chance, instead of non-stop DFW-LGA, they make you go through DFW-CLT-LGA or DCA or weird routings and layovers and extensive layovers
(11) No domestic stopovers
(12) Forcing use of British Airways and $478 fuel surcharge fee. Why do you force all the BA flights to show up first. And then you also show Open Skies. And then you use off airports like Orly instead of CDG. You try harder to make life more difficult.
(13) Added elite spend tiers of $12,000 for Elite Qualifying Dollars (EQD) making it harder to be EXP for most of us
(14) EQDs are calculated differently using Special Fares chart so we lose EQDs
(15) onboard pitches for credit card is disgraceful
(16) Behind-the-curtain, no food on-board or wasn’t catered or not available
and the list goes on
They feel “they’re in the right place now”…this is for the customers to decide, and I don’t think customers will agree. I know I don’t that’s why I won’t requalify for exec plat for the first time in 16 years and concierge key (3 years in a row).
He’ll realize they’re not in the “right place” a few years from now, when aa goes bankrupt again, but then he collects his $200m golden parachute and it is someone else’s problem to fix (and stockholders’ loss to deal with).
Of course, in typical “advocating against their own self interest” mentality, poor, ignorant trump deplorables will certainly support parker’s statement.
Hey folks… No matter what Doug says, I’m in the middle of a mileage run season right now. I do want to keep E.P for next year.
I’m documenting my journey on InsideFlyer. (I would leave a link, but it seems forbidden). Do a search for InsideFlyer and “Mileage Marathon”.
All that’s missing is the red nose and wig from this big bag of hot air.
Parker is such a ridiculous clown. Someone give him a breathalyzer test.
AA employees handed him the CEO job when they got mad at previous CEO Tom Horton. Now they are realizing that Parker reached his level of incompetence about two decades ago.
I’m a 1MM by now (yah I know that’s nothing for many of you) but over multiple airlines and the only alrline miles I’ve actually used are WN’s. Mostly because I’m the exact person the airlines want, I fly and redeem with my convenience coming first and the pita exercise is redeeming is annoying. I struggle to find the value of doing runs in tpac coach but if ya’ll can come out ahead god bless you and you deserve it as I’ve had plenty of miles expire or continually devalue so I don’t think you’re really cleaning house at the end of the day.
We’re not discussing anything new here. The handwriting has been on the wall for several years – with the impact being almost fully felt end of 2017 and beginning of 2018. I will remain EXP next year and probably well into the future. What’s unsaid is the amount of revenue dollars I’m spending on other carriers – as loyalty to AA truly has little value. There have been a few improvements I’ve noticed and are welcome. The A/C’s LAX, JFK, ORD while overcrowded and often understaffed, do offer some good options. 777W a good product in J. Transcon service and schedules good. Using over 500,000 miles for 2 r/t J from LAX to JFK – yes we would like to thank you for your loyalty! For the first time this year I cleared an upgrade from Y to J on a LAX-JFK trascon over 100 hours out. The other affect of lack of loyalty – I’ve released my organization from an almost exclusive with AA. This was the race to the bottom – with AA getting close to the win.
Great comments. I think the key insight folks have made is that the focus of these programs have migrated from incenting future behavior to rebating on more or less existing behavior. Their business environment is great right now so they can get away with anything, but I think AA is under particular pressure as their stock has been range-bound for a couple years now.
Just think this is so short sighted, and about getting executives paid today.
* Wait until the economy turns down. All of the underpinning assumptions got to hell.
* One of the more powerful weapons they have – flyers being “addicted” to a particular program – is being pissed away. As more and more flyers like me “release” themselves from a program, it just opens the door for more competition. I flew Frontier for the first time this year, and buy B6 Mint tickets to the East Coast now, haven’t done a Legacy 3 transcon in some time.
Down the line, I think we’re one administration away from the rules on all of this going into interesting territory.
* As the airlines go to a more revenue defined program, it becomes even easier to generate a tax bill for somebody.
* As a consumer I would push back on any of that and ask that these ‘rebates’ be treated like gift cards are in CA – NEVER allowed to expire, and if in $ denominations, could impede the airlines ability to devalue awards.
Doug is cutting off the nose of the brand to spite its face, so to speak. But what does he care? It’s the next CEO’s problem. It’s the boards responsibility to protect the l-t brand value.
I dumped them when they became and began behaving like US. I’ve been 25k shy of 3mm for ages and will keep it that way as I don’t want 4 SWUs I’ll have to struggle to use eating a hole in my pocket. I don’t bother with their credit cards, or with buying lounge access, Centurion clubs are just fine, and improving.
I use my miles on OneWorld (not BA) and use B6 domestic, with whom I am perfectly happy and get plenty of value from. Still have 1mm++ to burn.
Sad really, but at least now I get to see all the other nice airlines out there. You go Parker. You seem to have all the answers.