Four years ago when I was covering the American Airlines pulldown in New York I argued that they were missing an opportunity, and – in effect – ‘doing the accounting wrong’. They viewed themselves as too big to completely walk away (a lot of valuable slots, and a dedicated terminal at JFK) but too small to compete. And they weren’t making money on their flights.
However if they aren’t relevant as an airline in the New York City market, they aren’t relevant with their co-brand credit card in that market.
- New York is one of the most important spend markets in the country.
- Their cobrand card product is the most profitable thing they have. The AAdvantage program has a 52% operating margin and the airline is making money even while their cost per seat mile remains greater than revenue per mile of flying.
American’s strategy in New York when US Airways management took over was to be the airline that brought people to New York, rather than an airline for New Yorkers. They pivoted to a ’boutique operation’ that did transcon and London Heathrow flying well, along with a handful of other markets, and in my estimation mostly squatted on slots beyond that.
But with the JetBlue partnership they finally found a way to make New York work for them, becoming big enough to compete with United and with Delta. And what they are seeing is precisely what you’d expect: relevance for frequent flyers, and increased card spend.
At an internal employee meeting earlier in the month, a recording of which was reviewed by View From The Wing, Chief Commercial Offer Vasu Raja shared that:
- AAdvantage enrollments in New York are outpacing nearly every other market in the system. He continued, “we fly 900 flights from DFW, it’s always been the biggest, but it’ll be a photo finish between the two” this year.
- More people are qualifying for status in New York than before “and 65% are doing it on the card.”
Loyalty Points, where most activity with American AAdvantage counts, is the new way to earn status. It recognizes that the most profitable customers aren’t necessarily those that just fly the airline. They earn significant and high margin revenue from transactions with their partners, and rewarding that activity with status and not just miles goes a long way towards encouraging more of those transactions.
In addition, while those who have traditionally qualified for status just on flying may not like to be competing for upgrades with customers that do not fly as much, members who earn status but do not fly as much do not cost nearly as much to service. They don’t take up as many upgrade seats. They don’t get as many free checked bags. They don’t take as many free extra legroom seats in coach, or free drinks and snacks when seated in back.
And for the customer chasing status is no longer just a function of how much you spend on tickets, so it becomes a fun game again. And frequent flyer programs are supposed to be fun while also driving changes in consumer behavior in ways that benefit both the customer and the airline. The customer transacts more with American Airlines partners, earning more revenue for American, while receiving more of the benefits that they value.
The huge turnaround in the New York market is a big deal for American Airlines, and data like 65% of new elites in the market earning status from card spend is doubly so.
Now build a lounge at JFK Terminal 5 if they really want to compete.
I admit I am spending more on my AA cards this year – will get lowly gold by end of February, then will likely keep gold as a backup to Delta Diamond going forward. Gold is good for better earnings, SDS for later flights, etc.
Frequent flyer programs in the US have been transitioning into being frequent/fat spender programs. A sign of the times.
With many more PP and EPs in NY it will get harder for the rest of us to use System Wide Upgrades to Business class when connecting through or originatimg from JFK to LHR. Even the appealing option to instead buy Premium Economy, only one way to LHR (Basic Economy is best on the day time return leg for elite fliers), and then using 15,000 AA miles to upgrade to Business class wont be as easy.
@ Gary — Dick Durbin will put a stop to this soon enough.
So you have a bunch of New Yorkers with Gold status. Meh.
Well,
This is very interesting – NYC is no doubt a well heeled town and I can see how many get Aadvantage gold with $30K in spend on an Aadvantage card, paerticularly if they use some imagination. But if they never or seldom fly on AA, what good is status beyond getting to tell their mom about it? That $30K could be spent far better on minimum spend for churning cards, the 2X point custom cash card, targeting spend to bonus categories on other cards, etc., etc.
The opportunity cost is too great for me.
Other than a higher point-earn rate and assistance during irregular operations, what does tier status give a person that a premium cabin doesn’t?
– Priority check-in
– Baggage allowance and priority reclaim
– Priority security
– Priority boarding
– Premium cabin tickets make upgrades irrelevant
– Lounge access on international itineraries
– Etc.
I sincerely want to hear suggestions. Thank you in advance.
And for the poor schmucks that actually fly for work because they have to, there are no upgrades, no available premium seats, no benefits when flying in coach, because the people up front just bought their status with outsized spend using their cards to buy inventory or millions of dollars in business expenses rather than actually having to put up with the crappy service the airlines give you now. So why bother if you actually have to fly the product?
@Lee – Right now, you pay between $10 and $12.5K for two business class seats to Hawaii on Flagship Service via DFW from Flyover Country. I can book two Main Cabin seats for just over $1700 on the same flight and have a very good chance of sitting next to you as PPro or EXP. I can do even better if I book on points and am EXP and thus qualify for the upgrade.
I win.
@DKG
Yeah, there may be people who get status from “millions of dollars” in CC spend without any paid travel.
If those people are gaining millions in points with only occasional flying, they surely have enough points to redeem for F at greater than saver levels. And that is equally a demographic which, when low on points might just buy F. Yeah, someone with a million in CC spend who flies in coach a couple of times a year might trump you. But that is a couple of times a year, max.
I cannot imagine these are the people who are gobbling up your upgrades.
Good. True elites are getting status and flying up front not those who dont pay for their own tickets and fly on OPM for work.
I have a colleague who is using AA card sometimes and who did fly perhaps two round trips this year. He just found that he is AA Gold. But his last business trip to Europe was on Star Alliance because of more convenient schedule. And will continue taking more convenient flights in the future while churning his CC. I hope the new AA is truly happy with such consumers.
@Lee, it’s a hobby for me. With my client base I can’t buy a premium cabin. I get all of those things you listed with my Gold status which I basically maintain with short haul travel and the credit card spend. Admittedly I don’t get upgraded on the busiest flights, but with status I usually do get my choice of MCE at check in – and I check in 23:59 before the flight. I use the extra money I save not paying a premium fare for the $450 Club credit card on which spend helps keep my status. That card gets me in the Admiral’s Club with a guest-and somebody will correct me on this – but I think I can get up to 10 additional card holders who would then also get club access with a guest. Worth it to me – and yes, I probably do need a “better” hobby.
I’m not a winner from the transition of frequent flyer programs into frequent/fat spender programs, as I just don’t spend massive amounts on bank cards like some others. And I prefer the frequent flyer game over the frequent/fat spender game, even as the airlines don’t care about my preferences. That said, some of these concerns about frequent/fat spenders impact on other travelers’ frequent flyer benefits just don’t resonate that loudly with me. Why don’t they resonate
much for me? Well, my primary interest in FFPs remains that of being able to travel more/better for less money. The rest is gravy that isn’t of as great interest to me as the historical main course from this program: miles earned from flight tickets being used for flight tickets.
I just find this ironic: that an airline which stopped allowing the earning toward lifetime elite status from frequent/fat spending came around to boosting elite status for frequent/fat spending but did so while devalued the lifetime elite status of those who aren’t frequent/fat spenders.
Earning your status BIS or HOP, should be the only way to achieve top status. Fine… give away gold, silver, or whatever they name the #2 or #3 in their respective programs. I do not like competing for upgrade on the hotel level for leeches with a $450 Hilton Aspire CC. I see the list of upgrades that extend beyond 50+ when there are only 8 FC seats; watching the departure screen scroll thru pages and pages of hopeless names is both entertaining and sad.
Note he’s saying qualifying for status in general.
For example, the number of people qualifying for EXP could be going down, even as the number qualifying for Gold doubles due to the low card spend threshold for Gold.
So that doesn’t necessarily mean using SWUs, etc out of NYC will be tougher.
That said, there should be some increase in EXP vs pre-loyalty points with the less flying centric base in NYC in a program that better rewards card spend. Just not clear it’s nearly to the degree Gold may be increasing.
C_M, I guess it is circumstantial. My flights are predominantly transcon and long-haul international. I’ve been on such flights with F seats going empty and asked myself whether there was not a single elite member to be upgraded? I scratch my head as to what’s going on. On one flight, a passenger with a SWU was cleared for an upgrade last minute at the gate. I’m in a fortunate enough position to have sufficient points to simply pay up so as to not worry about it. (Points earn on my own dime and no OPM.)
LoeFlyer, here’s wishing you the best of success and EP being in your future. Good luck.
I think the program is brilliant; I have no idea what the financial value is to an airline. I do not fly frequently enough to take away from another FF, but the status for check-in, access to better support, and the occasional upgrade is awesome. Conversely, United reduced points earned from 1.5 to 1 point on their credit card even though it did not help with their status. They have lost at least 100K of spend from me, and American Airlines earned another 100 + on top of what they used to get. United, are you paying attention?
“…with the JetBlue partnership they finally found a way to make New York work for them, becoming big enough to compete with United and with Delta….”
Your conclusion is predicated on Jet Blue, in fact, driving more traffic/enrollments/card spend. Are there numbers to confirm B6 is indeed feeding significantly more pax to AA?
Before this year, I put close to $0 spend on my Citi AA Exec Card- having it just for Admirals Club access. Now I’ll be directing about $25k worth of unbonused spend per year on it, so I guess it’s working out for AA.
I don’t know about anyone else, but I just requalified for executive platinum without spending more than 4 or 5k$ on tickets, and I crossed the 30 flight threshold months ago.
Credit card spend for the win.
Loyalty points work for me! I just wish I knew how many I needed to make ck!
@Lee – I can see international flights going off with empty J seats – there simply aren’t that many free upgrades like SWUs out there. You can upgrade for miles and cash, but that’s either expensive or people are unaware of how that works. I’ve done it once, when we somehow wound up with full fare premium economy tickets and could upgrade to business for only 15,000 miles each. The upgrade cost from discount economy tickets to Europe is simply too steep, 25K miles + $350 plus your original ticket cost. I can buy business class flights outright for close to (or even less than) that by reverse booking and not have to sweat the upgrade process.
No SWUs yet, could claim one, but holding off until the end of the year to extend its life, then should earn more with status this year. The expansion of SWUs to BA metal should prove useful, but you can only use it as far as Europe, so far. Still, any expanded availability to use them should help.
As far as transcons going off with empty seats up front, that simply shouldn’t happen any more under the new program. In the past, if people either didn’t have or didn’t want to burn 500 miles upgrades, that could make sense, but under the new system, even lowly Golds, let alone anyone higher flying with a companion can be assigned those seats. And there are so many people with status that surely someone should be assigned to every seat, every flight.
Finally, not everyone has a limitless piles of miles to burn on flights. (We’re not all Gary, and even he seems to mix spending and status upgrades with outright cashing in miles.) In my Hawaii example, the award prices to Hawaii using miles for business is 255K miles – a bargain compared to the cash price, but still, it’s considered a domestic flight, so free upgrades are possible with status.
Yes, if you’re flying transcons and international on popular routes, perhaps status doesn’t work because there are too many people with even higher status. As they say, YMMV. I get why it may not work for you. But people living in the NYC-WAS-LA-SFO world also have tremendous choice in airlines and relatively lower airfares compared to the rest of the country. Most of the country doesn’t live in that bubble and the people in it forget they are in one. That much is evident every day just by watching five minutes of TV or reading the papers from those locations. Here, status works if you know how to use it, even a little bit.