American Airlines Cut Basic Economy Miles To Zero — Now It Is Saving Pennies To Lose Credit Card Customers

American Airlines stopped awarding miles on basic economy tickets, and they did it with no notice whatsoever. I was even looking at tickets on their website right after they made the change and didn’t notice it. I was considering whether to spend more for a more flexible ticket, and didn’t even realize the difference in points-earning.

When the point of the change is to influence behavior, it doesn’t make sense to make the change and not tell customers you’ve done so. But it’s such a backward move they must have been embarrassed to make it. They kept it quiet. And it’s actually a big mistake.

• The move mirrors Delta, and airlines often think ‘Delta management is smart, they must know what they’re doing, we want to be more like Delta’.

• But this is one of the times when Delta is making a mistake, too. And the approach is tougher than United, which awards miles and qualifying points (but not qualifying flights) for basic economy tickets.

American can’t quite make up their mind about how to approach basic economy. They keep changing whether and how it earns miles.

Basic economy is the tool airlines have used to price discriminate and sell tickets to ultra-low cost airline customers without offering those low fares to existing passengers willing to pay more. By making the restrictions unpleasant, they offer their seats cheaply to compete with Spirit and Frontier but in a way that avoids lowering the price of ticket sales to everyone.

That’s been a key way they’ve successfully competed against low fare airlines. They are simultaneously a high fare and a low fare airline on the same plane. And that gives them a much better revenue mix than Spirit et al (albeit with higher costs as well).

Before basic economy they would have to match fares or they would lose too much business – but in doing so they lost too much revenue. Basic economy became the new advance purchase and Saturday stay fare rules that gated business travelers and leisure travelers, allowing them to sell expensive tickets to people flying on company money and cheap tickets to those coming out of their own pocket. It is how they avoid selling cheap tickets to business and premium leisure passengers.

The thinking now seems to me ‘those who care about AAdvantage will buy up or be kept from buying down’ and that might be true. It might also be that without mileage-earning those passengers aren’t loyal and defect to Delta.

American was only awarding two miles per dollar spent on basic economy tickets. And the tickets are already less expensive, so earning fewer miles to begin with (since mileage-earning is based on ticket price).

• They could have dropped status-earning (loyalty points) from basic economy tickets without dropping mileage-earning.

• 2 miles per dollar on a $99 ticket doesn’t cost the airline much, and doesn’t do much to convince flyers buy basic economy rather than regular main cabin. It costs the airline about $1.50.

• What it does for the airline is get the basic economy flyer to sign up for AAdvantage. It’s an entry point into the program.

American had taken the approach that basic economy is the gateway into AAdvantage. They start with budget travelers and begin moving them up the ladder. Not awarding miles at all means there’s no point in joining or engaging with the program.

Encouraging flyers to join AAdvantage is the first step in converting them to a co-brand credit card. This will eliminate the incentive for new and price-sensitive travelers to start the Citibank journey that drives their profits.

American Airlines loses money flying. Their costs of flying are greater than passenger revenue. More than the entire profit earned at the airline is represented by revenue from Citibank, which is estimated at around 50% margin.

They’re moving to free inflight wifi for AAdvantage members. They want people joining the program! When they had a JetBlue partnership, high spending New Yorkers were joining in droves, outpacing additions from other hubs. Now they need all the help they can get adding to the member base, because their co-brand has fallen from number one in charge volume seven years ago to number three among airlines today. With this move they are choosing marginal ticket revenue over their Citi partnership which seems unwise.

Delta has fallen behind against projections growing its American Express partnership revenue. They use wifi to get customers to join the program. Maybe American thinks their free wifi will still get basic economy passengers to join. But why risk it? Besides having a mileage balance of some kind is part of getting customers invested in the program, versus just ‘registering for onboard internet’.

The Starbucks and Uber partnerships, too, introduce more people to SkyMiles. But awarding $1.50 in miles to someone actually flying the airline creates a better shot at developing a relationship with the airline and converting them to a credit card customer. American Airlines seems not to be able to get out of its own way, and doesn’t realize what business it’s in.