During the American Airlines second quarter earnings call they offered several metrics of success for their AAdvantage loyalty program. They offered that,
- Redemptions are up
- Their elite population has increased
- Yield growth among their elites outpaces the airline’s average
- Co-brand credit card acquisition and spend is up
They noted that last year they “increased redemption inventory” which “increased the value of miles” and that in the second quarter they took a 0.8 point negative hit to unit revenue because of increased award redemption trading off with paying customers in seats. Furthermore they “anticipate a similar impact for the remainder of the year.”
The story they tell about the numbers they’re seeing seems at odds to the experience that frequent flyers have with the AAdvantage program, so it’s worth unpacking what’s going on.
Award redemptions are up, and saver availability is up. We can see that in data reported to the SEC on the percentage of passengers using miles on American’s planes. The airline still lags competitors on that metric, but it has improved significantly.
- American has made a lot more coach inventory available for redemption on a married segment basis. That’s helpful for customers looking to fly the airline in coach, and terrible for anyone looking to try to change their award itineraries.
- They’ve also started to allow 18 hour connections on domestic awards so you’ll see saver award space more often — just watch out that your first flight might be at 6 a.m. and your connecting flight might be at 8 p.m.
- And they’ve introduced non-changeable discounted awards with better than saver availability
In other words, it’s possible to use fewer miles for coach tickets than it used to be. They still have six award chart levels, and premium cabin international award space on American’s own flights more often than not seems to be a unicorn. But they are making strides with coach, which is where most people spend their miles. What American is doing is expensive.
There are traditionally two major considerations whether to make saver award space available,
- Is a seat going to be sold for cash? Unsold inventory is cheap to offer to mileage customers. Once a plane takes off the revenue the airline can generate for an empty seat is zero, so they can give it away through the frequent flyer program.
- Will making an award seat available discourage someone from buying a paid seat? Selling an award seat through a frequent flyer program is effectively offering it at a deep discount to customers who can pay with miles, which are supposed to be different customers than those who would pay with cash. It’s a form of price discrimination. However small businesses that might fund work travel with miles but that would otherwise pay cash are a problem for this model. They don’t want award availability to trade off with ticket purchases, which is why they might make only less desirable flight times available or ensure that upgrades can’t be confirmed too far in advance.
American has held back even seats that are going to go empty, avoiding making them available for miles. For instance I’ve seen transatlantic flights recently that have filled up their business class cabin with half nonrevs without a single saver award being available.
However in general planes are full, and making saver award space available means potentially trading off with paying customers. That’s the unit revenue hit the airline is talking about — they recognize less revenue from the award redemption than what they’d have sold the seat for if paying cash.
American is driving towards getting average value for miles, which is good if you just want to use a seemingly reasonable number of points to travel, and a lot less good if your goal is to get great value for your miles like international business class saver awards.
Of course the way I use my own AAdvantage miles – and I redeem AAdvantage miles for my own travel more than other currencies – is that I don’t actually want to fly American Airlines on an award, I use my miles to fly on partner airlines. There I still get great value, whether it’s first class on Cathay Pacific, Qantas, Etihad, or others.
Now, American says that their co-brand card acquisitions are up and that doesn’t surprise me since they’ve been offering much more attractive initial bonuses. Since they don’t give numbers here I’m skeptical that they’re doing as well as they suggest, at least through all of their acquisition channels.
They also report the number of elites are up, but they’ve been aggressively comping status and clearly don’t say the number of top tier elites are up. You’d expect elite numbers to grow as passenger numbers grow, and we’re in the late portion of the economic cycle. Remember that American’s increased spending requirement for status only applies to the 100,000 mile Executive Platinum tier.