American Airlines is going to start offering the ability to spend miles as a form of payment for upgrades starting next year. That means upgrades will be available to AAdvantage members much more often. But you may not like how much it costs.
Airlines Want Loyal Customers, But They Don’t Want To Give Away Upgrades
Airlines love their most frequent customers. During the third quarter American Airlines earnings call on Thursday, CEO Robert Isom reported that 72% of premium revenue came from their AAdvantage members and that during the quarter the percentage of premium seats that were paid for – not upgrades or employees sitting in the seats – was up 4%.
But what keeps these frequent customers loyal? Elite status that’s part of the mileage programs. And the most coveted perk of status is upgrades.
For the past 10 years, Delta Air Lines has been on a quest to eliminate upgrades to first class entirely. They were ahead of the curve monetizing those seats for any amount, rather than making them available to frequent customers as upgrades. United was on top of this years ago, too, showing a willingness to sell first class seats to customers already sitting in coach for ‘tens of dollars.’
They’ll take most any cash from a once a year traveler, instead of giving away seats to customers spending a lot over time.
Cheap Upgrades For Sale Frustrate Frequent Flyers
Customers have been promised upgrades as a benefit of their status, and mileage members have been promised the ability to use their points to upgrade. But when airlines have gotten so good at selling all of the premium seats – and have been willing to offer those seats for very little money in order to do it – there just aren’t many options left to upgrade.
Recently I wrote that you might as well forget about regular upgrades and instead focus on taking advantage of the opportunity when the airline offers to sell you the seat for as little as $40.
- It’s a problem for the airline when this removes the incentive to remain a frequent customer – you might as well just buy the seat on whichever airline is most convenient rather than spending more money to stick with one carrier.
- And it’s a problem for the airline when mileage members can’t use their points for upgrades – because that removes the incentive to earn the points, and in particular to use the airline’s co-brand credit card which is the most profitable product they have.
After all, Delta generated nearly $7 billion from American Express last year. American borrowed $10 billion against future revenue to AAdvantage program during the pandemic. And American reports that selling miles generates a margin greater than 50% even as they aim for single digit margins at the airline overall.
American Leaked Their Plan For Mileage Upgrades
After each earnings call, American Airlines CEO Robert Isom takes the stage to speak with employees, and take their questions. Toward the end of the most recent “State of the Airline” event, one question was asked about customer frustration over being unable to use their miles for upgrades when other passengers “skip the line” with the option in the app and on the website to “upgrade now for $80 more.”
Isom turned the question over to the airline’s Vice President of Revenue Engineering Marcial Lapp. Who explained a new strategy to address this that they’re planning to announce in January.
And it did not make Isom happy that this cat was out of the bag – he pointed out that they weren’t planning to make that announcement yet – and he cracked a joke about ‘wishing he could get the last five minutes back.’
The Current Approach To Mileage Upgrades Makes No Sense
What’s backwards about current upsells is that mileage upgrades are far more lucrative to American Airlines than the incremental cash they’re often generating.
- For most members, a domestic upgrade using miles costs 15,000 points plus $75. That’s real value to the airline of ~ $150.
- But they’ll frequently sell the upgrade for less than $100 and not allow the use of miles. They may even sell it for less than $75, turning down the $75 plus miles.
Paying For Upgrades With Miles Means Upgrades Are Available, But Miles Are Worth Little
American’s solution to the upgrade dilemma is to treat miles as cash, letting customers buy upgrades with miles like they would with money. That means upgrades become available using miles, but at a low value of miles.
In offering members the ability to pay for upgrades in coach or miles, they follow Delta – and it seems likely that as at SkyMiles, AAdvantage customers will be able to use miles at about 1 cent apiece to cover the cash cost.
According to an American Airlines spokesperson,
We’re always looking for ways to give customers more certainty with their upgrades, including the option for an instant upgrade using miles as a form of payment, which we intend to offer in early 2025.
The new problem American is going to face is that the mileage program succeeds when it lets members buy something they value far more than it costs the airline to provide. The traditional saver award and upgrade were seats that would have gone unsold, so they were nearly free to offer to the customer.
Now that the airline sells most of the seats, though, it’s no longer free to offer. The opportunity cost is the cash they can sell the seat for. Making it available with miles means turning the miles into a lower value currency.
This will mean greater availability of upgrades using miles. And it often will mean upgrades are available for fewer miles than it would cost today. For instance, a $40 upgrade might cost 4,000 miles – instead of 15,000 miles plus $75. On the other hand, this $640 upgrade from Dallas to Las Vegas would run about 64,000 miles:
This Will Help American Monetize Their Growth In Premium Seats
American is about to have a lot more premium seats on their planes – retrofitting Boeing 777-300ERs with more business class, adding new dense business class Boeing 787-9s, taking delivery of Airbus A321XLRs and adding first class seats to smaller Airbus A319s. That’s more premium seats to monetize, and they’ll be monetizing them with miles as a currency.
New Business Suites, Credit: American
The hope is clearly that members will feel they can use their miles, and get upgrades, while still monetizing premium cabins – not only not giving up revenue but generating incremental revenue for the product. That’s a long way from the days of elite members getting upgraded into unsold seats for free, certificates, or a small fixed number of points.
Last year I earned $425,000 employing combination of flights and credit card purchases. This put me at the top of all the people on platinum executive for 90% of my flights. I only was upgraded less than 50% of the time. Since the pilots now jumped in front of upgrades, such as mine, it has gone down even further. I have cut my credit card usage for this airline in half for next year. Wasted effort
Hopefully this will be a good program fix through an airline company for next year
A fairer upgrade process would prioritize high status getting the chance to upgrade for points/cash sooner than lower status and no status customers. It could even be a reverse auction, where people say what they are willing to pay, but only have to pay what the lowest upgrade person paid. If they have to give away upgrades, no one gets charged.
I am often #1 on the list but rarely upgraded. I rarely if ever get cheap cash upgrade offers which I assume go to other non elites or to lower elites. I would willingly grab a cheap upgrade if offered. That said the economy seats especially for the newer Airbus models are actually quite comfortable (Boeing not so much). When my EP status is confirmed each year I consider myself a free agent and I may soon consider Plat Pro (one work emerald) to be good enough since EP is no longer leveraging upgrades as it used to do …
Even less incentive for status. More line jumpers.
@ Gary — So glad that I don’t care one iota about earning status with American. Alaska is so much better.
“ And it did not make Isom happy that this cat was out of the bag”…
Yeah, maybe. And maybe it was a trial balloon to see how the news went over and have a chance to modify/kill it before going live if it caused lots of hate and discontent.
Who knows?
I’m EXP through credit card spending and taking the vast majority of my revenue flights with American. Upgrades are already at least somewhat tough to get domestically from status alone, finding good use for my confirmed systemwide upgrades is ridiculously difficult, and long haul international saver space in business class is laughably difficult to find as well. The saving grace until recently has been fairly priced award space on high quality partner airlines in business and first class for two people. Now that’s gone too. I’ll wait until the official word is out to see the details but the idiots running American are doing a magnificent job of driving away loyal customers and soon I may be among the exodus if they don’t stop screwing over engaged loyalty members like me.
Being a Charlotte resident, I have to fly AA 95% of the time and still value being EP. I usually buy first or pay for the upgrade on longer flights (over 3 hours) and wait footprint the auto upgrade on shorter flights (which I often get). I manage my travel and use my cards to hit 250,000 loyalty points and get the respective award. After I hit 250,00, I swap over to my Amex Plat. For me, having the combination of AA and other points makes sense.
If AA really wanted to reward their loyalty base of members who actually fly and not just spend their business dollars to reach EP fairly easily, they should “reward” the true frequent flyers who have elite status with advance notice of inexpensive cash (or miles) upgrades, then allow the rest of the passengers the opportunity to buy an upgrade. AA should stop advertising that elite status will provide you with free upgrades. It is false advertising. Systemwide upgrades should be awarded before offering upgrades at discount pricing.
AA doesn’t value me as an EP and puts Pilots and lower status flyers above me often. Organic upgrades are the only benefit of being loyal now, and they aren’t happening. BIG mistake for the Pilots to demand this, and BIG mistake for the airline to allow it to stand at the current FC seating amount.
Basing loyalty on the “possibility” of upgrades is nonsensical. One way that I would become “loyal” to an airline is if they discounted amount of miles needed outright book first/business flights. For example, 50k miles domestic F for regular member, 40k miles for gold, 30k miles required for platinum, etc. I would actually work to get elite status with that airline.
Marcial Lapp needs to be relieved of his duties immediately. American is sinking like the titanic due to revenue mismanagement at the moment.
Now that the pilots make so much money they don’t need to fly first class. They can afford a day rate at a Hilton for $99 if needed. They should be managing their rest on their own.
Alaska is looking more attractive every day. They seem motivated to add value to their mileage program and their operation.
AA continues to try to be nothing to everyone. Most of their domestic aircraft main cabin economy have little more comfort than the LCCs
This is just stupid. So someone that gets 3 aadvantage credit cards and flies once a year will use 10,000 to upgrade instead of giving it to someone EP flying AA 4x a week.
The whole branded credit card earnings methods screws over the business traveller whose company pays for their travel on a company credit card (or direct AMEX billing). I’ve been a road warrior for 30 years, primarily international. Upgrades are much rarer post Covid for sure, but what really irks me is that the lounges are packed, and mostly packed with the ‘credit card earners’…who, unlike frequent business fliers, have no respect for the entire role of the lounge (rest, relaxation, faster assistance)…They act like juveniles, foul up the lounge with their loud banter, and often excessive boozing.
Airlines win. They’ve now conditioned many of their most loyal customers to pay for something they used to get for free. Fools.
Americans need to bring back paying for tickets with cash and mileage. I think it is getting harder to get miles and use the miles.
The only lovers here are frequent OPM flyers whose travel policies only allow economy.
Since they don’t pay for tickets, I m very ok with limiting their free upgrade opportunities
I have long given up on the fantasy that status in America (or even in the United ) means I have even the slightest chance of an upgrade. I have a lifetime Plat on AA, and it now has very little value. The one exception is that in coach I can get a better seat and maybe board a little earlier, but that is it. I cannot even remember the last time I was upgraded. I use cash or miles to get the seat I want when booking. The idea of using miles for an upgrade sounds appealing in theory, but how will it work, To me, it is only useful if you can confirm the better seat upon booking. If you have to wait for a seat to open up, then it’s an illusory benefit of little to no value.
Unfortunately I have to start looking for the cheapest ticket I can get.l especially international.
Platinum executive means nothing to AA.
They lost me from being a loyal customer for 25 plus years.
Like it or not this is the future for all US based airlines . Monetizing the domestic first class cabin. I have no issue paying for upgrades, often it’s very reasonable if you wait and monitor what AA is offering. I get the feeling that using miles won’t be a good use of miles. To me better to save miles for International business class awards rather than flying domestic first from Dallas to Phoenix.
@George N Romey – “To me better to save miles for International business class awards rather than flying domestic first from Dallas to Phoenix.”
That’s what you use them for? Good, maybe you can explain to me how I can find saver space in business class for two people from eastern USA to Istanbul on 18/19 September next year without paying $700 each to fly BA. I’ve looked but found nothing but I’d rather be shown up as a nincompoop who missed something obvious than someone who paid lots more.
@Christian: that is actually the main draw of AA miles these days, now that you can’t easily spend them on JAL and Cathay awards (that’s really difficult)
BA releases a lot of space, and even though the product is terrible, it is lie flat business class. Sure, the copays are high (from europe to the US often around $400, from the US more like $750), but it is actually still a way to be kind of guaranteed an award seat.
Better than DL miles, not as good as other currencies. The good times are over, sadly…
Thank you for this article. I was just about to sign up for plastiq and try to hit the next tier. I won’t be spending any additional money now.
Not sure that all the complaints above are valid. I get upgraded on most flights because i dont select a busy time to begin with. I often use miles to buy a one way fare and still get upgraded. I use the credit cards and fly to reach 250k per year and feel lucky to have EP status…International travel I just pay for business. At the end of the year the value far exceeds what it would have cost me for flying business or getting the better seats.