American Airlines filed its annual 10-K form with the SEC. Since they raised $10 billion in debt backed by their frequent flyer program, and the sale of miles makes up the entirety of their profit for the year, you’d expect they would disclose a reasonable amount about that portion of their business. They used to, but they don’t anymore.
Still, they offer some nuggets which provide insight into the AAdvantage program, buried in this document which is over 200 pages long (plus attachments).
- Over 13 million awards were redeemed in 2022.
- 7% of American’s passengers (by revenue passenger miles) were using miles. That’s lower than competitors by a lot.
- In total, American has $9.145 billion in liability on its books for unredeemed miles. That’s up by $10 million compared to 2021 (they printed a bit more in miles than were redeemed).
- Of that, they expect $3.2 billion worth of miles to be redeemed in 2023. Most miles that are unredeemed and not expected to expire are anticipated to be redeemed in 2024.
- Your miles are
sitting in a vault inheld by companies registered in the Cayman Islands. American should offer special award flights to visit them. - American generated $4.5 billion in mileage sales, mostly to Citibank followed by Barclays. This was up from $3.4 billion in 2021. Some of this will be accounted for overall recovery from the pandemic band by inflation, but also because spend on American’s cards has become more valuable since it contributes to earning elite status – indeed you can earn status through card spend alone.
As a baseline, American sold $3.9 billion in miles to third parties in 2019. All of the increase since then can be explained by cumulative inflation though it isn’t clear that mileage sales revenue would have kept pace with inflation without the move to Loyalty Points.
Award travel made up 10% of miles flown by Delta. This is primarily due to the success printing miles through their American Express co-brand, that most people redeem miles for domestic coach travel, and that there’s more or less low fixed value (but not zero value) opportunities to do so through SkyMiles. Signing up 1 in 8 SkyMiles members for the card means a lot of people are earning and redeeming miles.
Meanwhile Southwest Airlines always has the most passengers traveling on miles, clocking in at a whopping 15% of miles flown in 2022. All of their seats are available at fixed redemption prices, there’s no reason to save miles for better value later, and there are a lot of outstanding miles which were spent in 2022.
Based on prior disclosures by American Airlines I’ve calculated that a mile costs AAdvantage 7/10ths of a cent to 3/4ths of a cent apiece to produce. And they’re selling miles for double that on average, skewed heavily by sales to Citi and Barclays.
Though they’ve separately reported record membership growth in places like New York and the West Coast, driven by their JetBlue and Alaska partnerships, they don’t appear to be generating net new cardmembers with increased spend as a result, since all of the growth in mileage sales revenue can be explained by 17% inflation since 2019.
Both United and Delta have had new credit card deals since American’s last dual-issuer agreement with Citibank and Barclays. Neither Citi nor Barclays has appeared as aggressive in acquiring customers as Chase (United) and American Express (Delta). We’ll see what a new card agreement brings as a boost to this revenue, if indeed it does at all.
Hallelujah!
Data comparing loyalty programs!
You’re a genius (or at least do the hard work of research) and provide the meaningful basis for a data-driven discussion
AA goes through extraordinary measures to make redemptions as difficult as possible, if possible at all in their anti-loyalty scAAm. I remember how Gerard Arpey (past CEO) would laugh about how they would move the goalposts on customers and customers were dumb enough to believe their miles actually had value and how the AA plan was to constantly move redeemability just out of reach.
Isn’t it relevant here that AA is the only major carrier not to partner with any major transferable point currency? Yes, they have Bilt, but can’t imagine that produces the volume of any of the major banks. I would assume DL/UA/WN makes significant revenue selling points to these banks, while AA is excluded from this segment. Clearly they could do this with Citi, and have done so in the past. Is there a reason it makes business sense for them to forego this revenue stream?
Yeah, they need a new co-brand partner, or Citi needs to up their game to (a) offer transfers from ThankYou and (b) refresh the AA cards
I hope that AA is paying attention to the fact that all the in-flight credit card pitches are not yielding an ROI.
I would be curious to see how the new LoyaltyPoints program is performing for AA. I was initially skeptical of it. While it still has some bugs with getting credit for purchases it’s fairly good and was a major reason why I was able to maintain EXP status while also being very selective about when and where I fly AA.
Isn’t it interesting that the loyalty programs that consistently get the best reviews are those like Southwest, that deliver exactly what they promise instead of causing customers to hope for something fantastic?
Consistent earnings, plus the ability to redeem your points for the exact flight you want. The best ability is availability, and more loyalty programs should recognize that.
Good digging, Gary!
Would like to see the year-by-year amounts of reward awards used for each of major US airline loyalty programs – that will show the dynamics. Do you have this data?
My estimate is that AAdvantage will suffer some loses in next 2-3 years, from devaluated award chart (or lack of it!) and frustration of customers unable to use miles for majority of their needs. That’s already started happening as shown in above numbers, and the fact American hiding all info in their reports.
SkyMiles had few major devaluations in past decade, but Delta kept their hard product on higher level, so their loyalty was made stable. American Airlines, on the other hand, keeps degrading hard product more and more, turning customers away toward JetBlue and SouthWest, and other competitors. Bad for them, and for flyers too. They need to reevaluate their scheme and make it better for people to stay in and use it. Right now, their own reward levels are 2-3 times higher than competitors, with some priced at 300,000-500,000 AA miles which is ridiculous in any book.
Here is some numbers from 3 years ago:
https://www.valuepenguin.com/travel/airline-loyalty-program-liabilities
Gary – can you please make a new chart using the above info?
@Darin – American doesn’t partner with a major transferable points currency because Citibank turned down a more expensive deal that included this. Their temporary participation with Thank You Rewards could have yielded data that could convince them of a change, I do not know.
@Aleks – I’ve done these comparisons in the past, Delta is up quite a lot, American is at least out of the 6s..!
@Tim Dunn – I read and report on 10-K loyalty program disclosures and have for years!
Delta letting you earn MQMs on award tickets also encourages people who care about Medallion status to keep burning miles on award tickets and keep that liability low on the balance sheet.
Gary,
I know you read the financial statements – which is why I find it hard to understand how you make some of the comments you do about Skymiles award availability.
As for your statement that Delta must be meeting its SM redemptions w/ domestic passengers, please do share what data you use to come up w/ that conclusion.
And to your readers, Delta and other airlines provide the value of the award travel they carry so it is possible to calculate the average award value in terms of money and mileage.
As a few called out American doesn’t have any direct transfer programs with any credit cards. American Express is king for international business class redemptions…. Chase does really good with domestic US flights and international…but Chase UR shines with Hyatt Hotel redemptions… If it wasn’t for British Airways partnering with American, I’m pretty sure AA miles would be worthless.
Maybe a game changer if American joined a major credit card company as a transfer program, they’d see way less liability here.
Can’t imagine why folks wouldn’t want to redeem on American Disadvantage the most
With their married segments cutting off passengers from departing form the West Coast to International destinations.Scam of a lifetime.You can’t make this stuff up
Or the ability to get to San Diego from Las Vegas through Phoenix
Example
Southwest to Vegas non stop coach 2000 to 5000 miles one way
American in coach same route 20k to 50k one way with a 2 hour to 6 hour layover in Phoenix (sad excuse for a terminal)
American could move an awful lot of miles liability off the books if they opened up more premium cabin saver space on long haul international awards on AA metal. You’ll look at a seat map and see a business class cabin on a flight to Europe that’s 80-90% empty. Sure, a few people may have reservations but no seats but proportionally it seems unlikely to amount to a majority of the seats.
I’ve been able to yield some terrific value from AA miles lately. But it requires planning FAR in advance and flying through one of the AA hubs. If the redemption is half or more than the other carriers are asking I’m happy to put up with thier shenanigans.
The average cost for the airline to redeem a mile (I believe that’s what you meant to say, not it’s completely free for them to “produce” it) is very much dependent upon the percentage of seats used for miles. If 100% of the seats were used for miles, the average cost of the airline would be it CASM, or about 13-14 cents,
The relevant number here is the *marginal* cost, which is considerably higher than the average and probably closer to 10 cents per mile, i.e. the revenue of the seats that would have to be taken away from basic economy for award redemption.
Finally, the terms say that the miles are always AA’s (they’re never ours), so your comment about the Cayman Islands is irrelevant.
AA does run some solid miles earning opportunities with double miles on certain purchases and let’s you earn additional miles during promotional time-frames.
However, I do wish flights weren’t so expensive in miles costs.
I did book our flights in/out of the Bahamas in September using miles, but now having a miles balance in the 40k range I can barely find a domestic flight I can afford.
I’m currently on pace to earn anywhere between 40-60k base miles annually, and based on current trends that may yield me one, maybe 2 flights per year for my wife and I.
I’ve seen some flights upwards of 50k miles per ticket round trip.
One thing I don’t like about the new Loyalty Points program is that the higher earning perk is only in AA purchases and not everyday purchases. I’ll most likely reach Gold Status for this year and that increases my miles per dollar award. But again, that’s only on AA purchases. And this isn’t exactly clear on their website as I had to call in and get that clarified.
I also have a Delta Skymiles card and rarely use it. Got the promotional 50k miles and was able to use some to book an apartment hotel in Kraków when we visited Poland in 2019. I’m not a huge fan of Delta, but I wish AA would open up their miles to be used in a marketplace for other travel options and not just “their” travel options.