American Airlines held its Investor Day on Monday afternoon. There was a surprising amount about the AAdvantage program in the discussion, in addition to what you’d expect about airline strategy.
We can expect to see some changes in how miles are awarded (more miles), new redemption options, and better redemptions for members with status. And there’s an explicit commitment not just to defend the value of their miles, but to ensure their currency provides greater value per mile than competitor airlines and even banks do.
AAdvantage Is The Differentiator For American Airlines
CEO Robert Isom led off discussing overall business strategy which is an emphasis on reliability and a focus on domestic and short haul international flying, leaning into small markets. They focus more on the Sun Belt than on Los Angeles and New York. Chief Commercial Officer Vasu Raja explained, “customers in small, high growth cities pay more.”
One key focus area of the presentation was the AAdvantage program, where the airline is in the midst of renegotiating its credit card deals. Raja laid out how they plan to shift AAdvantage going forward to drive higher revenue.
Throughout Investor Day they didn’t talk about the actual experience of traveling with American. Their deck didn’t highlight service, seats, or lounges. It’s through AAdvantage that they differentiate American. Raja, laying out his bold vision, declared “We don’t refer to it as a loyalty program.”
Customers Want To Buy A Premium Product, American’s Answer Is AAdvantage
American included efficiency of cleaning lavatories in its presentation but did not include service, lounges, and soft product. Yet they say only 45% of American Airlines customers are buying the lowest fare only. Their customers want to buy a premium product but entirely missing from the discussion was actually providing one. Fortunately they have AAdvantage!
American’s Co-Brand Cards Have Slipped
Right now American admits they only have the third largest co-brand card program. It’s selling miles to banks that is their largest driver of profit. In the past they’ve 52% margin for AAdvantage which accounts for the entirety of their profit.
What American did not say is that they used to have the largest travel cobrand portfolio by spend volume, and that United was number three.
When they re-up their co-brand card deals, we should see even higher revenue for the airline – but also a plan to make the cards more competitive and drive spending. We’ve seen changes to their most premium card already, but the full portfolio needs a refresh. And we can expect tweaks that will push customers and especially status members to adopt the card.
Mileage-Earning For Tickets May Change?
Currently the top earning rate for status members booking eligible fares is 11 miles per dollar spent. I’ve written about Raja talking through changes in mileage-earning based on where you book and use of the airline’s co-brand. This is the first time we’ve seen specific numbers attached to that.
Now, the current Citi Executive card earns 4 miles per dollar spent on American Airlines purchases. So that gets you to 15 miles per dollar. They’re now talking about earning up to 16 miles per dollar (and Raja is later clear this is without AAdvantage Business). So one more mile per dollar must be coming? Or maybe they’re just assuming cardmembers who spend $150,000 on the Executive Card earning 5 miles per dollar. I guess that’s one way to get there?
AAdvantage Business Is Supposed To Win Business Travel
Raja talks up AAdvantage Business but it’s low value and painful to work with. Most of the discussion though centered around self-service bookings versus employees spending time on the phone dealing with changes. I don’t think any slide that looks like this can really trumpet ‘easier and more efficient.’
Unfortunately AAdvantage Business is a devaluation of their small business offering, and a reduction in customer service. It’s harder to use and get credit for.
It’s one thing for Raja to argue, as he sometimes does, that American will earn business travel based on their network and schedule and that they don’t need to discount. And it’s clear why they want direct bookings (and bookings through outside channels that let them upsell customers). But the AAdvantage Business program is not higher value than what it replaced. Indeed it’s around a two-thirds reduction in value.
AAdvantage Miles Will Stay High Value
What was really interesting is hearing Raja trumpet the current high value of AAdvantage miles, and commit that they would improve the value per mile, saying they’re “committed to offering highest value per mile versus any other program.”
I don’t know whose rankings they’re using here to value AAdvantage miles, they’re valuing them higher than they should be, but most commenters inflate their value. I do value my American AAdvantage miles though some systematically overvalue them.
American Takes A Stab At Delta Over Airport Lounge Restrictions
While American hasn’t added as much to its lounge network as Delta lately, they highlight that they offer the most space per customer and Raja commits to no lounge access restrictions “no matter what we do going forward that will be the case.” That’s a clear shot at Delta.
Washington National Airport E Concourse Admirals Club
Changes To AAdvantage Coming Later This Year
This wasn’t explicitly discussed, but the slide deck highlighted a plan in the second half of 2024 for:
- cash and miles for “vacations, events and experiences”
- improved redemption benefits for elite frequent flyers. (American used to offer extra award space for Executive Platinum members but they eliminated this when they dropped sAAver and AAnytime awards.)
- “Exclusive access to premium content for status customers” though it’s not clear what this looks like.
Credit: American Airlines
Then next year ‘and beyond’ they view their core proposition as being simplicity in earn; best value for redemption; and top elite benefits. Those are good principles if they deliver on them. Their claims about upcoming changes to partner awards are a major question mark, however.
Domestic Small City Flying, Reliability And AAdvantage Are The Vision Of The Airline
American is targeting $1 billion in cost savings, and say much of that will come from better procurement. But procurement savings often comes out of the product.
The vision for the airline isn’t better meals, better clubs, and better service. And it isn’t massive growth to far-flung international destinations.
They fly to small cities and connect passengers in and out of the Sun Belt. And they lead with offering a better value proposition for their AAdvantage program.
I believe that schedule and reliability are table stakes. They’re absolutely needed, but aren’t enough to get customers to choose American over United and Delta and pay a revenue premium to do so.
Raja shared that they generate $3.5 billion in revenue from airline partnerships. They sell connections to their partners, more than flying internationally themselves, and sell international connections rather than competing in big international markets. That makes partner awards crucial and what American does here will determine more than anything else the value of the AAdvantage program going forward.
Speaking at the top levels of the organization about the importance of the value of their miles – and wanting to offer more value here than competitors – is encouraging and a departure from competitors.
@Gary – anything about Million Miler ? I thought it was a corporate priority.
“They’re now talking about earning up to 16 miles per dollar (and Raja is later clear this is without AAdvantage Business). So one more mile per dollar must be coming?”
Citi Executive card earns 5 miles per dollar on AA flights after spending $150,000, so that could be how he is referring to it, but I could also see them add extra LPs/miles to the cobrand card for AA purchases if you have status.
What redemption options are there, other than flights, hotels and car rentals?
I’m afraid that no matter how many miles one earns regardless of status
American has now taken the once stable 12,500 award and made it 43000 to 75000 one way for a coach ticket within the domestic US.So I continue to do cash back and skip their mostly horrendous ponzi scheme in America.I once was a committed customer
@dwondermeant – I all depends on where and when you wanna go. If a relative died tomorrow I could be back to MKE form ATL for 7.5K + $5.6 on Wed. (Compared to DL who wants 37.5K for a ticket on that route) Where you see that 43-75K pricing a 12.5K ticket would never have been available. Saver availability on many routes has sucked (non-covid) for a decade. Too many people in the game chasing too few seats.
I would like to see Citi. Thank You. Points become transferable to AA.
Your miles will not be devalued – hahahahaha
“We don’t refer to it as a loyalty program.”
It’s not a loyalty program. It’s just a program in which you earn loyalty points.
Every time management talks about their plans it’s depressing. I pretty much only fly them working down my wife’s and my miles large balance. My revenue flights go elsewhere.
Their product is their schedule . I’m on LAX, almost no product anymore.
rn AA gets 0% of our airline spend, even though I have EP status and the Exec card for lounge access. If they gave us more Loyalty Points, even one we would probably put all of at least our AA spend on our AA card.
Funny enough is that Citi poaches this business with Thank You points, which I honestly love. With friends like that who needs enemies?
I prefer always flying on partner carriers except AA has the best WiFi. I also strongly prefer bring your own device. I live in a big global hub so many oneworld options and so I really just need AA to fly me to hill country when I need to go. Fine w me.
How about making international upgrades complimentary for elites?
How about REALLY clearing upgrades 100 hours before flight time for Ex Plat and CK? Hub cities fail to do this and wait wait wait wait and hope someone buys the ticket or pays for upgrade
How about taking CK out of the “veil of secrecy” and publish real guidelines and an application process? Award those that actually spend or fly on metal instead of influencers and people AA deems to be “cool, hip and have lots of followers on instragram”
AA lounges. Upgrade them and make them an experience instead of crap food and cheap american beer allow for more top shelf offerings. Hold lounges accountable that won’t take day passes earned by electing loyalty choices. There are lounges that have standing signs that won’t take day passes. Right now Centurion Lounge is hands down better experience.
Work with your partners All one world awards tickets should be shown on AA site.
Tell EVERYBODY who the preferred partners are so your best customers = business travelers can make changes if their companies are not using a preferred engine. It takes time to change so if AA announces the list last week in April…..how the F am I supposed to change a corporate travel department in a week before the May 1 deadline
Glad they are calling out a commitment to value per mile – more first class seats in the fleet should help this as well
They need to up their partner intl premiuim class redemption value per mile – by improving availability at current pricing – too weak there esp given AAs weak own-metal long haul network
Yes please partner with JetBlue again
And please don’t resort to tranfser from Citi ThankYou – that lack of liquidity is what helps them keep the value per mile higher
AAdvantage is really all AA has left due to the poor product decisions they’ve made post Horton. It’s clear that leadership does understand that point. They just miss 80% of the in between parts that it takes to actually be a competitive company with a compelling overall product.
WOW, they completely forgot that they’re an airline. Minting ever more magic beans doesn’t make up for not delivering on what people pay yo to do, which is to provide a transportation experience.
Sell, sell, sell, sell. This stock’s going nowhere fast.
Greg
I’ve found that the problem with international premium travel on AA is not miles pricing for the most part. Qatar biz class on 70K miles one way to Asia is probably the best deal in the business. Etihad on 70K miles nearly as good. The real problem is that there doesn’t seem to be too much availability on Qatar Premium these days.
Another the huge taxes and fees on premium flights through/departing England. That is an issue since BA is one of AA’s major partners with a hub in London. That’s not really AA/BAs fault except that they don’t choose to eat the costs.
This is all posturing to strengthen their hand in negotiations with Barclays and Citi and whatever other sucker wants to vie for the card business.
I will provide them a reality check free of charge.
Service will continue to decline, in the airport on the phone and in the air..
AA miles will continue to devalue.
The value of elite status will continue to erode
They will struggle to maintain market share anywhere but their primary hubs.
Their premium experience will trail the pack.
They will struggle to make money.
One benefit of AA bookings (specially for AA international biz award travel) is the AA hold feature. United FareLock feature is similar, but there is a charge, and more importantly, it’s offered much less frequently — indeed, I can’t remember it being offered on international premium class for a while.
On the flip side, the negative with AA is that award cancellations for partner flights often take several days to be redeemed unless one calls and pushes them to redeem immediately.
> “Exclusive access to premium content for status customers” though it’s not clear what this looks like.
What does premium content mean? Content in the IFE, content on the website, maybe a discounted wifi option?
Citi Exec card is currently doing a “Book Direct with AA Promo” where you earn more milea per dollar spent. I think this is part of what they are talking about. Got me to book a higher class and 3 months earlier than I would have. So it worked. BUT, I would like more ways to earns more LP’s. They are getting increasingly harder to earn, I earned more than 100k less than last year, now I did have an extra 3 months, but still. I earned way less this year.
Also, as an EP, it’s REALLY hard to use SWU’s in any meaningful way. Even domestically. And redemption rates are VERY HIGH. They need to add more space and better opportunities for EP members.
I don’t care that much about what AA says about the frequent flyer program. I care about what they do and how it impacts what I get out of the program.
And whenever an airline talks about pushing the program and changes to get more value out of it, it’s a warning that I as a consumer am more likely to lose out on the value-proposition from the program changes than I am to gain from the program changes.
This is the most confusing article I have ever read. Very hard to follow and understand. Maybe it’s just what the writer is trying to cover is unclear. But one thing is clear , AA continues to gaslight us. Old airplanes . Poor service. Super high redemption, and high cost per ticket.
One sole request – 365 days ahead and priority access to partner awards for Executive Platinums and CKs.
“We don’t refer to it as a loyalty program.”
That’s funny — neither do I !