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.
But why do they need to give out $1.50 at booking (in your example) when no one cares (other than status members like me doing the math on certain routes at certain price points) when Wally Wifi is going to sign up for AAdvantage to get on the internet and then watch an ad for the AA Citi Globe Card or whatever. Sure you can do both, but at some point you’re just handing out pennies, and we just stopped minting that because the cost of production was worth more than the penny? Feels like there’s an analogy in there somewhere.
At some point the ad system will have to be sophisticated enough to target the flavor of AA credit card to the AAdvantage WiFi user based on spend, status, etc. That in and of itself will be worth more than trying to convert many BE customers at the time of booking to folks that interact with the loyalty program.
I think the idea is to move to free wifi as a replacement incentive. However, the smart thing would probably have been to cut earning concurrent with the free wifi actually being available (so they don’t lose out on conversions for a few months).
Also, I actually think free wifi is a stronger incentive than a pittance of miles likely to end up orphaned.
They could have even saved 75 cents by changing it to 1 mile per dollar for basic economy. A few miles can encourage loyalty. Some infrequent passengers eventually become road warriors. Some people have alternating periods of low travel and high travel.
I once thought that I would never earn enough miles to get an award. I even forfeited joining and earning credit for one 1600 mile flight. A few months later, I joined the frequent flyer rat race and have had loyalty ever since, through bad times (once a year travel) to good times (or maybe bad times with flights a few times in a week and good times with once a year travel).
American is looking at its top two competitors, Spirit and Frontier, and sees them soon entering liquidation so why bother try and win over the F9 and NK customer base? Who would fight for them anyway?
I don’t think the elimination of miles for basic flights is a horrible idea. However, eliminating those miles without proper announcements and reinforcement is simply idiotic.
This change could motivate a certain percentage of basic fliers to upgrade in order to earn miles. AA could even make this a positive news message. However, by keeping this change a secret, no fliers are incentivized to buy up to more expensive fares. Dumb!!
American is.simply pushing the last bastion of loyal flyers away
Free WiFi for all passengers really should be standard amenities on all airlines. If they want to do as Delta has done and make you be a frequent flyer program member, that’s fine. If they want to do as jetBlue has done and make you watch a quick advertisement, that’s fine, too (AA already does this on some routes but only provides like 20 minutes for free).
Just because I gave you a compliment for your analysis this morning, Gary, doesn’t mean you get a pat on the back this afternoon.
For the umpteenth time, chasing basic economy passengers with loyalty makes no sense. the ULCC model is on the ropes anyway. Soon there will be no need to offer basic economy fares – or far fewer of them.
As noted, WiFi access via the loyalty program generates far more signups.
AA is moving in the right direction as is WN. The potential for 4 strong big 4 carriers is gratifying.
If AA is going to begin tightening up on travel points , what’s next? I won’t hesitate to switch carriers that offer the best incentives in flying.
I think it’s a terrible move locking out the flyers who cannot afford anything but basic economy. That’s where my family of 5 sat for years. We took our young children to Germany once a year and for a vacation in the US once a year. To fly a family of 5 twice a year was affordable in basic economy. We stayed loyal to AA because we were earning points. Now my wife and I can fly a lot more, earning us Executive Platinum. Had AA stopped giving us points years ago, we would not have remained loyal. I can see them losing customers.?
If you believe as I do, there is a tremendous rev opportunity to capture the CC revenue. I.E., American Airlines is a credit card company first, and flying second. I run about $500k through my AA credit cards (I have a couple of small businesses), and the gap to fly private is still too much for this old(er) dog to handle**. So I like AA, because when the ship hits the fan (at least in the last 2 years), this EP guy can get priority service- heck, on a recent PHL-PIT flight, with no 1st class, I still got a pre-flight beverage… for ‘free’.
But travel time is still important. AA used to have direct flights to SLC, as in you arrived in the mid afternoon. Not any more. (And AA has been banished to the the furthest terminal in SLC, it sucks… it’s like a mile from TSA (no joke, look it up… and SLC is officially the worst redesigned airport ever!) So flying out on Delta, and coming back on AA.
Maybe they realize that the human trash who fly Basic Economy (and ULCCs) won’t generate enough spending on that credit card to make it worth their while. It’s already a problem that the market that they targeted is antithetical to the premium customer that they’re now pivoting toward. I see no problem with what they’re doing and how they’re doing it. Rip the bandage off, don’t peel it slowly.
American’s basic economy was already one of the most generous for elites and cc holders. This was never their intended market for this fare class. Basic econ was supposed to be for infrequent flyers who were price sensitive – not cheap elites! This change is hyper targeted at that segment. Good move by AA mgmt to bump those people into standard economy and increase fare rev.
I have never flown BE. I would consider it on a <1 hour hop, but I don't do those. I suspect I don't want to fly with typical BE customers. But, since I don't know which are, maybe I'm wrong.
I have flown Blue Basic on JetBlue. For the first time I flew Blue Basic, I paid for a checked bag and an assigned seat each way. The total was less than the next higher cost ticket that included a carry-on bag and an assigned seat. The seats were exactly the ones for normal coach class, no more, no less. I did that several times. I later picked up the JetBlue branded card which came with a checked bag on flights and a lot of points which I used for other flights. I was actually boarding sooner than otherwise. The fact was, though, when I boarded last with only a personal item, it was not a problem for me because I was not putting anything in the overhead bin. A couple people had to get out so I could get in my window seat. Without everyone crowded together in the aisle, boarding last did seem less stressful.
Oh no, Gary, you haven’t earned Tim Dunce’s approval! I’m sure you are devastated.
Airlines are simply trying to solve for the fact that members with their credit card can buy BE and get almost the same experience as main cabin, same with those with status. It’s a rather ham fisted way to upsell them. Instead, it seems more logical to make the credit card/status benefits like priority boarding only valid on main cabin and higher tickets.
In any case, miles earning on domestic BE is a pittance. Oh I won’t get 300 miles? Oh noes. Let me go apply for a CC and get 75k.
I think this is less about kicking the low price customers to the curb, and more to punish the EPs who book BE. As they have been using the ability to cancel BE tickets for a fee if Advantage member for a while.
IMO those two things should have been announced together. AAV members no longer can earn miles and loyalty points on BE flights, but can now cancel BE tickets to most markets and get a partial credit*.
Blah blah blah…
Get what you pay for seems like a good model to me.
You want to roll in the front – pay $xxxx. You want to pinch pennies, get in the back.
I waiting for the plane cabin where the pax will be standing. People will buy it at a heavily discounted rate and then complain they are standing.
@Mantis — Aren’t you literally based in Asia these days? How often are you even dealing with American Airlines directly anyway….
So, now all the ‘faithful discount flyers’ get no more consideration than those of us that would rather take a Bus? It’s amazing how much you guys willpayfor so little, while simultaneously propping up the wealthy, and destroying the planet. Enjoy!
AA management did some kind of analysis. And I’d bet that analysis showed elites at times buying BE. My hunch is that when they bought personal tickets it was BE all the way. IFF have no desire for miles and loyalty points so why would they care.
Airlines only want suckers willing to pay four times as much to sit in an “elite” section and board sooner than those in that “cattle car” in the back who continuously get tortured in addition to having to store their 40-pound “carry on” in the coat rack above their seats.
There are so few of us who remember the Golden Age of Flying with full meals served to “Coach” and legroom was not a purchasable luxury.
@1990 – It’s none of your f***ing business where Mantis lives. Go choke on a BBD, loser.
@George Romey – if elites are buying basic economy, then consider no elite status credit (loyalty points) for the fares. They aren’t even restricting elite benefits here in any way! So it’s an odd way to go about it. What they’re doing is cutting off the funnel for attracting customers that they can convert to co-brand credit card, which is the profit engine for the airline.
@O’Hare Is My Second Home
Get a life, you bigoted asswipe. FWIW I’m an AAdvantage member since 1985, Lifetime Platinum, and Citi AAdvantage cardholder. I buy BE whenever my travel dates are firm. And I’ve probably been upgraded to first/business from BE more times than you’ve ever flown. I’ll be sitting next to you on my next flight — if you’re in first. But sure, you don’t want garbage like me dirtying your experience by flying in the same cabin. So do me a solid and wave as you walk to the back of the plane.
The entitlement here is astonishing. Suggesting there is a lower class of human flying basic economy is a vile sentiment. I am a frequent traveller and by no means a budget traveller, I rarely fly with ULCCs, but, I regularly fly basic economy. Why? Because sometimes I just want I to get from A to B. No need for any luxuries, luggage, anything of the sort. And I have no issue sat amongst the so-called undesirables some commenters seem to be allergic to. But the only reason I do this with mainline full cost carriers is because even when I’m not sat in 1A, they value and reward my loyalty. I now have no incentive to choose them over an (U)LCC, and in fact, this change prompts me to reconsider my allegiance, since I am no longer being rewarded for my loyalty, custom, and spending.
@Gary – but isn’t that the point? Isn’t this really targeted at too many elites buying BE? The 1-2x a year AA customer buying BE for $500 a year or whatever and earning 1,000 AA miles… who cares? I’m sure they’ll run a promotion Q1 (maybe Q2) next year with the free wifi “Sign up for an AAdvantage account today and the first [1,000] miles are on us! So is the wifi! Forever forward!” Isn’t that a better way to target new customers – when they are on the trip they are excited about (and more receptive to a credit card offer…) versus when they are paying for the trip X months in advance?
Retaining elites though is a concern! Still haven’t seen them announce the downgrades that were leaked. That’s going to have a bigger impact on my loyalty than the couple times a year I book BE. Also with MCE now being the best status benefit, not great that AA is minimizing the number of MCE seats on XLR and 787-9P!
Premium lounges are getting better though (notwithstanding Kyle/LALF pan of PHL). JFK is packed tonight – Soho is not. Almost serene. Dare I say the staff are friendly? They had the new Soho Burger a few days early – it’s very good. The salad was also great.
@Ron:
“I think it’s a terrible move locking out the flyers who cannot afford anything but basic economy. That’s where my family of 5 sat for years. We took our young children to Germany once a year and for a vacation in the US once a year.”
I think you should take a step back for a moment and consider the fact that, BE or not, you were able to take a family of five on a TATL trip once a year on top of a second trip within the US. Do consider how, not only in the sweep of history but also even in the modern world, that is /insanely/ privileged. Most years growing up I got two weeks at the beach in a house split with another family (we each paid for a week). I think prior to turning 29, I went outside of North America once (in 2000), twice if you count Hawaii (where relatives arranged for us to get into the Hale Koa).
More to the point, I don’t think any carrier actually really “wants” to encourage you as a customer, except maybe to fill a few seats that would otherwise go empty – they’d rather you take a trip every 2-3 years and pay for non-basic Y. So unless you’re carrying other business with you, they’d rather not have you.
Now, that raises an interesting thought – what if AA had said “You can only earn RDMs on a BE booking /if/ you have X status”? Even if it’s “just” Gold, Gold implies a level of engagement with the program (either $40k in CC spend or $6-8k in flight spend) that your once-in-a-blue-moon traveler is unlikely to hit, but it would give an incentive for those incidental-travel customers to engage with the program.
As usual, Gary BASHING AA.
So what’s new? She old,same old from Gary..
This move by AA has pluses and minuses…But to Gary, AA is always bad.
Thanks Gary. I don’t purchase the discounted tickets but was glad to learn about this. Keep up the good reporting.