American Airlines has been surveying changes to elite benefits, including whether systemwide upgrades become part of a ‘choice benefit’ that would allow members to choose something else instead (and could even extend this choice to 75,000 mile Platinum Pro elites, not just Executive Platinums).
Senior Vice President Vasu Raja, whose portfolio includes overseeing the AAdvantage frequent flyer program, offered a clue about the airline’s thinking on top tier upgrade benefits speaking to the Cowen Global Transportation and Sustainable Mobility Conference. He sat with President Robert Isom and CFO Derek Kerr, answering questions from Cowen’s Helane Becker.
Pledging AAdvantage As Collateral To The Federal Government
American expects to close on its $4.75 billion CARES Act subsidized loan by the end of September, paying Libor plus 350 basis points, secured by the AAdvantage program. United and Delta are using their loyalty programs to raise funds in private markets, but American says they’re happy with the money from the government because it’s cheaper. American, with double the debt load of Delta, may not have had the same options for unencumbered assets to secure the government loan otherwise.
The airline suggested that with Southwest declining to take subsidized CARES Act loans, more funds could be available as well.
Becker points out the airline will have $50 billion in debt, $1.5 billion in interest expense, and a repayment challenge as a shrinking airline.
Valuing A Customer’s Loyalty, Not Business Travel Loyalty
American thinks it benefits disproportionately from where travel demand is at the moment – with the Sun Belt, and in particular Arizona and Florida rebounding faster than the rest of the country. That’s because their network is concentrated away from the Coasts.
This is clearly leisure demand with business travel down 95%. The airline has “endeavored to preserve connectivity,” in Raja’s words, so while before the pandemic its most-connected Dallas and Charlotte hubs accounted for 40% of the airline now through winter that ranges between 55% – 60%.
The people traveling now are “under 40 with no (AAdvantage elite) status” in contrast to having earned “20 points of revenue” from customers over 40 on business travel in the past. The business travel they’re seeing is often a mix of business and leisure to leisure destinations.
Raja doesn’t see customer demographics changing back “until deep into vaccine penetration” which is when older coastal business travelers will return, so they “need to build a relationship with people who are new customers, graduating them to higher tiers of loyalty.”
That’s what’s behind the change to honor elite benefits on basic economy tickets.
Raja wants to “think about a customer as a customer and not a series of transactions” realizing that business travelers are leisure travelers and treating them well when they’re traveling for leisure is crucial to maintaining a relationship that brings their high value business trips. By “understanding the customer not just as a transaction” they can “better plan the network.” The “loyalty program will change for wallet share” which in many ways harkens back to how airlines thought about loyalty before devaluations that started about 8 years ago, becoming ‘revenue-based’ which really meant revenue on a specific trip-based.
Expect To Introduce Elite Upgrades On Partners
American offers reciprocal upgrades with British Airways and Iberia, but only using miles on full fare tickets. They talked about reciprocal upgrades with Qantas four years ago as part of introducing a new joint venture. But better integration of elite recognition across partners hasn’t happened. So what’s changing?
Raja says that since American is shrinking he “envision[s] a more seamless experience across partners” both with new partners Alaska and JetBlue and with “longstanding” partners IAG (British Airways, Iberia and others), Japan Airlines, and Qantas. He notes that while American will “be a smaller airline” the networks of partners are “strong in major business travel markets,” and so it makes sense to offer a “seamless benefit for Executive Platinums [in the form of] upgrades across the global network.”
British Airways First Class
Qantas First Class
Along these same lines Japan Airlines has joined American’s small business Business ExtrAA program as an earning and redemption partner, joining British Airways and Iberia which have already been added.
Yeah if I could just use my systemwides across the system that would be great
What does this mean? SWUs are valid? Complimentary space available upgrades? Points upgrades? Cash upgrades?
More questions than answers here.
@ Gary — It would be awesome to see SWUs usable for discount J –> F on JAL. One can dream…
It would be good if they just made them usable . Excessively tight capacity controls have made SWUs worthless. And they extended EP status for one year, but the SWUs for only 6 months, when it seems likely that the pandemic will still preclude non-essential travel.
I’m a BA Gold and we don’t even get complimentary upgrades, and AA thinks they’re getting them for Exps?
Vasco – BA offers confirmed upgrades but you have to go beyond mere Gold to get them. And you think if AA is paying BA something BA won’t go along?
@Gary – Are you referring to the upgrade vouchers Gold Guest List people get? I hadn’t considered those, and I suppose it makes sense if that’s how AA would implement them. I thought this would have been something like the routine upgrade list you get on AA domestics.
The reason I didn’t think about that is that we tend to think that since AA ExPs and BA Gold are both OW Emeralds, that we’re equivalent, while GGLs (which I’m not) are equivalent to AA CKs. We may be flattering ourselves here, as both the BA ‘equivalents’ are much easier to get than the AA counterpart. I wouldn’t be getting anywhere near ExP if I credited my flights to AA! However, this equivalence *is* backed by anecdotal reports on flyer talk of GGLs getting the CK treatment.
Honestly, this is a great time to blast out oddball stuff to get a rise and / or gauge interest – they can always pull it back and blame it on COVID or the economy. Will be interesting to see what sticks.
Excellent news. I find SWUs tremendously easy to use. I’ve missed two requests in 5 years of being EXP. So ability to use them on partners could be a good added benefit. Depending of course on the details of the program (e.g. fare class restrictions?)
If American wanted to show that they actually value the customer, they could do lots of things: revalue AAdvantage awards to 2015 levels, kill Project Oasis, make premium award space readily available on all flights, just to name a few. In short, not actually try to make flying miserable and offer a loyalty program where involved customers can get real value.
This is awesome and what I expected to see with the OneWorld alliance. They will leverage the best of each airlines to reduce costs and increase seats sold, supporting each other. AA/AK/GOL for the Americas; IAG for Europe; Qatar/RAM for Africa/Middle East and QA/JAL/CP/China S for Asia-Pacific (yes I know China Southern and GOL aren’t OneWorld yet but. . . ). This is a huge opportunity to standardize service, maximize routes and grow loyalty.
DL has all but abondon SkyTeam and Star seems to hope LH and UA come back to life soon. Will be interesting to continue to watch.
I think OW upgrades would probably be an ephemeral/elusive benefit. I was wait-listed for a BA upgrade from J->F last year. I called a few times to check before travel. Several agents as well as the BA airport rep stated they had NEVER seen one of those clear. And the AA Flagship Lounge rep in MIA had no idea what I was talking about & flat out said there was no such product. One can dream.
I travel a lot and always qualify for Exec Plat based on MILES flown but their silly Equivalent Dollar policy is virtually impossible to achieve if you are not buying Frist Class tickets or traveling for business. Sad how they ruined their program.
Stop “improving” the product, and give me a reason to fly with you. I have been EXP for years and I am now completely fed up with their devaluated product.
SWE I can’t use, miles that are expensive to collect and immensely useless to spend. Going to Europe they will only offer reward flights with BA l, that cost more in fees than a normal ticket, and the terrible connections, with double red eye, added for sadistic purposes.
Lastly it would be nice if instead of marketing mumbo jumbo these people would speak clear. I am old enough to remember when miles came from actual distance flown, and reward tickets were awarded based on a published table.
It was easy to make the decision to be loyal: I buy 5 tickets to Europe, I get one trip free.
Now you have to spend $50k to get enough miles to get one leg in business…
If upgrade opportunities on other airlines are limited to those who purchase expensive coach or premium economy fares, they won’t be worth much.