American Airlines is preparing to eliminate award charts, according to an interview given by the President of the AAdvantage program to the website The Points Guy. No airline or hotel loyalty program has ever increased the value of its programs for members after eliminating award charts.
American Airlines…still posts its award charts — if there’s saver award availability, the chart will tell you exactly how many miles you’ll need.
But not for too much longer, as Rick Elieson, the president of American’s AAdvantage loyalty program, explained in a meeting with TPG at the carrier’s Skyview headquarters.
“What the team is actively working on is what can I give you that would be most useful to you,” he said in response to whether AA’s award charts are here to stay.
The TPG piece is full of softballs and doesn’t press Elieson when it reports he has “no intention” of devaluing the program when they eliminate award charts. Here’s what they offer to expect instead:
Elieson compared the next iteration of AA’s award charts to a real estate website that shows you how many people have bought a property in a given area and for what price range, as well as a ticker for how many people are looking at a specific property right now.
For an airline, that’d likely materialize as a website where you enter your origin and destination, and the algorithm spits out a range of historical award prices, as well as what travelers are paying nowadays.
Award Charts Are The Cornerstone Of A Loyalty Value Proposition
In January 2020 American assured they would keep award charts. And when Rick Elieson took over the program, he again reiterated in October 2020 that they aren’t going anywhere. He said he didn’t understand the value of award charts but understood they mattered to members.
They now appear to be reversing course. But award charts are the fundamental cornerstone of a loyalty value proposition.
- Members are asked to engage in an activity first – show their loyalty, earn a currency – and trust that those points will be valuable in the future.
- In order to generate trust the program has to commit up front to what that value is going to look like. That’s especially true for airlines which have a history of abusing consumer trust.
- Without a specific promise of value, and a credible commitment to deliver on the promise, there’s little reason to accumulate the currency. If AAdvantage won’t even tell you what your points will be worth in the future, why should you believe in their value?
Award charts mean that an airline has to notify members when they make a change. They can’t just sneak in the change without acknowledging it. And the need to make changes public itself serves as a deterrent to frequent and significant devaluation.
When programs no longer have to post their changes, because the price is whatever it is on a given search, there’s no need to tell members when the underlying value of the currency devalues. When it’s opaque, devaluations happen more frequently.
Eliminating Award Charts Has Never Been Good For Consumers – Ever
It’s no coincidence that American AAdvantage didn’t devalue its miles during the pandemic. They have award charts and would have had to acknowledge the change. On the other hand let’s look at the behavior of airline and hotel programs that already eliminated their award charts.
- IHG Rewards, which has no award chart, systematically increased award prices during the pandemic.
- Southwest Airlines has straight revenue-based redemptions. Their points have a largely fixed value, but they don’t publish the value. They devalued their points 6.5% without notice.
- Delta massively increased the price of partner awards in October 2020 and that felt so good they did it again in February 2021. One way business class awards between the US and Europe rose 60% in 5 months.
- United raised the price of partner awards 10% and then added a mileage surcharge for booking within a month of travel
Ten Billion Reasons To Devalue The AAdvantage Program
American Airlines mortgaged the AAdvantage program for $10 billion. The airline has more debt than any other carrier, and now bondholders have first claim on AAdvantage revenue – even ahead of members redeeming their miles.
Now that American needs to be more transparent with AAdvantage investors, in order to protect the value of its AAdvantage-backed debt and potentially use the program again in the future as a source of liquidity, they need to be able to show continued net earnings growth. American is hardly alone here. United, for instance, borrowed $6.5 billion against MileagePlus and is driving towards doubling the frequent flyer program’s net earnings in four years.
That’s tremendous pressure. It’s unlikely that the credit card co-brand deals – the primary source of revenue for airline frequent flyer programs – are going to drive revenue growth at that level. So it’s natural to face pressure on the cost side. American’s CEO says the airline’s goal is passionately driving efficiencies.
Award Charts Are Crucial To The Competitive AAdvantage Of The Program
Airlines can’t compete in an award chart-free, revenue-based redemption environment. Their products won’t offer the same value that bank points do. At best you’ll see a penny per point, but customers with a Chase Sapphire Reserve redeem those points at 1.5 cents apiece for travel or through the bank’s ‘Pay Yourself Back’ program.
The ‘AAdvantage’ than an airline has is access to spoiling inventory that it can pass along to consumers at a deep discount through its mileage program, offering members the opportunity to generate outsized value for their miles. Without that – and it’s something that is fundamentally tied to the award chart – airlines lose their competitive advantage in loyalty.
In fact award charts are a key reason I prefer the AAdvantage program over MileagePlus or SkyMiles. And I’d note that the AAdvantage cobrand card portfolio has a greater volume of charges than either of those other two portfolios – so in eliminating award charts they’ll be copying the tactics of their less successful competitors. But why maintain your competitive advantage?
Explanations For Dropping Award Charts Are Excuses
There’s no reason to eliminate award charts to pursue revenue-based award availability. American Airlines proves that with its web special awards alongside chart-based pricing. American is hardly the first to do this. United introduced it 15 years ago with its Choices program making the points of co-brand cardholders worth a penny apiece as an option while still allowing redemption based on an award chart (until they dropped charts two years ago and began to devalue).
Yet Elieson tells TPG that award charts don’t work because he wants miles to be used for more than flights, and for revenue-based redemptions,
The carrier is working to make miles more into a currency that replaces cash across the travel journey, not just for the flight itself. “Increasingly, I want you to redeem miles for more and more things, not just awards,” he told TPG.
The current award charts list your mileage redemption options for flights only — there’s no mention of using your miles for other ancillary purchases like extra-legroom seats, upgrades, and more.
I initially found it an odd claim that “there’s no mention [in award charts] of using your miles for other ancillary purchases like … upgrades” since AAdvantage literally publishes an upgrade award chart, so I have to think there’s no discussion of using miles at a very low value to pay for the difference in fare between the cabin purchased and a higher cabin – the way that Delta obliterated mileage upgrades. With SkyMiles you now buy business class with miles for your ticket price plus one penny per mile.
This is like Delta saying they wanted people using miles for haircuts five years ago, using miles as a currency to literally buy anything… at about a cent apiece. Delta has such a strong presence in its main hubs, and has historically good customer service and operational reliability that they get away with it.
A former senior loyalty executive with extensive knowledge of United’s MileagePlus program told me that their elimination of award charts was “the day United died.” While Delta has been able to get away with devaluations, United’s devaluations have shown up in negative financial performance in its 10-Ks.
American Airlines has been taking the right approach – making miles more useful with revenue-based options alongside and as an add-on to traditional award charts. There’s no reason whatsoever to drop flight reward charts in order to allow for mileage redemption against fees or for ancillary services. But a free checked bag or an extra legroom seat as a reward for miles aren’t going to drive lifetime loyalty the way a honeymoon or special anniversary trip in business class will.
Sadly the pressure of watching peers go a different direction, combined with $10 billion in debt against the program, creates an urgency to show constantly improving financials. This will be a short-term play and a long-term drag on the program itself as well as its members.
Airline frequent flyer programs are the most successful marketing innovation in history, because they capture member imagination and offer the possibility of experiencing travel customers wouldn’t otherwise be able to afford.
Pursuing non-transparent pricing – and ultimately average value per point – is a strategy for destroying the leverage in the programs that drives their success. A straight rebate (even when designed opaquely) puts a program on par with the sandwich shop punch card and at a disadvantage to cash that earns at a higher rate, earns a rate of return when you hold it, and carries less devaluation risk (current inflation alarm bells notwithstanding).