One Key Piece Of Data Explains Why American Airlines Upgrades Are So Hard To Get

During the American Airlines third quarter earnings call on Thursday, Cowen and Company’s Helane Becker asked what percentage of customers were actually paying for premium cabin seats. This is important for analysts to consider as American grows its long haul premium cabin seating by 46% over the next four years.

Chief Commercial Officer Vasu Raja answered somewhat ambiguously at first, but then gave numbers for their domestic route network.

  • The percentage of customers paying to sit up front is much higher than it’s been historically

  • That “changed a lot between July and September”

  • And they’ve been making changes to the airline’s upgrade programs, where they “used to have a lot of different cottage upgrade concepts, that could be had through different certificates, loyalty program” and they’re making it “simpler for customers.”

They now “offer more fare products for customers” which makes it easier to just buy the seat. And here’s the kicker, domestically “60% used to be paid” but their domestic paid premium cabin load factor is now “closer to 80% or so.”

My sense when I began flying for business 25 years ago was that around 10% of domestic first class cabins were filled by passengers on paid first class tickets. Delta reported that when they began upselling to first class their paid load factor was just 11%. As recently as 2011, it was still only 11% but they’d grown it to 57% by 2015.

Delta’s goal at that time was to hit 70% by 2018 (while selling 50% of extra legroom coach). That was widely seen to be the end of upgrades for most flyers. They hit just 60% that year and American was still playing catch up.

To learn though that American is selling 80% of domestic first class seats is incredible, though also certainly consistent with experience. They’ve acknowledged that they don’t have enough first class seats to sell on their Airbus A319s. Raja complained as far back as 2018 that the airline’s 787s were configured without enough business class seats.

I’d add another couple of factors,

  • American has become much more aggressive with post-purchase upsells, often at a discount to the price difference at time of booking. Sometimes when I’m considering paying for first class, on a flight that isn’t full, I’ll buy coach and expect to be offered a first class buy up at a discount. I still have 24 hours in which to cancel my ticket if I don’t get the offer! The only downside is that this extra spending doesn’t earn additional Loyalty Points towards earning status with the airline.

  • The change in business travel has made upgrades tougher. Traditional business travelers (who buy the most first class seats, have the highest status, and take up the most upgrades) no longer travel mostly Monday morning and Thursday evening. Travel demand has fewer peaks and valleys than it used to. To be sure Saturday evening my American Airlines flight was sold out in back but went out with empty seats up front, but that’s rare and.. Saturday night. Even Wednesday afternoons have more competition than they used to.

During the journalist Q&A at the end of the call, CNBC’s Leslie Josephs asked a related question – how the airline will handle competition for upgrades, and keeping members engaged in the AAdvantage program, when growth in the program and growth in card spending outpaces growth of the airline amidst these full premium cabins.

Raja immediately recognized the importance of AAdvantage mileage redemption – the loyalty program reports up to him – stating that “burn begets earn.” Members who successfully use their miles demonstrate the value in the choices they’ve made to accrue the currency, and accelerate their engagement in the program.

He pivoted somewhat, though, to note that they are “mak[ing] status more rewarding and more meaningful,” as well as offering “more ways of using miles,” and noted that the airline “experimented with ways of expanding availability for redemption and found that the take rates were promising.” If any of this expanded availability involved international business class, though, it was a small enough test to not really be noticed by members – AAdvantage international business class redemptions on their own flights are nearly impossible at non-Delta SkyMiles pricing.

Raja hinted at more opportunities coming for redemption with American and with partners” and this is presumably non-flight redemption. So perhaps we’ll see low value opportunities to burn miles instead of cash to cover fees not just on American Airlines but on close partners as well (such as when flying on an American Airlines ticket or codeshare on JetBlue or Alaska).

CEO Robert Isom added that adding premium seats helps make “sure we have ability to serve customers,” and that investing in product will keep customers engages as well. He argued, quite hyperbolically, that the New York LaGuardia Admirals Club is the “best domestic lounge in the country.” He was on firmer ground arguing that this will “be beat when we open the new DCA lounge [on October 25].”

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Good. A seat upgrade should be a rare exception.

    Next, how about capping the number of passengers in each boarding group so we don’t have flights where a hundred people are group 1 and spill over way into the terminal.

  2. Small data point on the 319 having too few premium seats. Looking at ORD-LGA flights this December. Route is flown by a mix of 737s and 319s. The 319 flights on my days of travel are all $200 higher than the 737 flights.

  3. Good. Lowly OPM flyers doing their corporate bossman’s bidding stay in the back while the true elites fly up front.

  4. The value of enhanced status (6+ million miler on AA, and EP for about 25 years now) continues to decrease each year. Upgrades mostly don’t exist anymore, so for most flights I just purchase first class (and business class for international).

    My one ask of AA would be that as an EP who purchased a first/business class seat that I am not about the thirtieth, or fourtieth, or fiftieth passenger to board and I find that most overhead bin space is long gone. Don’t tell me, Raju, that that can’t happen (because it does very often) or that you’ve “fixed that” (because you haven’t).

    AA needs to make “Group 1” boarding really into Group 1 boarding !!


  5. The goal of airlines has always been to sell their products before giving them away (duh) but there is now a satuation point of high mileage fliers that want the assurance they will get a premium seat alongside a growing number of leisure-oriented people that are willing to buy premium products without having to chase mileage programs.
    And airlines have long revenue managed the premium cabins but have just not have the demand for any real price discrimination to take place.
    All 3 big airlines are saying the same thing so the real question is if this is a long-term trend or whether this is just all pent up demand that will cycle through fairly quickly

    Add in that low cost carriers do not have the ability to sell premium products as the legacy carriers do and I suspect we will see some very different earnings reports once the low cost carriers start reporting. Everyone is seeing strong demand but the legacy/global carriers are in by far the best position they have been in relative to the rest of the indsutry since deregulation over 40 years ago.

  6. Fewer flights also leads to fewer upgrades and probably an increase in the percentage of paid first on the flights that are operating.

  7. @ Gary — Not clear to me HOW this changed from July to September. More or less people paid to sit up front?

  8. I think the reason group 1 boarding has a hundred people is because of all of the dopy new credit cards (no or small annual fee and small spend) are giving away early boarding and a free checked bag!!!

  9. The reason Group 1 (and other early boarding groups) are so full is because the gate agents don’t do any enforcement. Every AA flight I’ve taken this year, someone in front of/behind me has been visibly holding a Group 6, 7, 8, etc boarding pass and just waltzes right through in Group 1, 2, etc.

  10. @Tim Dunn “The goal of airlines has always been to sell their products before giving them away (duh)”

    It seems you miss something very important.

    1. The biggest customer American Airlines has is Citibank. The second biggest is Barclays. Selling miles is huge business.

    2. Earning miles isn’t free it has an opportunity cost. If you put spend on a Citi AA card you aren’t, say, putting it on a 2% cash back card. $15,000 spend to earn 15,000 miles for a domestic one-way upgrade (plus $75 co-pay!) “costs” you $300 which is frequently more than the difference in paid fare.

    3. AA reports to investors in AAdvantage debt that the program has a 52% margin. This isn’t just revenue, it’s profitable revenue. In contrast, remember, the airline’s CASM > RASM!

    An airline that can’t fulfill co-brand cardmember expectations has a problem, risking killing that golden goose. The answer here, at some level, has to eat into margins at least a little bit regardless of which approach they take.

  11. i missed nothing, Gary.
    Vasu addressed that in his comments.
    Ultimately, they have to find a balance believe what they sell and what they give away.
    AAL is selling more premium seats directly rather than upgrading.
    And upgrades aren’t the only way to get redemptions.

    And AAL still generated significantly lower margins than DAL or UAL because AAL has a higher cost structure – and that is disappointing after a pandemic and all of the government aid that the airline industry received and some airlines used very effectively to get costs out.

  12. My experience with upgrades has been different…I rarely do not receive an auto-upgrade. This weekend I have 4 flights, starting Saturday morning, and I have been auto upgraded on 3 out of 4. The fact that I fly out of a small midwestern airport most likely plays a part in that.

  13. “Burn begets earn” has a dark core: airline burns down the value of the miles (via devaluation) toward award travel and the burned loyalty program hamsters will have to continue running on the hamster wheel to earn more miles to try to make up for being burned by the airline loyalty program. The hamsters don’t really get that they’ve been played but their being burned begets their earning on the FFP hamster wheel.

  14. I’m with Ed Sparks and 305.

    United does a good job separating boarding groups. 1Ks are invited to board before first class (group 1), which is ideally how American would treat their EXPs.

  15. Tim Dunn, when a loyalty program member buys a ticket, the person is not just buying the fare for the specific flight. Not in the least. The person is buying a bundle of things: 1) the fare for the specific flight, 2) the points earned from the specific flight, 3) various privileges associated with cabin class, and 4) various privileges associated with tier status. Etc., etc.

    In this sense, a person has already paid for the flight that is ultimately taken with points. It is not that AA is giving it away. Not in the least. This is the essence of the contract/agreement that is the airline’s loyalty program. If the airline can’t provide good faith opportunities for members to use points that they have purchased (as stated above), there’s a problem.

    Consider a person who is a CK or Delta 360 or Global Services who is pumping big dollars into an airline. Premium cabins, long-haul flights. Then, the airline says, “Oh, but we’re not just going to *give* you a first class seat (in the case of AA) for points.” Or, “We’re not just going to open up the type of award space necessary to redeem that System Wide Upgrade.” It’s a raw deal.

    Yes, an airline is a for-profit company. But, what the airline is selling is a bundle of things. And, denying a customer the practical utility of one of those things in the bundle is counter to the representations of the sale. Of course, it is also a bad business practice that erodes loyalty. In the end, the customer has a choice to make.

    My experience with AA’s customer-facing people has been great. But, policies established at the top (such as those mentioned above as well as others) have driven me away from AA. In the end, it is simply managing by numbers and meeting metrics. As long as that is happening, who cares? Just ask the folks over at Marriott.

  16. Lee,
    No airline is obligated to disclose to you when and how you can redeem your awards associated with the flight you are buying.
    As long as premium cabin demand remains strong, American, along w/ every other airline, is going to sell more and more premium seats for cash at time of booking and make it harder to use upgrades.
    It is basic profit maximization.
    Whether you or anyone else likes it or not is immaterial and won’t change what they do esp. since everyone else is doing the same thing.

  17. For all you supposedly high power elites flying on OPM, it is really quite simple—if you want to fly in a better class, get your sugar daddy to pay for it instead of expecting it for nothing.

  18. I’m Executive Platinum, based in New York. My fiancé and I are flying Qatar Qsuites to the Maldives for our honeymoon next April. On the way back, we’re direct MLE-DOH-JFK, but on the way out the availability was a bit fiddly to get just the right dates, so we’re going JFK-DFW-DOH-MLE. A little out of the way, but totally worth it for the experience. Also, the connection in DFW is the perfect length at around 3½ hours, such that I can buy Five Star Select for the two of us and get Flagship First Dining at both airports on the way out, since it’s good for two uses.

    All of that is perfect, no complaints so far, couldn’t be happier considering the redemption value, love that for us. The only brown stain on the whole thing is that, because American makes zero saver inventory available in this day and age, even when zero seats are sold in First yet – because revenue management says they probably will – there is absolutely no way to ticket us all the way through on that itinerary in business. Their system can’t mix fare types – like, “web special” domestic first vs saver international business – especially when dealing with partners. The only way they can mix are using saver business and saver economy.

    So that’s what we have to take, economy for the domestic segment. We’re stuck going from the extremely mediocre AA transportation-as-a-commodity experience to the best business in the world, unless an upgrade comes through. It’s gonna be really something coming out of the first stop in Flagship Dining at JFK only to board an Oasis 737. It’s actually silly that there is no solution here, it’s revenue management and the booking system coming together to dysfunction in the most ridiculous way.

    (Just to be clear, I’d pay more to make it happen, within reason, say the difference between business saver and whatever their current web special rate is for that domestic segment. Obviously that’s not possible, because of course it isn’t.)

  19. Tim Dunn, understood. They will absolutely conduct their business the way they want. And, they will absolutely do just fine. And, based on an assessment of the comprehensive deal one receives, a consumer can take one’s business elsewhere. It is like what Michael Corleone said: If you want to do business with me, I’ll do business with you.

    JCIL, all too often people comment to the effect that someone else is paying for a person’s first class ticket. Some have a chip on their shoulder about it. Some look with contempt at those seated in first class as they pass through to the main cabin. I will tell you right here, right now, that I pay for every dime of my airfare. I busted my butt for years so that in retirement I could enjoy the fruits of my labor. So, if you see some old guy with gray hair in a Walmart shirt and Dickies pants sitting in first class, could you please go easy on him? Thanks.

  20. @ Tim Dunn
    It’s pretty simple. Airlines sell the value proposition of free domestic upgrades with earning higher status. Lately unless I use plus points, the only flights I’ll get upgraded on are from ORD-DSM/MCI, and hardly ever on ORD- DEN/IAH/SFO.
    At that point you could be a 25k flyer or 125k flyer, but both sitting in extra room economy.
    Indeed airline doesn’t have to give free upgrades but If there are no upgrades, I’m not going to chase that higher status, and credit card perks might suffice.
    I’m a lowly 1k on UA.
    And yes UA will see much lower spend from me, once I hit 1mm. For me, it would just be about access to clubs and priority checkin.
    Replace UA with any airline you like!

  21. @chopsticks – way too early, but note that.

    1. My claim wasn’t that they’d go bankrupt, I sketched out a scenario where it could happen
    2. Fuel is very much not at sky high levels (oil in the 80s isn’t oil at $110!)
    3. AA’s CASM > RASM, their profits are still driven mostly by selling AAdvantage miles
    4. The economy hasn’t (yet) found itself in a bad place

  22. Let’s see for how long the big US airlines can ride high financially in the face of economic headwinds that are hitting Americans’ finances like a financial hurricane.

    The pain from the inflation and interest rate scene is not necessarily close to over. Perhaps we can use AUS housing prices as an economic indicator, for the general economy and (in a possibly different way) for airline passenger demand. Leading or lagging indicator?

  23. @Gary Leff – AAdvantage miles wouldn’t exist if the airline didn’t exist. So to separate the two as you do is not only illogical, but misleading and disingenuous. As Mark Twain observed, “There are three kinds of lies – lies, damned lies and statistics.” Why do you want American to be liquidated?

    @Tim Dunn = You can’t resist the desire to gloat. News Flash: The whole world knows that American is generating lower margins than its competitors. The only reason someone gloats as you do is when they want a company to be liquidated.

    I don’t understand the human desire to gloat or celebrate when others are suffering or struggling. Maybe, as a former teacher observed, it’s because they’re relieved that it’s not happening to them, but I digress …

    It’s not disappointing that an airline hasn’t improved its margins because of government aid, and even United and Delta’s haven’t improved markedly. The government aid was designed to keep people employed and preserve vital transportation infrastructure. It did that. Whether it was the right way to do it is something history will decide.

  24. @DesertGhost – “AAdvantage miles wouldn’t exist if the airline didn’t exist. So to separate the two as you do is not only illogical, but misleading and disingenuous.”

    That’s not at all what I’m doing. On the contrary, I argued for years that American *was doing the accounting wrong* on its New York hub by looking only at flight costs and revenue, and that by scaling back service they were limiting their relevance to the high spend Manhattan market. Their JetBlue partnership has increased that relevance and they’ve seen AAdvantage program signups, card signups, and higher spend.

    It’s @Tim Dunn who fails to consider the revenue attached to miles when saying airlines should sell upgrades for cash implying that miles are free.

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