Doug Parker said that American AAdvantage wouldn’t be going revenue-based at this point, that their key metric is combining the AAdvantage program with Dividend Miles, and that once they accomplish that they’ll evaluate what’s next.
In his opening remarks to the September issue of Inside Flyer, Randy Petersen seems to push for a revenue-based program now. He asks,
Really? How could the topic not even be on the plate right now? Let’s see, the change in both the Southwest Rapid Rewards and Delta SkyMiles programs reportedly cost tens of millions, if not hundreds of millions of dollars in technology changes to cconvert to revenue-based programs – and both were delayed upwards of two years because of technical hurdles associated with the change – and the topic is not on the table at American? … I would think that regardless of where they might end up down the road, they would be building their new system with revenue-based loyalty in mind.
I genuinely don’t understand Randy’s apparent enthusiasm for revenue-based programs. He has been predicting for some time that American would adopt one as part of the merger with US Airways (US Airways apparently had such a program more or less ‘in the can’ before the merger made such a move irrelevant for Dividend Miles). He suggested making one transition (merge programs and become revenue-based at the same time) rather than two (get members comfortable with a combined program and then go revenue-based).
Changing the underlying value proposition of a profitable, multi-billion dollar business is a pretty big, bold step – that could work well or fail spectacularly (or do very little, Delta may just not need to spend much on marketing these days to fill the incremental seats on its planes).
But it also makes good sense to:
- Wait and see what happens when other programs actually do it. Does it work for them? Do they lose business?
- Focus on getting the merger right. Integrating two airlines (in some some cases, really three, to the extent that US Airways and the legacy America West systems continued to operate in parallel) is a Hurculean task. United flubbed it badly with Continental. Getting it wrong could easily cost hundreds of millions of dollars or more. So why risk it?
The mantra across American is “integrate before we innovate.” You hear it over and over from every department. Applying that to AAdvantage recognizes that the single biggest gain they have to make comes from successfully combining to programs and two airlines.
In the meantime, they get to wait and watch.
The strongest case that seems to be convincing lots of industry folks about the wisdom of revenue-based programs is that:
- Delta is a very successful airline. They’re earning a good rate of return and running a strong operation.
- Delta is doing it.
But not every airline is Delta, even if they want to be. And Delta has had its successes without being revenue-based. If anything, the Delta experience suggests that being a good airline and being not revenue-based works.
United is managing by doing what Delta does. American isn’t at this point. The smart play is to look at the data and see what it tells you as you make decisions.
American AAdvantage is keenly aware of what the rest of the industry is doing. And it wouldn’t be surprising at all for them to have folks game-planning what possible future scenarios look like.
They should be doing that. But they also appear to be taking a much more prudent course — maybe not making investments in the tens or hundreds of millions of dollars — not to mention the focus of senior IT leadership — when they need their IT infrastructure focused primarily on integration.
So on this one, I think Randy’s wrong about how American ought to be ordering their resources, and what the airline and program have said they’re doing appears to be overwhelmingly the prudent course.