American’s President Can’t Wait to Make Changes to the AAdvantage Program and to Copy Some Competitors

American Airlines President Scott Kirby, speaking at the Wolfe Research 8th Annual Global Transportation Conference, in response to a question laid out what the upside will be for the airline once they complete the transition to a single reservation system.

He mentioned ‘full code sharing’ between American and US Airways, by which he means that there will no longer be separate US Airways and American miles and that should allow them to earn more revenue (and take care of instances where you can buy the same flight for less through one airline or the other, although this is much rarer than it used to be already).

Then he talked about assigning one airline’s aircraft to operate the other airline’s routes. Specifically he thinks there are more Airbus A319s at US Airways than there should be, and more ‘large gauge aircraft’ specifically 737-800s at American hubs. We can expect to see smaller planes on American routes, and larger planes on US Airways routes in many cases.

Finally he talked about all of the backlog of changes he’s wanted to make at American, but that have been on hold pending all the integration work. The ‘integrate before we innovate’ mantra has been repeated non-stop throughout the company for the past 18 months.

Here’s what struck me — “we would have loved to make some modifications to the frequent flyer program,” and then mentions opportunities for merchandising (unbundled services) and then says this includes shamelessly copying some of things competitors have done.

He doesn’t expand on this, but I suspect most frequent flyers will read this in a way that will not make them happy. Copying competitors, in context, could be just referring to ancillary fees.

However,US Airways was more or less in the can with a revenue-based program prior to the merger with American. There was speculation over whether they could go first, before Delta, rolling something like that out.

US Airways was early with three redemption levels rather than just two, something that American and Alaska both now have (Delta has five, plus all the routes they misprice, although that’s a secret since they do not publish award charts at all).

Of course the statement he’s made is also opaque without greater explanation. Reading into it resembles biblical exegesis or Kremlinology.

While one imagines it implies a greater revenue-based focus, even that wouldn’t tell us very much as there are three different areas where a program shifts to a more revenue-based model:

  • Mileage-earning (e.g. earning miles based on the cost of a ticket)

  • Mileage redemption (award costs are tied to the price of a ticket)

  • Elite status (such as minimum-required spend for status)

An airline can do one or more without doing all of these. And they can move towards this in the way that United and Delta have — or something different entirely.

Hopefully whatever they’re planning for 2016 will be disclosed soon. It would be truly offensive to wait until integration is complete in October to lay out plans for, say, January 1. Even United gave 9 months’ notice for the move to their revenue-based mileage earning. Delta gave nearly a year’s notice for the move to their revenue-based earning and five tiered redemption.

Of course, completion of the integration will be the airline’s primary focus until complete in October. That would leave only a short window if they did want changes to start in January. My guess is that if there’s revenue-based earn and burn at least in the future that it won’t come January 1.

And he could just as easily be talking about major changes to the award chart. Time will tell.

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. HPdbaAA….writing was on the wall the day Parker and his cronies took over.

    United is the place to be.

  2. How in the world is United better? At worst American follows down United’s path (and they ain’t done yet by the way) and that’s far from a foregone conclusion. I’ll stick with American and if they change the value proposition re-evaluate.

  3. I would hate for AAdvantage to change to revenue based, but then again that will probably save me money. I primarily flew United and occasionally AA in the past (Always tried to stay with United). However since they went public about revenue based mileage earning and for status I completely switched and only fly AA. I have actually spent more to only book with AA. If a change were to happen I would probably begin only booking flights based on price (ie potentially less money for AA) I do wonder how much revenue AA earned because its competition changed their frequent flyer programs and how much AA may lose if they change theirs.

  4. Unless somebody can show Parker and Kirby that AA benefits by being different (in the way Southwest apparently benefits from not having bag fees), I’m sure AA will eventually adopt a revenue-based ff program. They’re “into” making money; not operating the airline as a public service to frequent flyers.

    Oddly, investors today glossed over these money-making initiatives and focused on Southwest’s conference “announcement” that they “might” increased capacity by an additional percentage and they “might” see a 1 percentage decline in unit review. This somehow caused AA stock to fall 10% today!

    So I think it’s safe to say that Kirby’s comments fell on deaf ears.

  5. AA has already gone further than United in adopting a 5 tier award system.

    And they’ve become much more restrictive on own-metal premium cabin awards.

    No to mention the pre-Parker BA surcharges…

    And let’s also add in the smaller international route network. It’s just harder to use your elite benefits globally when AA doesn’t fly there.

    So there is precedent for them being worse than United on several fronts.

  6. Gosh, Gary…all this time you’ve been saying how you didn’t think AA was going to go make changes and how that wasn’t in the company’s best interests. And yet here we are, talking about how that is exactly what is going to happen.

    Great thought leadership there.

  7. @Greg – the current state of fuel surcharges with BA stem from the joint business venture across the Atlantic. Prior to that it was not possible to use American miles to fly BA between the US and UK. No fuel surcharges, but no US flights. I didn’t mind so much, fly up to Canada and grab Toronto – London and beyond. But the joint venture we got all BA flights, and fuel surcharges on all BA flights. (Most other partners added fuel surcharges to BA awards already, like Alaska Airlines did — this was driven on the BA side of things.)

    American does have more award tiers than United, but American offers last seat availability to all members which United does not. It’s also not that relevant to me, I look to use miles on partners and not American or United anyway, and that’s all saver to begin with.

    Agree, they are more restrictive than United (which says something) on their own metal. Again, not what I’m looking to fly, but that’s quite true for international award space and has been since early 2012.

    They’re also much better than United on a ton of fronts. Their international upgrades for top elites aren’t a lottery — you don’t have to buy a more expensive ticket in order to waitlist for a chance at an upgrade, for instance. Their upgrade priority isn’t based on fare over status (a full fare, including government YCA fare, United Silver trumps a 1K on an H fare). American gives comped drinks and also snacks in economy. American has long had much more internet connectivity than United. American’s domestic award availability is much better than United’s.

    American doesn’t lose partner airline awards when schedules change and the issuing carrier fails to pass through re-issued ticket numbers to a partner…

  8. If my domestic tix don’t get me much (if anything) regardless of who I fly, then I have no loyalty, period. I’m looking at the big 3 domestics as being the same as the cable companies: they are all mediocre and interchangeable. For longhaul overseas routes I’ll be choosing for comfort and amenities–hello, ME and Asian carriers.

  9. It does not require ” biblical exegesis or Kremlinology” to read into the statement “shamelessly copying some of things competitors have done”.

  10. Earn and burn. Earn and burn. The party’s gonna be over a year from now. Using all my AA miles for CX and JL F trips through early 2016 then I’m switching my focus to flexible currencies like Starpoints, MR and UR. If I have to fly AA I’ll book to Avios for short-range redemptions, otherwise my domestic travel will be DL booked to AS.

    If they want to go ahead and destroy the only true remaining loyalty of savvy travelers, let them.

  11. I’ve noticed that Wandering Aramean always has a derogatory tone in his comments, here and on twitter. It’s irritating, if not mildy amusing. Given his knowledge, it would be great to hear his insight rather than vitriol.

    @Gary – any word from your contacts at AAdvantage on what Parker’s comments might mean? What does Suzanne Rubin have to say?

  12. For me, being able to apply SWU from any fare class is a massive improvement over United.

  13. Gary do you think Suzanne Rubin has the power to prevail if it is her plan to give more miles for premium fares rather than taking miles away from lowest fare passengers who surely provide critical support overall? This seems so savvy since there is no revenue gain from taking away from customers what they may have had (like me) for 40 years which is such a slap that we are inclined to walk.
    However I’m nervous about the emails I’ve sent to Smisek and Rubin not being replied to, when they got back to me in the past with intense questioning about my dissatisfaction with AA’s eRewards, and when UA downsized to toy airplanes on Calif to Houston routes pushing many to AA.

    I suspect they’re determined to do this in the way the corporate economy has treated working people to further benefit the rich. Nobody wants unearned benefits, just what we’ve always counted on and remained loyal for. We already pay a much higher percent of our income for travel and rewards have always made it less painful.

  14. Gary – To your point about errors in award tickets on partner flights: I know this used to be a problem on United, but is it still an issue? Have booked a couple of dozen partner flights using both UA and AA miles for myself and family over the past year, and only once has there been a screw-up with the e-ticket not being transmitted properly to the partner – it was on an AA-issued ticket for CX flights last month. UA has been flawless in this regard. My guess is the merger-related IT problems have (largely) been sorted out.

  15. @Wandering Aramean: Ouch. It’s a shame they don’t include aloe in amenity kits ‘cuz Gary needs some for that burn!

    You’re right on the money, of course. I don’t understand how so many people think AA won’t devalue their program once the merger is complete. It puts AA at a competitive disadvantage. Revenue-based programs disproportionately reward premium cabin and other high-fare flyers (i.e. the kind of “good” customers airlines want to attract). Traditional programs are most beneficial to low-fare flyers, mileage runners, etc. That’s not a group airlines want to chase or reward.

    Despite what we may think or wish, the airlines are clearly saying that, in fact, “You ARE your fare!”

  16. Perhaps this was Delta’s plan all along: They knew they had an inferior mileage program. They got United – and it looks like soon AA – to follow them in destroying their programs’ value. Then all the programs are worthless (or at least worth much less) and then what do they compete on? Operations and service. And Delta wins there, among the big three U.S. legacy carriers.

  17. @Wandering Aramean – actually I never said AA was not going to make changes (which is what I assume you meant to say). I’ve long said I do expect changes, for instance I even published a full prediction of what I expect them to do to their award chart.

    I’ve said I don’t think that revenue-based programs are inherently good for airlines. I’ve also said that I believe Kirby would favor one.

    And I still am not saying exactly what they are going to do. My guess is that they will not actually ape what United and Delta have done here, even if they skew more towards high yield passengers (as they have already done this year).

    Thanks for flying by, though!

  18. @JL – these were Scott Kirby’s comments, not Parker’s comments, and AA’s position is that they mean what they say — that American has been waiting on making a good chunk of their changes across the board (as I’ve said for a year) and that once the integration is complete their hands are far freer.

    The mantra, as I’ve said, has been “integrate before we innovate” and that’s why I’ve said for a long time this meant that American would give us a reprieve for a period of time from the revenue-based changes at Delta and United, that they’d look at the data on their operations and how those airlines did, and use that to evaluate next steps. I think that’s all bearing out here.

    My bet is as it has been — that American does make changes to the frequent flyer program, overall skewing more towards higher revenue passengers, but doesn’t straight-up copy Delta/United (despite Kirby’s comment, which wasn’t obviously referring to the frequent flyer program and could just as easily have referred to monetizing products).

  19. My money is on a switch to revenue based earning in ’16. They will probably announce in a few months. When planes are as full as they are rewarding a passenger for merely flying just doesn’t cut it. You need to reward premium spending. If you would have sold out anyway distance based award miles just become a cost you can do without. And airlines are in the business of making money. What flyers need is another great recession and more competition. Neither of which is likely to happen soon.

  20. Of course in some alternate universe maybe he meant he would copy UA by allowing stopovers on international itineraries; copy DL by ending mileage expiration; copy WN by eliminating change fees; copy AS by….

    No, probably that’s not what he meant.

  21. I strongly suspect they can’t, for political reasons, lay out the changes before October. They’ve promised the regulators that they wouldn’t change things until then. It would be a (belated) slap in the face if they announce changes before then.

  22. @Greg:

    “Gary do you think Suzanne Rubin has the power to prevail if it is her plan to give more miles for premium fares rather than taking miles away from lowest fare passengers who surely provide critical support overall? This seems so savvy since there is no revenue gain from taking away from customers what they may have had (like me) for 40 years which is such a slap that we are inclined to walk.”

    1. It’s a savvy strategy because it makes you think they aren’t taking something away. In fact, premium bonuses result in more miles chasing the same number of seats, and that drop in availability hurts everyone. Printing more miles also usually ends in an award chart devaluation, particularly once partner airlines get tired of carrying US award passengers in their premium cabins (as we saw with United). Ultimately, non-premium passengers will see a devaluation in some form or other. Earning 50% on a coach fare with awards priced at 25K is really the same as earning 100% with awards at 50K, but Rubin’s counting on the 100% somehow feeling better. Of course, knowing the airlines they’ll probably drop earning to 50% AND jack the price to 50K if they think they can get away with it!

    2. I would argue that the current situation is really not equivalent to what it was 10, 20, or 40 years ago. Think what it would have taken to earn, say, 25,000 miles in 1985 compared to 2015. In particular, think how much you’d have had to pay the airline for that much flying back then compared to today. I remember my parents spending $2,000+ each to fly to Singapore in coach back in the early ’90s. I’ve done the same thing for $620 in the last couple of years. The earning side of the relationship has been gradually tilting towards consumers for decades, and now we’re seeing a correction.

    3. Where are you going to walk? When Delta brought revenue into their program it was a bold move because there was a real risk people would switch to UA or AA, but Delta figured they had enough loyal/captive customers they could get away with it. For AA it’s a pretty safe bet because there’s really nowhere left to go. You could argue that some loyal customers will just start booking based on price (which most normal people already do), but I’m guessing with planes as full as they are these days AA isn’t worried about losing a few price-sensitive customers.

    “I suspect they’re determined to do this in the way the corporate economy has treated working people to further benefit the rich. Nobody wants unearned benefits, just what we’ve always counted on and remained loyal for.”

    1. I completely agree that the working class is being hurt by globalization and mistreated by corporations in general, but I’m not sure that holds true specifically for aviation. In relative terms airfares have declined significantly over the last few decades. We can debate whether that’s really a good thing from a social or environmental standpoint, but the fact is that air travel is more affordable and accessible today than it has ever been.

    2. Lots of people want unearned benefits, particularly the mileage runners, credit card churners, etc. The point of any loyalty program is to reward a company’s most valuable customers. In an era when airfares were closely tied to distance flown, that equated to the biggest or most frequent flyers. Nowadays, of course, airfare and distance are often wildly unrelated. The shift to revenue-based programs is an attempt to get back to their original purpose – rewarding the most valuable customers. For those of us who’ve been reaping out-sized benefits (and I absolutely include myself in that group), it unfortunately blows chunks.

  23. In regard to errors and flights getting dropped on award tickets, United certainly hasn’t cornered the market on that from my perspective. I have had it happen once with united on Lufthansa flights (out of 5 bookings), once with ANA on Turkish flights (out of one booking), and twice (out of two bookings) with BA Avios on American flights. The only one I haven’t had a problem with partner bookings is with Aeroplan.

  24. As long as the fare wars continue, AA can do whatever the hell they want. I’ll probably switch over to DL since they offer a better soft product.

  25. Any idea if AA is seeing an effect from remaining with “a mile flown is a mile earned”?

  26. Why not title the post “AA Declares the End of the Current AAdvantage Program”, a la your recent DL 25K post?

    Why would we expect AA to be decent and give plenty of advance notice when they didn’t do so a year ago with the overnight death of OW Explorer awards and gateway stopovers?

  27. Thanks Arcanum for the very well reasoned response. I hadn’t considered the way the price drop in airfare after inflation has benefitted us so much – especially since I still pay about $329 roundtrip for many fares which was what I paid years ago but in dollars worth a lot more!

    I suppose that if AA joins the crowd then I’m released to shop for best flights and fares, no longer needing to avoid Delta and United even when they offer better on many of my routes and able to avoid all their old, risky MD80’s. I considered Alaska which offers easy MVP Status but who knows how long they’ll give 100% credit for AA miles, either, and their award selection for partners is limited.

  28. @Gary — If “making more money” isn’t the reason to switch to a revenue-based frequent flyer program, why do you think all the US airlines are moving in that direction? It’s sure not because customers prefer to get less than more.

  29. @iahphx, don’t confuse motivation with effect. Of course airlines switch to a revenue-based system because they believe it will result in more profit. But it’s not a guarantee that it will.

    Awarding airline miles based on ticket revenue rather than flight distance in effect reduces the miles airlines hand out for free, which on the surface saves them costs. But a major revenue source for airlines is selling miles to partners, so if airlines reduce the value of the miles to passengers, it reduces the value of miles as an incentive to their partners.

  30. I find all the working class man talk to be funny. Its an airline not the new deal.

    If I was AA I would leak statements to the public that we are looking to copy DL and UA so they continue down the path they are going. Then I would improve the program I have in order to grab their passengers. It makes more sense in the long run. Beats devaluing of the program for the status quo.

  31. Let Kirby’s words be a ‘reality check’ that changes are coming. No, the AAdvantage member is very unlikely to be immune from the nasty changes others have seen. We don’t know exactly what these changes will be and they’ll likely not benefit those except for those other than the “somebody else is paying for this ticket” crowd.

  32. @Gary Without exegesis of any kind, I think it’s pretty obvious that the “which” are

    – Reduced mileage earning based on a combination of revenue and status.

    – Revenue requirements on elite status.

    – Redemption devaluation and variability based on business conditions.

    The –precise– form these will take might vary somewhat but the use of the phrase “shamelessly copy” indicates that we can expect them to very closely follow the changes made by United and Delta.

    Honestly, I think it’s hard for the guy to be clearer without stating actual details of the new program (which are probably still under consideration).

  33. No one has mentioned the current promotions awarding bonus miles for tickets purchased in higher classes. Looks like a trial balloon for a revised FF program.

  34. @Susan B: the “currency” promo looks to me like two things: (1) a quick way to reduce defections of high-fare-class passengers to UA/DL, and (2) a trial to see if the “a mile flown is a mile earned” resonates with higher-value discount fare passengers (i.e., the majority of business travelers). If AA sees good effects, they may keep it and not copy that aspect of UA/DL. Or they might do so anyway, just to be a follower.

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