SimplyMiles lets you earn American Airlines AAdvantage miles for transactions with a variety of merchants when making the purchase using a Mastercard that’s been linked to the site.
They host numerous ‘Mastercard Offers,’ sort of like Amex Offers. But Mastercard doesn’t have the direct consumer relationship that Amex has with its closed loop. So they’re going after American AAdvantage customers, and of course American’s U.S. co-brand consumer and small business cards are Mastercards.
I earned 7 million miles with their year-end bonus promotion. Some people have reported earning close to double that.
With SimplyMiles American benefits by selling miles, and Mastercard is buying those at a discount. The year-end 5x bonus promotion was ‘partially funded’ by American what I assume is that Mastercard is buying these miles at a bigger discount than usual.
- Let’s say (for round numbers) that Citi buys miles for credit card spend at ~ 1.5 cents
- But up front initial bonuses cost them less, since American wants to incentivize attracting new cardmembers – growing the number of AAdvantage cardmembers means growing the number of miles the bank buys from them. So call it a penny apiece for those miles.
- American is selling miles in each case at a ‘discount’ but still at a profit. When they award miles for flying, they book a penny of liability for that mile, and when they sell miles to third parties they book about an eighth of that. Their ‘cost’ for a mile is somewhere between those two numbers, probably on the higher end of the scale.
- Since this is a joint venture, I’d assume Mastercard is buying these miles (at least for the bonus offer) at something closer to the ‘up front initial bonus’ rate. The 5x holiday bonus was meant to attract attention to SimplyMiles (it sure did!) and make it sticky, which means more mileage sales in the future.
The charity here isn’t buying the miles. Mastercard has chosen to raise money for them, and they’re supporting that … they do take an administrative cut and forward the rest of the money to the charity.
Mastercard does not disclose what the administrative cut is, and whether it’s always the same (whether they take a bigger cut in this case or not). There may be state charitable solicitation registration filings that could be FOIA’able and which would reveal that information. I am confident, however, that the charity is not coming out of pocket to fund this.
For something like Amex Offers it’s usually the merchant that’s funding the offer to encourage transactions. That said each deal is different.
- For instance when Amex has an offer with Hilton or Marriott they may be using dollars that are included in the cobrand deal that they’re required to spend on marketing.
- And they may have some other budgets to spend and encourage transactions (for instance, promoting small business spend with an Amex since customers have traditionally not thought of Amex as accepted at small stores, and small shops haven’t accepted Amex as much and Amex invests in changing that).
Mastercard could have agreements with some large merchants that require them to spend some money promoting the brand as part as well.
And Mastercard, just like Citi and Barclays, has to spend money promoting American AAdvantage credit cards in some fashion as part of the co-brand agreement.
Since the premium Citi Executive card comes with Admirals Club membership, Mastercard is actually the one that funded guacamole and avocado toast in the lounges. You can see the Mastercard logo on the front of the chef’s jacket:
They’ve also done cooking and golf demonstrations at airport gates.
I don’t know the details on the deal between American and Mastercard for SimplyMiles (whether some of the cobrand marketing dollars gets spent here) or whether they were able to spend some of that money in making good on the 5x promo ‘beyond what had been budgeted’.
If I had to make a wild (!) guess on how much Mastercard had to spend above their budget on this promo I’d say $10 – $20 million. There was a budget to run this through December and they ended it on 12/14. The budget ran out probably some time over the weekend (perhaps on the 12th), not exactly clear when. So how much more is Mastercard on the hook for the Monday and Tuesday morning transactions that are being honored?
All in all, think of SimplyMiles as like Amex Offers, promoting choosing a Mastercard for your spend and using it at specific merchants, and making incremental purchases with those merchants. And Mastercard accesses its customers through its partners, since customers don’t deal with Mastercard directly the way they deal with Amex directly.
Some folks are worried that all the miles printed with the SimplyMiles promotion will lead to an AAdvantage devaluation. That simply misses the scale of the AAdvantage program. To be sure you should be betting on a devaluation (after 2022) anyway. However SimplyMiles is immaterial to this calculation>
There are around a trillion AAdvantage miles outstanding. This deal didn’t move the needle on that, and American is almost certainly getting compensated for the miles by Mastercard – above cost.