KILLING THE GOLDEN GOOSE: SEC Filing Shows AAdvantage Devaluation Hurt American Airlines Profits

Airlines thought they could devalue forever – they could offer less value – and their customers wouldn’t know the difference. American, at least, is starting to see signs that devaluations are killing the golden goose — perhaps even to the tune of $200 million so far.

Last week and several IT meltdowns notwithstanding Delta has run a good enough operation that people put up with SkyMiles even when they declare you shouldn’t use miles for travel and that upgrades are dead.

United has had enough operational problems in recent years that it’s been tough to pinpoint their problems to MileagePlus which of course was making money even when the airline wasn’t.

But American is in a unique position of timing where we can directly see an impact to the airline’s bottom line — and a brand new SEC filing makes clear the cause.

Last year American entered into a new credit card deal that was expected to drive big revenue gains for the airline. This happened mere months after American devalued its award chart and weeks before they began awarding fewer miles as part of a shift to rewarding ticket spend not flying.

Customers aren’t buying it. They aren’t willing to take and spend on the American credit card as expected when American miles aren’t worth as much and have become harder to use.

And it is costing American hundreds of millions of dollars.

Here is what their new 8-K filing says (HT: David F.):

Other revenue is now expected to be $5.24 billion, up $330 million year-over-year. The first quarter reduction versus prior guidance is primarily due to lower than expected AAdvantage credit card acquisitions as first quarter promotions were not as effective as planned.

People aren’t willing to take the AAdvantage credit card like American thought.

American is a little bit opaque about all of the moving pieces in these numbers. They projected $5.32 billion two and a half months ago, and this would be down just $80 million from that figure.

However when they announced new credit card agreements last July they said they expected:

  • $200 million more in the second half of 2016
  • $550 million more in 2017
  • $800 million more in 2018

And that this was growth beyond increases already anticipated in the old agreements.

Abstracting from other moving pieces not being detailed, they’d expect to grow this category by some amount more than $550 million in 2017 (update: relative to 2015 baseline). They now anticipate other income will be up $330 million year-over-year, a difference of more than $220 million.

While other revenue isn’t exclusively AAdvantage, the delta in other revenue was expected to be driven by AAdvantage and in particular the new credit card deal.

Much of the expected revenue growth comes from, as CEO Doug Parker said in January, “just getting a higher rate per mile” coming up short on credit card revenue is an even bigger deal than it might seem at first.

AAdvantage devaluations are coming back to bite American’s bottom-line. AAdvantage was the shining jewel in the airline’s crown. One financial analyst thinks the AAdvantage program alone is worth over $35 billion when the whole airline’s market cap is just over $20 billion.

That’s an exaggeration, but the loyalty program itself is big business and it was the one unique selling proposition for the airline over its competitors. Under the leadership of Scott Kirby they ratcheted down its value, reducing the percentage of seats flown by passengers using miles to below the levels of Delta and United, reducing the number of miles given out to flyers, and raising the cost of awards that customers have to pay.

In other words, they’ve made the program worth less to customers, and customers aren’t responding, which is a bad idea when customer response is so profitable.

As noted by the ‘update’ above I’ve clarified the comparison numbers, $550 million is not 2017 versus 2016 but against the 2016 baseline prior to the new agreement.

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 InsideFlyer.com, 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. The fact that this post is getting so many comments is evidence of the I’ll feelings of AA loyalist right now.
    Remember when on US Air you could get 60k roundtrip off peak awards in business to Europe in envoy? Wasn’t that long ago was it. Now it’s nearly double the price IF you can even find the seats. They need to fix this.
    When you devalue miles you devalue the overall program. It’s like the scene in the movie Duets where the guy can’t redeem points at the hotel. It disappoints people.

  2. Completely agree Kalboz. Hyatt list my business entirely. After several years as diamond with almost non-existent rewards I was giving up on them. But this latest move pushed me over the edge. I don’t stay at hyatts unless I have no choice. I will never be convinced y that anyone other than bloggers get to use upgrades with them.

  3. Alaska started serving my airport this week. Now there are actually some flights available with my AA miles out of my airport, rather than always having to drive or purchase a positioning flight to Dallas or Chicago. AA’s radical reduction in saver award availability has vastly devalued that program for me. If I can get a card for the enrollment bonus, I will, but it goes in the sock drawer as soon as minimum spend is met.

  4. Absolutely wrong. If you are dedicated to a particular airline then you should be able to receive he golden egg! I’m hating American now.

  5. They were silly to follow Delta”s lead in eager program etiquette. It isn’t too late for them to reverse course.

  6. After 3 million miles with American, I’m done with them. I’ve switched all of my business over to Alaska and Jet Blue. AA can burn in hell as far as I’m concerned. They are back stabbing Traitors.

  7. It’s hard to defend American Airlines’ actions. Now I just book the cheapest fare, no matter which carrier. So much for loyalty!

  8. AAdvantage redemption history:
    First, transatlantic J started getting tough to find
    Then, domestic Y
    Then, domestic J/F
    Then, upgrade space using miles, SWU’s or BXP1’s

    Why collect these if you cannot use them?

    My AAdvantage credit card got cancelled just over a year ago – after using it more than a decade.

  9. @Martin

    Chase isn’t as 21st century as you portray. They don’t have a contact-less card option; discontinued their version called Blink in 2014. They don’t have any Chip and Pin cards, only Chip and Signature.

    They do have Android Pay as of 2016. However there are plenty of issues with actually using Android pay abroad. Changing to Chase isn’t a home run solution to traveling Europe by any stretch.

    Furthermore, Chase doesn’t support ebills which every other major issuer does which many may find even more inconvenient.

  10. AA has become US air. My east coast runs from San Francisco are all now on jet blue better service. Try their first class mint. Cheaper and better then AA. Flown over 4 million miles on AA alone and they could care less. I am now as loyal to them as they are to me.

  11. The award availability, especially domestic in some areas, is outrageous nowadays with AAdvantage. What’s the point of earning the miles if there is no availability on a single day in several consecutive months? Even raising the award price would be better than this.

  12. It’s wierd how serious people take their miles. It’s embarrassing really. Arrogance makes you feel like your have done something so you deserve something. In reality you pay for a service to get from one place to another. It does not alwAys work. We do live in reality, nothing is perfect. Except for the people with flight status, right?

  13. Christine, I HAVE done something to deserve something. I have purchased items using my AA credit card instead of other credit cards offering different rewards (such as straight 2% cash back). I have flown flights on AA instead of competitors. I think the point you are missing is that, whether obtained by butt-in-seat flying or by credit card use, miles are not free. They are not a gift from the airlines, they have to be earned. And if I cannot actually use them, what was the point of earning them n the first place?

  14. One thing AA could do is at least release awards the day of the flight or earlier. They’d rather let seats go out empty and that is what happens today.

  15. I still don’t understand why people don’t switch to 2% cash back for everyday spend.

    I would only use airline credit cards for the signup bonus, and their current ~50k mile bonuses are not worth my time and effort.

  16. I’ve burned most of my 500K stash and am earning elsewhere now. Used to put everything on my AA card–no more.

  17. @Jimmy P.
    –Good point!
    –Right now it is still worth it for me, but just barely.
    –I just flew round trip on Cathay Pacific, JFK-HKG. First on the way there and Business on the way back 180K AA miles.
    –Still aspirational, but same ticket would have cost 120K a year ago.
    –If I did not use points, I would probably have flown coach on Cathay Pacific with a paid ticket.
    –However, the value proposition is getting less with each devaluation.
    –For example, I used to regularly purchase points when they went on sale to keep my balances up. Now sales prices are higher and the value of the points is less. Plus, I trust the airlines less. So I am on the sidelines when points sales come up.
    –I seldom use my AA cards to make purchases any more, because I would rather have transferable points at Chase or Amex, mainly due to fears of devaluation.
    –I am very close to your viewpoint now. Life would be simpler with one cash back card and the 2% cash back credit card does have a good value proposition.

  18. A few data points.
    I canceled my AAdvantage citicard since earning on other cards is more valuable at this point.
    I would have canceled my Barclaycard too except their low-fee balance transfers are useful in limited situations. I probably will cancel that when the annual fee hits again since it’s otherwise useless to me.
    I shifted my priority from the AAdvantage Dining bonuses since those miles are worth less than competitors.
    My last awards redemption was a frivolous trip to burn the rest of my AAdvantage account balance.
    My last paid ticket was on United.
    I am more interested in earning Chase UR points than AAdvantage miles since Chase UR points are more useful (valuable) towards my travel goals. Chase UR points do not transfer to American.

    I have a stellar credit rating on a moderately good income. I travel for work and for fun and my loyalty to an airline is judged by how I’m treated on both. I am not my fare.

  19. I am lifetime Platinum and 600k miles banked, which are almost impossible to use at any reasonable rate from my home airport of ORD. I put 10-15,000 per month on credit cards, but i never use an AA card anymore as the miles in my opinion are worth no more 1.0 cents.

    I no longer use the AA shopping portal for the same reason unless the earning rate is at least 2-3x another portal. Maybe 1000 per month.

  20. “Nun says:
    April 14, 2017 at 9:52 am
    One thing AA could do is at least release awards the day of the flight or earlier. They’d rather let seats go out empty and that is what happens today.”

    Not only today. It has happened over the last year. Since nearly a year, I have been trying to get AA international business award space with little luck.

    In February, I was on an AA international flight that had only about ten passengers in business. In other words, more than half the business section had empty seats on that flight.

    However, when checking saver award space for that specific flight, AA wanted 150,000 miles. As a result, the flight went out with many empty seats. For that to happen shows incompetence on the part of AA management or a callous disregard for passenger loyalty.

    Incidentally, AA occasionally wants 195,000 for that flight even though the seating chart shows many empty seats available.

    Checking other dates for that same international flight number, I see the same pattern. There are lots of seats available (according the AA’s web based seating chart), but there is no business saver award space. Again, lots of flights go out with empty business class seats. Again, it is AA’s
    incompetence or a display of callous disregard for passenger loyalty.

  21. I can occasionally find saver J awards with AA partners for int’l flights with some work and flexibility. But then I can’t get a saver positioning flight even in econ. So unless you live in a partner gateway city like ORD or LAX for JL, CX, or IB flights you are screwed. You have to buy the positioning flight to be able to use your award. I just redeemed for 2 J award tix to South America on LAN and my AA balance is now 336. I’m done with AA forever.

  22. As a loyal AA customer that has flown over 50000 miles Per year for 10 years with the AA citi executive card and having accumulated as a couple, close to two million points. We now realize that we have been had. We are now flying other airlines and feeling better than what we get in spite of platinum in AA. Can’t even get a paid upgrade six months in advance, because AA expects better paying passengers, so they put us on a wait list. Amazing

  23. Jimmy P., I think that switching to 2% cash-back cards and to cards with flexible bank points that can be redeemed in a variety of ways (including cash back) is exactly what people are doing. I currently have the Citibank AAdvantage card and the Chase United Airlines card, and put almost no spend on either. I’ve kept them primarily because of the earlier boarding they offer (since I often travel with a carryon) – but as I’m increasingly booking first class, I may well cancel both. I certainly don’t have either card for their points-earning potential!

  24. Yep, since I started flying US/AA regularly a few years ago, and got the credit cards, I have been able to find ZERO flights using miles (except for BA flights to Europe that would cost more than just buying the ticket), even in coach. The miles are completely useless, I have no reason to fly American over anyone else. At least with United my low level status gets me consistent extra legroom and I can usually find a coach award seat, but really I should be flying Virgin or Jetblue whenever I can…

  25. The program is awful. Just try to get Saaver Business Class to Europe even in the dead of winter. Zilch, nada, nothing. I cringe and want to say something (like try to book a vacation with your miles…YOU CAN’T!) on every AA flight where they try to sell the credit card. If the corporate suits don’t allow a bit of inventory then the amount of the deferred liabilities on the AA balance sheet will grow to a very large number. Ironic that the airline that started the rewards program is being so stingy with it.

    American, free up some SAAver seats up front!!!

  26. American had a great award program that kept me flying them for forty years until they killed the Golden Goose. These endless testimonials amount to tens of millions of PR damage they self-inflicted, customers like me who grew up flying them who won’t touch them now. I’ve been trying to spend my last miles for over a year and the only flights available on routes I had regularly availability require me to sit in an airport overnight enroute.

    Their last Aadvantage President Suzanne Rubin represented the best of American in a bygone day, listening closely (often personally) to customers and eager to keep us happy. She curated the program with such loving care that when the Greedhogs decided to destroy it she resigned in protest. Perhaps you could interview her, Gary. She could give the final eulogy on a once great airline.

  27. Excellent article, Gary. AA’s chickens are coming home to roost. They thought they could get away with massively devaluing Aadvantage miles, primarily by “stealth” means by all but eradicating the existence of sAAver award space across the board. Good to see people are voting with their feet, as I certainly will be doing.

  28. …and this is why I fly Southwest almost exclusively. Southwest gives you $75~ back for each $100 you spend, if you are a top tier booking BS and redeeming WAG on CP.

    AA gives you about $19 back per $100 spent as ExPlat if you value their miles at 1.7cpm.

  29. Platinum for years and simply due to a monopoly I the routes I needed. That has changed and their atrocious service on so many occasions I can’t even recall them all… Which means I cut up my card and converted to Costco and use any other airline but them. AA execs are living in a bubble

  30. @Gary
    As many others have pointed out, I could deal with periodic devaluations (i.e. inflation) if saaver availability was at least decent.

    Maybe I’m missing something, but I can’t understand why they wouldn’t allow more award availability on routes where the cash prices are so low… is there really that much of a marginal advantage from a revenue ticket where they wouldn’t want to retire the liability of miles outstanding by allowing redemptions at poor rates…(Especially on AA metal…)? For example, sub $500 RT economy tickets to Europe or ANY of the low yield Cuba flights..

    Just as importantly, having people redeem the miles CREATES the very airline loyalty the brands are seeking in the first place.

  31. I was on a flight a few days ago to DCA and the flight attendant was on the PA system touting signups for the Barclay Card, with lines like “you’ll be able to use your miles to take a vacation to Hawaii or Europe this summer!” When she came down the aisle waving the stack of applications looking for takers I commended her on being able to read her script with a straight face. “What do you mean?” she asked me. I said awards to Hawaii are essentially nonexistent at the Saaver level for either coach or first class, and awards to Europe, when you can find them, are inevitably on BA metal with exorbitant surcharges. “Well I never have problems finding flights when I book awards” was all she could muster before she hurried off.

  32. @Evan at a certain level, where AAdvantage is at is crazy — but in some ways award availability on American is quite like availability used to be on US Airways (except that US Airways used to offer decent space in domestic first class, but that was before the forward cabin was being as well monetized).

    I searched my home Austin – DFW today, American has 11 flights a day 6 days a week and 10 on Sundays, there was not a single day June 3 onward where there was even one premium cabin award seat. There’s not a single day starting today where you’ll find 2 premium cabin award seats Austin – Chicago over the entire schedule.

    That’s nuts.

  33. American wanted almost 150,000 miles (I have over 500,000) to fly overseas PLUS $800 in fuel charges. “Forget it” was my thought and I immediately paid full fare on another airline.

  34. In addition to the inability to redeem miles at a reasonable rate, I have the following issues. The Prestige lounge benefit is about to die, and it’s almost impossible to use a BusinessExtraa upgrade anymore. I am lifetime Platinum and I really get no benefits beyond what any credit card holder gets except for free exit row seats.

    I fly from ORD, so I actually have a choice. I never use an AA credit card anymore. I haven’t been able to redeem miles at a reasonable rate for over a year.

    i don’t fly enough to get status on UA, but i have a Chase UA credit card which is now = to AA lifetime platinum.

    AA basically has no frequent flyer program anymore.

  35. To show you how cynical these bastards are, if you can redeem a mile-saver award on a domestic ticket, you cannot even PAY to get extra leg room. Someone who has never flown American before, or only flies them when they have the lowest fare somewhere, is allowed to pay for the extra legroom but loyal customers on mile-savers are not. It doesn’t make sense except in a world where the airline holds it’s loyal customers in contempt! I mean, just think about it – asking for the same right that a fair-weather customer gets – the right to pay to upgrade to more leg room – should be a minimum offering to a loyal customer! But if you have the audacity to use mile-savers, then screw you seems to be American’s mantra these days. I have stopped flying with these people and if the top execs move to a different airline, I will seriously consider not flying that airline any longer. Hatred of your customers is not good for long-term prospects!

  36. I recall reading on a financial website about a meeting doug Parker had with financial analysts. He said they would make a lot more money in the future because they would not be giving away for free “with miles” anything they could sell even for a few $.

    I guess that’s we are.

  37. Their new ridiculous 9 boarding groups hurts the credit cards as well. On my last flight I got group 5 with the card. Half the plane boarded groups 1-4 and then group 5 wasn’t even called. The only reason I still have the card is for an upcoming trip where I need to check a bag.

  38. @Jason….. Well boo hoo~ moaning about boarding groups! Your credit card is just a credit card, not a priority airline swipe card that give you privileges over other so-called elites! Why do you want to barge onto the flight before everyone else? So you can fill the o/h bin with all your crap to the exclusion of others?
    Would love an eagle-eyed gate agent to (politely) call you out with “your group will be called in about 10 minutes sir, please take a seat until you are called.” So sick of those who think they are entitled to priority treatment when they have done everything to keep the cost of their flight as close to zero as possible.

  39. Gary, you are well known in the airline travel industry. Will you consider sending to the head of AA’s loyalty program (or to anyone you know at AA) copies of the above responses from your readers?

    AA receiving the reasoned responses from you might get the right people at AA to realize the damage that has been done to AA’s loyalty program as a result of the severe devaluation.

    Unquestionably, AA’s frequent flier program is now (with the devaluation) contradictory and it is not working as AA claims it is. That is deceptive, no matter how AA views what was done to the program.

    Your efforts, together with posted customer complaints/responses, might get the “right” people at AA to reverse the damage that has been done to AA’s loyalty program.

    Thanks for viewing my request.

  40. Coolhandluke

    It doesn’t make sense to try to get elite status anymore when I can get 80% by having their credit card.

    I’m not bad, they just made me that way

  41. @David — American has read this post multiple times.

    When I walked through the limits of award availability on American 18 months ago, I had a conversation with the then-President of AAdvantage who acknowledged and committed to work to improve availability (it’s not directly up to them). And that seemed to happen a little for a little while but clearly backslid.

    The issue isn’t lack of awareness of customer sentiment IMHO.

  42. @Gary~ AA seems to have a death wish for AAdvantage. The really must have, if they are aware what the big problems are and will not fix them permanently. If the head of AAdvantage is not capable of driving positive change in exchange for some big bucks each month, then he/she should stand aside and let someone else with more drive take over. Otherwise a good arm of the business will wither and be of little value to the bottom line. Of course then the management will sit up and take notice. It takes much more resources to attract new customers than it does to retain your existing ones.

  43. I just flew to Hong Kong on AA’s few month old LAX-HKG route. My upgrade to business class cleared a few days out, but saver mileage awards never opened.

    Instead, half the business class cabin was non-revs (a few had their laptops open on the internal AA sites for looking at loads for their trip back) as far as I could tell. Getting miles off the books seems much more valuable than seating a nonrev.

    I’m 10 hours out on my HKG-LAX return, but F4J7Y7 still isn’t enough for them to open up any saver space at the last minute.

  44. @Chris~ you do wonder if that is incompetence, lack of awareness or just plain bloodymindedness! Whichever, it points to an airline in disarray, to put it kindly.

  45. Just to show what kind of mileage they want. Tried to book a business class award to Sydney over xmas they want over 700k miles per ticket 1.4million for the two of us. Conversely united only want 700K for the 2 tickets

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