There’s been a lot of hints dropping over the past several months, and the preponderance of evidence seems to suggest that American Airlines could devalue the AAdvantage program. We’re approaching a new program year, so if it’s going to involve changing to how elite status is earned or what elite benefits look like, that announcement would likely come soon. The airline can, of course, devalue redemptions at any time. They did so without notice months after current US Airways management took over, on April 8, 2014 (the “April 8 mAAsacre”).
Here are the top 5 reasons to believe a devaluation is in the offing:
- The other big U.S. airlines already did it already during the pandemic United, Delta, and Southwest all devalued their points during the pandemic, it’s American’s turn in the monkey see, monkey do world of airlines.
- The last President of AAdvantage said they’re getting rid of award charts After saying award charts were here to stay when he took the job last year, he shared over the summer that American is working to eliminate them. No frequent flyer program has ever gotten more valuable after dropping award charts. The only reason to eliminate them is to reduce transparency and commitment to offer value to members. All the revenue-based things airlines want to do are still possible while maintaining award charts.
- Chief Revenue Officer Vasu Raja, whom AAdvantage reports up to, says they’ll become even more revenue-based. We should believe him.
- JonNYC says to expect it And Jon has excellent sources.
I'm expecting these AAdvantage changes mentioned are coming fast and coming hard.
Probably less than 3 weeks away and, personally, I expect they will be very very rough. https://t.co/sIl3NkYQPN
— ˜”*° JonNYC °*”˜ (@xJonNYC) September 29, 2021
- It has been 5 years since they’ve done it last. That’s actually a long time between devaluations, and the last time award chart pricing changes were announced was November 2015 with March 2016 effect.
There are (3) groups that an AAdvantage devaluation hurts besides the customer.
- AAL Shareholders Before the pandemic American Airlines often only made money in a given quarter because of the AAdvantage program. The airline’s revenue from passengers and cargo was less than its costs. Even when it eeked out a small profit from flying, AAdvantage profit dwarfed the profit from moving passengers from one place to another.
Airlines lose credit card charge volume and passenger interest in the program when they devalue. To be sure there seems to be one exception to this, Delta. Delta had a sterling brand and operational reliability and it absolutely owned its hubs. Sure, a Salt Lake City customer should probably get an Amex Membership Rewards card even if they want Delta miles but most people don’t do that. Delta had captive mindshare.
Before the pandemic United was growing MileagePlus revenue pretty much only because of transfers from Chase Ultimate Rewards rather than because of interest in the program.
Cost-cutting in the program, the most successful asset the airline has, isn’t the way to maximize long-run shareholder value.
- AAdvantage debt holders Reducing member and cardholder interest in the program isn’t great for holders of $10 billion in debt backed by AAdvantage, the value of which is tied to the long-term value of the program, although in fairness they’re in first position to recoup cash. On the one hand that’s a safety mechanism for bondholders, on the other hand it’s potentially the source of downward spiral (if debtholders are in first position ahead of member’s ability to redeem miles, even).
- Citibank and Barclays, the co-brand card issuers. Already the Bilt Mastercard is a better way to earn AAdvantage miles than American’s own co-brands, what happens when member interest in earning the currency falls, too?
The AAdvantage program is the annuity that’s been driving free cash at the airline for years. They’d be wise not to kill the goose, and the odds they’re good enough to extract even more value out of it for themselves without killing it seem less than 20% so they shouldn’t try.