Why A Quality Airline Product Matters And Award Seats Aren’t Free Giveaways

American Airlines removed espresso machines from its widebody aircraft. I broke the news and in response to One Mile at a Time picking up on it, a commenter there writes,

The problem is everyone wants something for nothing. Many people forget that like ant other entity this is a business and business needs to make money ihey and other companies are not a charity.

    Update 4/12/21: American now says that the machines will actually stay. They have removed supplies, but expect the espresso service to eventually return to premium cabins where the machines are offered,

    [W]e are certain the machines will stay on the aircraft and this is temporary as service is modified on these flights and the expresso offering is currently not available. The removal of equipment for the machine will help prevent confusion among flight attendants and conserve fuel.

This commmenter offers a common sentiment. People like low fares, airlines should invest as little as possible in product. Anything else is unnecessarily giving away something for nothing, airlines have to make a buck, and anyone who says otherwise is a freeloader ‘wanting something for nothing.’

It’s a common theme, and something I hear from a subset of readers whenever I criticize an airline for failing to make award seats available (more or less ever) whether in a particular class of service or on a set of routes: “Airlines need to make money, why should they give away something valuable for free?”

Both sentiments are wrong. First of all, if you’re Allegiant or Frontier your goal is to be the low cost provider of air travel. If you’re Frontier Airlines you want the lightest seats possible to save fuel and you won’t invest in inflight internet, since you won’t sell internet for more than it costs to offer.

When Scott Kirby was President of US Airways he said that airline was slow to add internet because they didn’t think they could make money selling it. The US Airways ticker symbol at the time was ‘LCC’ for ‘low cost carrier.’ But even there they realized they were losing ticket sales to airlines that offered internet – people were choosing on more than just schedule and price, they were choosing based on the need to be productive for the length of the flight.

And the people making this choice were the ones buying the most expensive tickets, business travelers that US Airways was measurably losing out on. So they added internet fast.

American Airlines may not lose ticket sales over lack of espresso, but they already had the machines so faced little cost keeping them – it is the difference of fuel and catering pods. This isn’t a question of do you go out and install machines. American installed these machines as part of an overall attempt to deliver a quality product, and by the way even US Airways under legacy America West management installed espresso machines on their Airbus A330 widebodies.

A quality product matters for American because they don’t have the option to pursue a lowest-fare strategy. They will lose because they have higher costs than competitors – a differential that has risen during the pandemic because

  1. they didn’t get senior employee early-outs the way competitors did, so they’re flying with more crew at the top of the pay scale
  2. they have more debt and debt service than anyone else

American needs to earn a revenue premium because they’re a high cost carrier. That means they need both a product and schedule that customers want to fly. They need to be better than competitors. That’s not a guarantee of success, but not doing so is a near-guarantee of failure as a business.

And the reason an airline like American – or any with a frequent flyer program – needs to make award seats available is because it is profitable to do so not because they’re a charity giving away something for nothing.

  • Frequent flyer programs are multi-billion dollar businesses. American raised $10 billion backed by AAdvantage, Delta $9 billion backed by SkyMiles, and United $6.5 billion backed by MileagePlus. American’s entire pre-pandemic profit was accounted for by sale of frequent flyer miles, mostly to banks.

  • Customers earn the miles, there is revenue associated with those miles, essentially earning miles is pre-purchase of air travel – which the airline then needs to provide in return.

  • For customers to want to continue to accrue miles they need to be able to redeem their miles. In fact, successful redemptions increase the rate of future accrual. Getting customers to have success making redemptions is how to keep them on the treadmill, peddling faster, and earning more loyalty revenue per member.

There’s always a balance of how many seats on which flight to offer at what mileage cost. But there has to be a reasonable path to redemption, sometimes even treating seats as loss leaders, to connect with customers’ emotional investment in the program.

Airlines have even chartered planes to Hawaii and other destinations strictly for redemption, and found a reasonable value proposition doing so – while demonstrating that it’s possible to reach dream destinations with miles.

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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Comments

  1. Well written. I never would have guessed supply side economics would be taught so well. Supply and demand as well

  2. Exactly! I have gotten quite irritated when hotel staff react the same way, as if I’m getting something for nothing so they want to give you the worst hotel room they’ve got! It is a big problem at many hotels owned by people not born in America (and I’m not saying that as a racist remark it just doesn’t seem to click in with them about the whole loyalty program thing…like trying to explain coupon usage in America to a European, many haven’t seen them and are shocked by how many billions of dollars worth of coupons/discounts are used by Americans each year)
    I wish AA and others had better award seat availability, although admittedly I haven’t searched lately, they were getting pretty bad pre-pandemic and both management and staff need mental retraining to understand WHAT a loyalty program really is, hello, it is in the name, and need to be taught to treat those loyal customers and reward customers as well or better than those who purchased tickets, bought rooms, rented cars….we EARNED those through a heck of a lot of spending!

  3. Nice job, @Gary
    I still think the senior execs at AA should have Porter’s Competitive Advantage as required reading. They don’t show a great job at understanding the principals.

  4. Stated perfectly! I am a long time business flyer and I have been loyal to AA primarily because of the perks involved with reaching elite status. I carry the AA credit cards and do a lot of business on them. Money makers for AA. But since the US Airways merger AA has continuously reduced the value of miles, and reduced the efficacy of the perks. I used to be able to confirm System Wide Upgrades at booking but it is almost impossible now to not be wait listed on at least one segment (the one that really matters too) of an itinerary. Often they don’t fill so I used a SWU for a single 1 hour flight. I once could call the Exec Platinum line and speak to an agent immediately, now it is several minutes to several hours. During bad weather cancellations minutes and hours make a huge difference whether you get an alternative routing. AA makes money by keeping my credit card and flight business but only if I see a value in return. It is in AA’s economic interest to keep my business by providing perks and good service.

  5. American has really gotten to where their award program is of little value to the traveler. I had a confirmed award ticket on the books for later this year. A partner airline cancelled one leg of the trip, so it had to be rebooked. I contacted the airline to arrange for re-booking, and provided American with suggested routing that resulted in a similar schedule as had been in the original booking. American refused to provide the similar booking unless I agreed to pay 3x the points and an additional $250 in fees. American ended up booking me on an extremely inconvenient schedule, with departure changes of almost 5 hours on the outbound leg, and 20 hours on the return leg. Even then, the airline representative advised me that additional fees would have to be paid just to get that. Again, this was an involuntary change. In my mind, it is absurd that an airline can cancel a confirmed ticket, and then use the excuse that “it’s and award ticket” followed by assignment of the passenger to a much worse [horrible] schedule as leverage to extract additional payment in terms of miles and fees from the passenger.

  6. Flying AA exclusively, and honestly, I had no idea that an espresso or cappuccino were an option!
    I was never offered one I flight, so… never knew that I could have one.

    Had I not read this, I would never have missed it, but now… yer bummin me out, Gary!

  7. I think some elite coffee achievers would be interested in purchasing a used American Airlines espresso machine and redeem some of their AAdvantage Miles for their purchase. Hopefully, American Airlines C-suite executives who read View From the Wing can make it happen.

  8. Interesting turn of a phrase, Gary-Participating in AAdvantage or other FF programs is really pre-paying for travel. Travel at a discount, I would add.

    Now, though, the discounts are much less and declining still, and a hard look at the numbers points those with big/decent FF balances to cash back.It seems AA and the other US majors are going to squeeze the goose until she honks, and even when she does, a lot of the public will keep using those cards, thinking that they’re getting a deal.

    And they are getting a deal. Just not a very good one.

  9. Having just paid four times the coach price and gotten off two AA flights where flight attendants did absolutely nothing but check seat belts and vanish from sight the rest of the flight I can assure you I won’t be providing that premium revenue again and will do my best to avoid AA whenever possible.

  10. @Gary – Why do you think American’s top brass are so oblivious to the points that you’ve clearly demonstrated? Surely you can’t be the first person to explain how keeping serious value in the program is critical to the survival of the airline.

  11. As I flew in MCE on an AA 321 the other day in those very uncomfortable seats, I thought, “If Jetblue had this route I would have taken them”. But it might be a smart business decision if it increases the revenue per mile. I guess time will tell.

  12. Is you want quality, fly Delta.

    AA doesn’t care about quality and doesn’t even deliver on its meagre COVID-19 promise (all seats filled during the winter wave!): it is only focused on generating enough short term metrics to pay out executive bonuses. Plus, it will go bankrupt at the next downturn.

    It would be nice to see this blog covering Delta more!

  13. I am getting tired of freeloaders sitting in biz and first. If people can’t afford to buy the seat they shouldn’t be sitting there. These people dress inappropriately and are just rude.

  14. AA only had these espresso machines on 777 and 787.
    I prefer new modern aircraft over Delta’s old 757,767’s
    Delta still flies AirTran 717’s
    Honestly, it’s like putting lipstick on a pig!
    Eventually, these old aircraft will cause DELAYS!!
    SO, GRAB YOUR STARBUCKS IN THE TERMINAL AND FLY ON NEW MODERN, FUEL EFFICIENT AIRCRAFT!

  15. Yep, agree John!
    Delta invested 49% in virgin Atlantic. They filed for bankruptcy protection.
    Delta invested in Latam.
    They filed for bankruptcy protection!
    Delta invested in an oil refinery. DELTA CANT UNLOAD IT!
    DELTA AT FIRST, SUPPORTED VOTER SUPPRESSION!
    THAN, AFTER BACKLASH, CHANGED IT TUNE.
    DELTA SOON WILL HAVE TO FINANCE NEW AIRCRAFT CREATING DEBT.
    AA has the new aircraft with plenty more coming.
    Additional 787’s and A321XL.
    MY MONEY IS ON AA.
    Not to mention, American’s incredible network of hubs and partnership with Alaska and Jetblue!!
    SO, I AGREE, GRAB YOU GOURMET COFFEE DRINK IN THE TERMINAL.

  16. I am sick and tired of never being able to use our frequent flyer miles for a business class seat on British Airwaves. In November when the Pfizer vaccine was rolled out we booked and scored 2 business class seats for next month from USA to London. They cancelled the flight and could no longer re-book us on flights with award seats. We have had it UpToHere with simply accumulating miles and accumulating miles on BA and never being able to redeem them that we are going to take a trip to Japan in 2022 using ALL the points and then drop British Airways for good. We will switch from their credit card to another and be done and over with BA.

    I will fly a low ost carrier and buy the best seats on a low cost carrier instead. When BA first came out with Premium Plus the seats were the old reclining but not fully flat business class seats with plenty, plenty of leg room, the meal was the same meal as business class. Then BA took those comforts away and smashed us in on narrow seats close together and gave us the economy meal on Premium Plus. Premium Plus is so not worth it on British Airways, I would just as soon fly economy as the difference in seat cost is not worth if for Economy Plus. We have been flying back and forth to Europe for over 40 years, we built up every one of those miles and to never ever be able to redeem them is more than this flyer is willing to accept. So goodbye BA, we are flying Air France next month and we will see how that goes. My preferred was Norwegian Airlines though, buy the best seat on Norwegian and eat a good meal at the airport before you fly. We were trying so hard to use up our BA miles so we could stop flying them. We have just under 200,000 miles on BA and without ever being able to cash in it is simply not worth it. One trip to Japan next year should use up all the BA miles and then I can finally be free of BA. BA had a real nice Premium Plus service and then they wrecked it.

  17. I take it back, make that 300,000 frequent flyer miles AND a companion ticket.
    See there is something wrong here that I just keep accumulating miles never having an opportunity to actually use the miles towards travel.

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