American’s former CEO, Bob Crandall, and American’s current CEO, Doug Parker, attended an event at Southern Methodist University this Wednesday, where the topic of mileage running came up. Here’s what Dallas News quotes Parker as saying:
“All of our customers are valuable, but those who pay us the most are the most valuable,” he said. “That’s the behavior you want to reward. You had this really perverse thing going on where we had people wanting miles so badly that they would do these mileage runs — looking for the cheapest fare they could find to go to who-knows-where and back.
“And that didn’t seem right to us. The dollar-based plan makes much more sense. We’re in the right place now.”
Parker groused that American should have called them dollars instead of miles 36 years ago. It would make it clearer now that airlines rake in so much dough from credit card partnerships.
“We’d like to turn AAdvantage miles into Bitcoin so that everything that you buy is with AAdvantage miles,” he said.
I’m not going to sit here and suggest that mileage runners are valuable for airlines, or that it’s wrong to reward high revenue customers. However, quotes like this — and for that matter how management teams at the “big three” US airlines are running loyalty programs — so greatly misses the big picture of why these programs have become so successful. I don’t want to make this too long (I could probably write a dissertation sharing my thoughts on this), but there are a few points I’d like to make.
Airlines have taken the power of loyalty programs for granted
I’m sick and tired of hearing airline executives say that they wish loyalty programs had been run a different way a long time ago, and how the airlines have been looking at it all wrong.
To me this is just mind-blowing. Airline loyalty programs are one of the most successful marketing tools and business concepts to emerge in the past few decades. Airlines have made billions of dollars off these programs. We’re talking about programs where they’re issuing a currency that they own, that they have full control over, and that they can devalue at any time. Yet tens of millions of people have joined these programs and become engaged in almost irrational ways.
Even among non-frequent flyers, airline credit cards are incredibly popular, and even beyond that, cards that accrue points that transfer to airlines (and in turn that airlines get paid for) are becoming even more popular.
There are so many businesses that Americans interact with more every day, from supermarkets to Starbucks to gas stations. While some have credit cards, they aren’t nearly as successful or common as marketing vehicles.
Those who first designed airline loyalty programs were brilliant, and I can’t help but feel like airline executives constantly complaining about how loyalty programs used to be is like looking a gift horse in the mouth. We’re talking about a concept that has earned US airlines tens of billions of dollars.
Airlines can’t actually attribute improved performance to devalued loyalty programs
The past few years the “big three” airlines have made a lot of changes to their loyalty programs. They’ve reduced the number of miles you earn, increased the requirements to earn status, and awarded miles based on revenue rather than distance flown.
What’s interesting is that airline executives have hyped how these changes to their program will improve performance, but almost across the board that hasn’t been the case. Listen to just about any airline earnings call. Airline executives will say switching to revenue based programs was the right thing to do, etc., but for the most part anticipated revenue increases from these changes haven’t materialized as hoped. Instead they can just attribute reduced costs to these changes.
As View from the Wing wrote about in April, American AAdvantage credit card acquisitions and revenue didn’t increase as hoped, which is presumably due to AAdvantage being a less engaging and valuable program to many.
Are airlines really rewarding the right customers now?
Historically airlines have viewed loyalty programs as a marketing mechanism. While they’re also huge profit centers, the process of awarding miles for travel is generally considered a marketing expense. In other words, the goal should be for an airline’s loyalty program to influence consumer behavior, and get more butts in seats.
It’s true that mileage runners probably aren’t the most profitable customers and were being rewarded disproportionately. But should the highest revenue customers really necessarily be the ones earning the most miles? Let’s compare two scenarios:
- A company has a corporate contract with an airline because they’re the only airline flying nonstop in a market. The company gets a substantial discount on the full fare ticket cost, but is still paying a lot for tickets.
- A consultant has the choice of which airline to fly every week and has a certain budget they have to stay within.
In which case does an airline loyalty program have the potential to have a greater impact on the decision making process? Sure, it seems like the person with a full fare ticket on a corporate contract is the most profitable customer, but the point is that their behavior probably isn’t at all motivated by the miles being earned. The airline is basically flushing miles down the toilet by awarding them to this person, since they’d fly the airline regardless. The same is typically true for someone booking the last full fare business class seat on a flight day of departure.
Conversely, while the consultant might not be booking full fare tickets, the airline they choose to fly could very much be influenced by the quality of a loyalty program, and in this case the money spent on the loyalty program could generate significant incremental business for the airline.
I’m not suggesting those flying full fare nonstop tickets shouldn’t earn miles, or suggesting that mileage runners should be earning a ton of miles. Instead what I’m suggesting is that some airlines have oversimplified their loyalty programs and completely lost sight of the purpose they serve. A loyalty program should serve as a marketing vehicle that influences consumer behavior, because otherwise you’re just giving away something for free if a consumer would have made the same decision either way.
Furthermore, if you’re going to incur the expense of awarding miles, you might as well do something to differentiate your program. The “big three” US programs now basically mirror one another. When everyone is offering basically the same thing, why bother? Shouldn’t they just stop awarding miles altogether?
Bottom line
Dear 2017 airline executives: stop taking for granted what your predecessors did. Airline loyalty programs have become addictive for people, and we’re not just talking about mileage runners. Look at all the people who participate in these programs even though they don’t fly much. Don’t take that for granted, and stop pretending like the current system for rewarding passengers makes perfect sense.
If loyalty programs are to be marketing vehicles, they shouldn’t just reward high revenue customers for decisions they make anyway, but rather should be innovative and do something to shift consumer behavior. With airlines just copy-catting one another, I can’t help but think these programs are turning more into an expense rather than a profit center, at least when it comes to the miles awarded through flying.
Oh and Mr. Parker, if you’re going to try to model AAdvantage after Bitcoin, you’re missing one key element. While the value of Bitcoin fluctuates, the general trend is that the value is going up. The same can’t be said for AAdvantage miles.
(Tip of the hat to View from the Wing)
I use to be loyal to AA since I live in Dallas, but that has now changed. I can fly SWA as well and have on many occasions instead of AA - fewer delays, less headaches with security, less overall stress.
I've used Citi AAdvantage cards since the 90's and while I have kept those cards I've completely shifted all spend to hotel co-branded cards to supplement drive up hotel currency. I used to travel...
I use to be loyal to AA since I live in Dallas, but that has now changed. I can fly SWA as well and have on many occasions instead of AA - fewer delays, less headaches with security, less overall stress.
I've used Citi AAdvantage cards since the 90's and while I have kept those cards I've completely shifted all spend to hotel co-branded cards to supplement drive up hotel currency. I used to travel every week and collected many hotel points, but now I only travel for leisure so 3-4 times a year and prefer to use my spend on hotel points. Unless I'm flying overseas I can more easily find an airfare for under $500 r/t compared to a hotel nights where I need fewer points and this is overall a larger expense than the airfare.
@nice Paul,
there was I thinking..........obviously not
@ Martin
Thanks, but I'm aware of that. I like Lucky's reviews. Or am I forbidden from reading them if I am not interested in gaming air miles?
Nice Paul,
There are other sites that review airlines and aircraft without a focus on miles and points. OMAAT has a focus on loyalty programs, hence the "mile" in the title.
@JimRavello
"Let’s all remember ... we are here to learn how to earn and maximize our leisure travel to get the biggest bang for our buck."
Thank God you're here to tell me why I'm here. I'd be so lost without people like you.
There was I thinking I was here for Lucky's comprehensive reviews of different airlines, so that I can choose a more enjoyable (or maybe I mean less miserable) experience...
@JimRavello
"Let’s all remember ... we are here to learn how to earn and maximize our leisure travel to get the biggest bang for our buck."
Thank God you're here to tell me why I'm here. I'd be so lost without people like you.
There was I thinking I was here for Lucky's comprehensive reviews of different airlines, so that I can choose a more enjoyable (or maybe I mean less miserable) experience when my employer pays for my next flight.
No, it turns out I'm here to learn about points. Blimey.
I will disagree with lucky on the heading of this poat. He can don’t like how the current airline program is now but that’s the structure the Airlines want now. It’s not wrong that’s how they want to set it. They are moving in a direction you do not like, it’s a choice by them. There’s people on both supply and demand side, what’s been supplied doesn’t mean it’s popular in demand or that’s what...
I will disagree with lucky on the heading of this poat. He can don’t like how the current airline program is now but that’s the structure the Airlines want now. It’s not wrong that’s how they want to set it. They are moving in a direction you do not like, it’s a choice by them. There’s people on both supply and demand side, what’s been supplied doesn’t mean it’s popular in demand or that’s what the people want. So if AA loses the customers that don’t like what they give, they will have to move on or they will have to change. If the people feel that what AA offered failed to meet your needs, you move on. In a way AA is not making you to meet their status, they put it out there, you want to get it you go for it. For those who can’t get it, it seems AA are willing to forego you as their targeted customers. It hurts I know. However to say they are looking at it wrong, it’s not technically correct. They can also say you are looking at it wrong too. I am not saying I agree with what AA is doing of course I do not like the current structure too. I can be upset with the change and disappointed with how they measure and came up with this structure, however it’s not really a wrong doing. When things are not to the advantage of both parties, doesn’t mean there’s going to be someone who should at in wrong
As an Executive Platinum with American, I no longer feel like a valued customer at all. There's just no loyalty on the airlines' part anymore. Loyalty must be a two way street. Doug Parker and others don't get that. They've lost me as a loyal customer.
Whoops. Meant to @flyer fun. Really need to get some comments threading on here lucky!
@ADP I would get raked over the coals too for booking a $5k fare. Let’s not talk extremes. What I am talking about is paying $400 RT to LAX when it’s booked a week out instead of $99 a month out. I didn’t know I needed to be there Monday to Friday that week instead of Monday to Tuesday. That extra $300 is worth the flexibility to my client. And yes, I have to justify...
@ADP I would get raked over the coals too for booking a $5k fare. Let’s not talk extremes. What I am talking about is paying $400 RT to LAX when it’s booked a week out instead of $99 a month out. I didn’t know I needed to be there Monday to Friday that week instead of Monday to Tuesday. That extra $300 is worth the flexibility to my client. And yes, I have to justify it each time.
And to those talking about focusing on miles and points - yes, this blog is about that and it’s my favorite one to read. I love maximizing and learning how to get outsized value. But the bloggers keep talking about how these changes don’t make sense for the business and I think they are categorically wrong in that respect - the math just doesn’t point to that at all.
Well, it seems many of you have turned OMAAT into your new Facebook account. Let's all remember this is One Mile At A Time and we are here to learn how to earn and maximize our leisure travel to get the biggest bang for our buck. We don't travel for FREE but we return to Lucky to learn ways to make that spend go further whether it be from loyalty programs, credit cards, flash deals,...
Well, it seems many of you have turned OMAAT into your new Facebook account. Let's all remember this is One Mile At A Time and we are here to learn how to earn and maximize our leisure travel to get the biggest bang for our buck. We don't travel for FREE but we return to Lucky to learn ways to make that spend go further whether it be from loyalty programs, credit cards, flash deals, etc. If that isn't your interest maybe you should stick to your real Facebook account.
I have to agree with the corporate travelers above. I’m on of those consultants you’re referring to - the ones always buying last minute refundable short haul regional flights every week. Nothing is more annoying than paying well over $1000 every week flying between NY and Toronto and be awarded a measly 1000 points, when some leisure traveler flies to Asia for less cost and be awarded over 10x more. With the new program, nothing...
I have to agree with the corporate travelers above. I’m on of those consultants you’re referring to - the ones always buying last minute refundable short haul regional flights every week. Nothing is more annoying than paying well over $1000 every week flying between NY and Toronto and be awarded a measly 1000 points, when some leisure traveler flies to Asia for less cost and be awarded over 10x more. With the new program, nothing makes me happier than booking an expensive one-hour flight and earn over 10k miles.
And trust me, I still have a lot of control over who I fly. First of all, most airlines price tickets around the same - at least during the peak times when most business travelers fly, so we simply pick the one that’s the most rewarding. Secondly, as long as I state I need to fly a specific flight for business meeting or other work reason, finance will not pester you much about spending more on a flight.
I can’t say for sure if my travel pattern is the type that airlines want more of. But I’m one of the few audiences on this blog who is happy about this change.
@ azamaraal
"If airlines refocused on their real loyal travelers then their programs would be a success financially. Find a way to discover who are the real loyal non-corporate fliers and reward them and the programs will become very lucrative indeed"
Well, yes, there's another assertion about what would or would not be profitable / successful / very lucrative indeed.
Have you got any numbers whatsoever which support your assertion? Or is it all just...
@ azamaraal
"If airlines refocused on their real loyal travelers then their programs would be a success financially. Find a way to discover who are the real loyal non-corporate fliers and reward them and the programs will become very lucrative indeed"
Well, yes, there's another assertion about what would or would not be profitable / successful / very lucrative indeed.
Have you got any numbers whatsoever which support your assertion? Or is it all just wishful thinking?
"seems to involve two groups – those whose travel is employer funded and who are trying to maximize their own frequent flier accounts and those who are self-financed and are trying to get value from a program that they actually pay for"
Er, no: my travel is employer-funded, but I am absolutely *not* trying to maximize my frequent flyer account. In fact, I couldn't give a stuff about air miles. I travel so much already that I don't want to spend my leisure time doing even more travelling. And the restrictions on air mile use mean that the vast wad of them in my account is of no use in trying to book tickets for when and where I want to fly. So I just use more of my employer's cash to book tickets.
What I really, really value are some of the non-air miles perks: the ability to use the First Wing at LHR T5, so I don't have to waste a second of my time experiencing the hell-hole of "retail opportunities" I would otherwise be forced to encounter. The ability to choose my seat free of charge at the time I make a booking. The ability to use the 1st lounge at LHR, since the business lounge is crammed full of people flying on points who are trying to stuff as much free food into their faces as possible, or businesspeople who are actually walking up and down right past my seat while they have loud and irritating conversations shouted into their mobile phones. And priority boarding is always nice.
As far as I'm concerned, the airlines can devalue as much as they want - and the only difference it will make to me is that there'll be fewer people travelling on award tickets, so the lounges will be less crowded. Hurrah!
YMMV. But don't assume that your experience is the same as mine.
This while situation has come about because the airlines have gotten regulatory approval to effectively divvy up the domestic US travel market.
Why aren't other countries devaluing? Because competition is so fierce.
On the flip side, most of the points people earn are through their credit cards. To therefore devalue the "currency" is a logical reaction when the the supply is much higher than it used to be.
This is a very interesting discussion that seems to involve two groups - those whose travel is employer funded and who are trying to maximize their own frequent flier accounts and those who are self-financed and are trying to get value from a program that they actually pay for. The second group will continue to be loyal even after their employment shifts since it is not employer funded.
I wonder what the potential market is...
This is a very interesting discussion that seems to involve two groups - those whose travel is employer funded and who are trying to maximize their own frequent flier accounts and those who are self-financed and are trying to get value from a program that they actually pay for. The second group will continue to be loyal even after their employment shifts since it is not employer funded.
I wonder what the potential market is for these two groups if the airline/loyalty program actually compared the size and purchasing power of the two groups.
As an example - I have been an Hhonors Diamond since 1996 - but have never had a room paid for by an employer or anyone else. The program has been attractive enough to ensure my loyalty so that all vacations or other hotel experiences are based on Hilton availability. After 21 years I expect that my loyalty should be rewarded and hopefully not discounted in the near future. Because it is self-financed Hilton should recognize that if they keep ME satisfied they will always have my business - not at the whim of the corporate bean counters.
So who in the long run will be more valuable to them? As time goes on I have noticed that my average expenditure at Hilton properties has increased over the years (beyond inflation).
If airlines refocused on their real loyal travelers then their programs would be a success financially. Find a way to discover who are the real loyal non-corporate fliers and reward them and the programs will become very lucrative indeed
I think the airlines need to remember that loyalty is a behaviour and an emotional reaction, and that the revenue comes as a result of that
I think there's two target groups here:
1. Customers who buy high-$ tickets exclusively with the same airline. This new setup rewards their big spending over those who buy low-$ tickets.
2. Customers who are carrier-agnostic, and may or may not buy high-$ tickets.
We've seen a few comments from those in Group 1, which seem to be consultants who make lots of last-minute trips.
I'm in Group 2. I fly paid domestic F...
I think there's two target groups here:
1. Customers who buy high-$ tickets exclusively with the same airline. This new setup rewards their big spending over those who buy low-$ tickets.
2. Customers who are carrier-agnostic, and may or may not buy high-$ tickets.
We've seen a few comments from those in Group 1, which seem to be consultants who make lots of last-minute trips.
I'm in Group 2. I fly paid domestic F or paid C internationally almost all the time, but the nature of my work is I know my travel plans 6+ months in advance, so I get good deals and I'll also choose among a few carriers. When prices are similar, what will make me choose one carrier over another is which alliance they are in. In my case, I'm *G so I'll prefer Star Alliance carriers.
I think what they forget about Group 2 is that group could just as easily fly a different carrier, so the airline needs to offer something a bit more (alliance, good mileage earning, etc) to get customers to choose that carrier. It's lost revenue if not.
Groups 1 and 2 both fly a fair amount, so both are worth courting I'd say.
I fly ~250,000 miles a year, mainly on long-hauls to Asia and Europe. Some trans-con.
I can pick the carrier I want and always fly on paid business class or better.
When you're in a premium cabin already, loyalty gets you very, very little extra on the flight experience.
So the new airline "loyalty" program has had one effect on me: I never longer choose an airline because I have status with them. I now...
I fly ~250,000 miles a year, mainly on long-hauls to Asia and Europe. Some trans-con.
I can pick the carrier I want and always fly on paid business class or better.
When you're in a premium cabin already, loyalty gets you very, very little extra on the flight experience.
So the new airline "loyalty" program has had one effect on me: I never longer choose an airline because I have status with them. I now fly the most convenient carrier with the best service. And that is seldom AA or UA.
So their "successful" program lost my loyalty. And I am not the only one.
This is perfection Lucky. I am totally that consultant that has to stay in budget but flies a lot and has a choice. Living in Austin, United is moderately better at getting me where I need to go all over the world but I have started hedging my bets with Delta because I am worried about United following AA in a race to the bottom re what it takes to get and maintain a status,...
This is perfection Lucky. I am totally that consultant that has to stay in budget but flies a lot and has a choice. Living in Austin, United is moderately better at getting me where I need to go all over the world but I have started hedging my bets with Delta because I am worried about United following AA in a race to the bottom re what it takes to get and maintain a status, the benefits of status, and frankly using a crappier product than Delta. So I guess for the airlines it is just a matter of what what they think is more valuable and profitable, whether it plays out the way they hoped or not.
@SFO-FF is spot on - folks who regularly buy high dollar tickets are doing just fine.
Who’s groaning over JetBlue and Southwest’s program setups? Let’s hear more folks talk about how badly these programs are doing.
Finally, from the financial perspective, what’s the difference between frequent flyer miles and selling a gift card?
@SFO-FF. You mean your company allows you to buy $5,000 SFO-JFK tickets on the spur of the moment. Maybe your company need some travel management. My company has an electronic booking system that suggests the cheapest economy flights. If you chose a more expensive flight, you have to "justify" additional expense. I was never questioned over spending an extra small amount to fly my preferred airline, but if it had been $200 more, I would...
@SFO-FF. You mean your company allows you to buy $5,000 SFO-JFK tickets on the spur of the moment. Maybe your company need some travel management. My company has an electronic booking system that suggests the cheapest economy flights. If you chose a more expensive flight, you have to "justify" additional expense. I was never questioned over spending an extra small amount to fly my preferred airline, but if it had been $200 more, I would have been raked over the coals.
I love free trips in business or first class. However, after 2 million miles with United, I left because of deteriorating service and less bang for the buck in award travel. Loyalty gone. Delta has been a much better airline for me but award returns are very low. I have come to the conclusion that after 20 years of gaining annual elite status I am giving it up. Alaska has matched my status and I...
I love free trips in business or first class. However, after 2 million miles with United, I left because of deteriorating service and less bang for the buck in award travel. Loyalty gone. Delta has been a much better airline for me but award returns are very low. I have come to the conclusion that after 20 years of gaining annual elite status I am giving it up. Alaska has matched my status and I will fly that airline with its enhanced, formally Virgin, routes when it is convenient. And I will fly the best route and price from now on - Loyalty gone. I will not make elite status with any one airline next year and I don't think I'll be missing much. If you purchase first/business class, I don't think it makes too much difference if you are elite or not. So I am an example for the airlines: Loyalty gone.
Parker has said that AA is now permanently profitable. Expect AAdvantage miles to be further reduced in value, as fliers have little choice any more.
Yet again you guys just don’t get it. Between you and Gary I find myself posting this type of comment all the time - you do not understand the corporate traveler. I am highly incentivized now through this new set up, in fact I wish my spend counted more.
On AA’s old upgrade system and mileage earning I was incentivized to buy my tickets early to get an upgrade and had no reduced mileage...
Yet again you guys just don’t get it. Between you and Gary I find myself posting this type of comment all the time - you do not understand the corporate traveler. I am highly incentivized now through this new set up, in fact I wish my spend counted more.
On AA’s old upgrade system and mileage earning I was incentivized to buy my tickets early to get an upgrade and had no reduced mileage earning as a result. My work lends more towards booking a week out to just a day out - now I’m rewarded for that activity which is just the way it should be.
Yes, loyalty programs have been huge for the industry - it made something unique in a very commoditized market. But here is the deal - the average consumer doesn’t realize it. Actually, most are using their sapphire to use points for cash air travel and are just happy with the rebate.
Business is more than miles and points, and it’s way more than gaming it.
Spot on from a disenchanted AA EXP, 2 Million mile flyer. Thank you!
I was always a loyal AA customer and flew almost 3 million miles with them alone. I usually chose AA over other competing for the same route (often for more dollars) based on MILES and benefits of being Platinum. Frequently others traveling with me had to make the same choice as I called the shots.
I felt the devaluation was disloyal. I felt the conversion from miles to dollars was disloyal. I find the...
I was always a loyal AA customer and flew almost 3 million miles with them alone. I usually chose AA over other competing for the same route (often for more dollars) based on MILES and benefits of being Platinum. Frequently others traveling with me had to make the same choice as I called the shots.
I felt the devaluation was disloyal. I felt the conversion from miles to dollars was disloyal. I find the lack of opportunity to use my miles easily disloyal. I find it ridiculous that I can get 50K plus miles for getting a credit card when I would have to spend almost $10K on airfare to get the same "miles".
Since the devaluation I find the best thing to do with my miles is use them...and earn miles/points with other airlines and travel services which reward on loyal and not pocket book size.
Bottom line is that airline executives do not care about loyalty anymore as today they care mostly about their compensation programs which relate to short term gains and Wall Streets opinions.
The only thing keeping me with United right now is Star Alliance. When I fly them, I always credit to another program because Mileage Plus is so not worthwhile. Even if I'm only earning 50 or 75% Asiana Club miles, I find them to be worth more than the 5x/$ Mileage Plus "miles" I would earn because OZ haven't devalued their program, despite the fact that they have good reason to. OZ respects me and...
The only thing keeping me with United right now is Star Alliance. When I fly them, I always credit to another program because Mileage Plus is so not worthwhile. Even if I'm only earning 50 or 75% Asiana Club miles, I find them to be worth more than the 5x/$ Mileage Plus "miles" I would earn because OZ haven't devalued their program, despite the fact that they have good reason to. OZ respects me and I respect them which is why I always fly them to Asia even if competing SkyTeam or Oneworld airlines have better fares (although I will admit I have my limits if the price difference is drastic). If OZ partnered with an airline like Alaska or JetBlue, my departure from UA would probably follow soon after.
Dear travel bloggers, you are looking at loyalty programs wrong. The point of them is a 2 way street ..... the airline captures a lucrative set of flyers and the flyers are given a set of benefits that make it worthwhile to put most of their travel in one airline.
Damn right, the continued cuts will lead to no loyalty at all.
well, i think the title already gets it wrong. In the US today, the majority of customers get the majority of their points from credit card sign up or spend. So, calling it "loyalty" card gets it so wrong. The link with the airline is hardly present and the airlines make profit on them not because of loyalty to the airline but because of the other income. On top of that , regular new sign...
well, i think the title already gets it wrong. In the US today, the majority of customers get the majority of their points from credit card sign up or spend. So, calling it "loyalty" card gets it so wrong. The link with the airline is hardly present and the airlines make profit on them not because of loyalty to the airline but because of the other income. On top of that , regular new sign up bonusses are everything except loyalty, they instead suggest you're better off by changing all the time. So, while the rest of the story is kind of true, it misses the point. EU is a bit different - CC sign up bonusses are small or non existing and points are mainly accumulated by flying.
Love the last bitcoin comment. (did buy some years ago at 330-450 and haven't sold)
Airline mileage programs have gotten so complicated, and undoubtedly pricey, I'd be for at least one major to halt the program, of course in exchange for something. Probably across the board fare reductions. Have no loyalty to any airline, and don't buy coach anymore.
Look to Australia. There is effectively a duopoly of premium carriers - do they abuse it, the answer is NO.
If airline loyalty programs were the stock market, they would be in a market correction given that things were probably to generous for a while and now equilibrium has taken place. The downturn in these programs was predictable especially in light of the mergers and the resulting decreased competition and a healthy economy.
It would be easy to believe that these programs are in free-fall except for the fact that the planes are flying...
If airline loyalty programs were the stock market, they would be in a market correction given that things were probably to generous for a while and now equilibrium has taken place. The downturn in these programs was predictable especially in light of the mergers and the resulting decreased competition and a healthy economy.
It would be easy to believe that these programs are in free-fall except for the fact that the planes are flying full. Air travel has never been cheaper in all cabins (at least from my vantage point). And like others have mentioned, most of the flying public are not elite passengers so the rest of us define a very small, albeit important, market segment. But where have we to go? When you look at switching or even becoming a free agent, the options aren’t any better, and in my case often worse. The system is basically rigged right now until something changes, like demand.
I'm not at all clear why Doug Parker thinks people doing mileage runs is a bad thing. They sell a seat at a certain price - what does it matter to them if the person in the seat is doing a mileage run? They still have someone paying for the seat. If the seat isn't profitable, give it a higher price rather than blaming the motivation of the passenger. Where people are doing mileage runs,...
I'm not at all clear why Doug Parker thinks people doing mileage runs is a bad thing. They sell a seat at a certain price - what does it matter to them if the person in the seat is doing a mileage run? They still have someone paying for the seat. If the seat isn't profitable, give it a higher price rather than blaming the motivation of the passenger. Where people are doing mileage runs, the loyalty programme has done its job - incentivising people to fly with the airline.
Ben has it right on the one very important point: if you based loyalty only on dollars, airlines would fail to win at all price points. They need to capture maximum profit across the whole market, not just the top end of the market. Airlines spend a lot of effort at achieving perfect price discrimination instead of ceding the bottom of the market to low cost carriers. The loyalty program that only caters to the top of the market will leave dollars on the table.
Ben - you're the one looking at loyalty programs wrong.
I'm on of those consultant types that has almost complete freedom in what airline I choose - and never on a paid higher than Premium Cabin. I'm an AA EXP. Requalification this year was easier, sooner, and on less actual flown miles than last year.
The "Value" or "ease of use" of AAdvantage miles has zero to do with my judgement of the program or...
Ben - you're the one looking at loyalty programs wrong.
I'm on of those consultant types that has almost complete freedom in what airline I choose - and never on a paid higher than Premium Cabin. I'm an AA EXP. Requalification this year was easier, sooner, and on less actual flown miles than last year.
The "Value" or "ease of use" of AAdvantage miles has zero to do with my judgement of the program or decision to fly AA. Miles just pile up in the account - if I want to take a personal trip, and standard level award tickets are all that's available: no problem.
It's about the elite program - and the things that make my flying experience better.
I would add that they also took elite recognition away from the middle class. $12,000 for top tier is unattainable.
Issue is even employees like consultants with choice of travel don't use loyalty programs as the most important factor in booking flights. From personal experience it goes: nonstop flight, time of flight, and then the quality of product/service if there are options even at that point. Miles / loyalty program tends to be just a sort of bonus for most people (read: people who don't care too much about airlines and are just trying to...
Issue is even employees like consultants with choice of travel don't use loyalty programs as the most important factor in booking flights. From personal experience it goes: nonstop flight, time of flight, and then the quality of product/service if there are options even at that point. Miles / loyalty program tends to be just a sort of bonus for most people (read: people who don't care too much about airlines and are just trying to get from point A to B). This is especially true for people already flying in premium cabins. And with generic credit card points that can be transferred to almost any program for flights, the actual airline programs just aren't that important to almost everyone in such jobs outside the few who read and contribute to airline blogs.
That leaves AA and the rest thinking they are giving out too many miles (and hence flights later on) for customers that aren't doing much for their bottom line. Easy to change it to reduce that occurrence while rewarding premium customers even more. $8,000 business trips between NYC and London, for example, earn an incredible amount of miles in spend-based systems.
As we know, a general rule in life is YMMV. My perspective is very different from yours (I'm OWE (BAEC), effortlessly achieved each year, based on my employer buying longhaul business class tickets).
1) in my world of business travel, there is very rarely not a choice of airline. It may not be an attractive choice, but LHR (sometimes LGW) is fantastically well-served by legacy carriers and the ME3 upstarts, all competing with BA. Occasionally...
As we know, a general rule in life is YMMV. My perspective is very different from yours (I'm OWE (BAEC), effortlessly achieved each year, based on my employer buying longhaul business class tickets).
1) in my world of business travel, there is very rarely not a choice of airline. It may not be an attractive choice, but LHR (sometimes LGW) is fantastically well-served by legacy carriers and the ME3 upstarts, all competing with BA. Occasionally there's only one airline serving a destination non-stop - but I'm talking an odd trip to places like Havana or Costa Rica, which are more usually leisure (and therefore lower-yield) destinations.
2) on the very high-yield TATL traffic, the competition for BA mostly comes from the US3. I've had such miserable experiences on them that I can't bring myself to fly with them. Ever. That's reverse loyalty in action. So the competition is from Virgin Atlantic. Which gives me lounge access anyway since I'm on an Upper Clas ticket. I'm not wild about either BA or Virgin, to be frank, but it's not exactly torture to have to fly them.
3) eastwards, BA has it a lot tougher trying to win my business. In fact, it rarely succeeds: Qatar and JAL are getting most of it. They're part of oneworld, but that doesn't matter to me because...
4) I couldn't give a toss about air miles. There, I've said it. For me, the value of a loyalty programme is in the lounge access (not so much on non-BA flights because business class gets me in anyway - but BA's business lounges at T5 are so overfill that they're far from being relaxing places), the priority boarding and the free seat assignment at any time after booking the ticket. I do like the First Wing access I now get at LHR T5, which transforms the quality of the experience of getting airside.
5) And I wrote all that because something isn't a "benefit" if the recipient doesn't value it. The nearly million Avios sitting in my BA account are of almost no use to me. I'll sometimes give wads of them to one friend or other so they can get free-ish flights, but BA and its partners never have availability on the flights I want. And so I've given up even trying to use the Avios for me. It's just a waste of my time. And therefore it's not a "benefit" to me: I couldn't care less if they devalue them, reduce the number earned, double the number in my account. Utterly irrelevant to my life.
6) for most of my flights, convenience and time-saving mean I travel non-stop. Sometimes, if the flight is ULH, I'd rather break the journey. Qatar is winning most of those trips. But Emirates, not oneworld, has won some, too. The convenience of my schedule always trumps my loyalty programme. Always.
But I'm intrigued that you think loyalty programmes have been massive profit-generators for airlines. I'd be interested to see the actual figures rather than just assertions. My guess is that the US government's protectionist policies (eg, US government employees can only travel on US-owned airlines - none of this nonsense about free market choice here!) have generated far more profit for US airlines than any loyalty programme. Though I'm happy to be corrected if someone has actual facts.
Comparing AA miles to Bitcoin makes absolutely zero sense. Could you compare coin miners to mileage runners? Maybe; but increasing difficulty , hash rates, and pool sizes are not the same as the Carrier's ability to change the value/rules on a seemingly downward path that mirrors the US3.
Rewarding the highest dollar spending customers should be the main objective of the loyalty program, be that to earn loyalty service of course will need to be acceptable which is something the US airlines don't have under control.
The miles hornyness is probably more driven by the insane CC bonuses that are thrown around in the US.
I don't think any airline CEO would have much of an issue with people flying around on paid tickets to collect miles.
@ Ryan - congrats on earning all those AA miles. With an anemic and shrinking list of OneWorld partners, pathetic saver level award space, ridiculous AAnytime pricing, and in some cases outrageous fuel surcharges, good luck effectively using them. Anyone need a toaster?
Actually Lucky, you said you'd keep it short instead of writing a full dissertation about it, but I'd like to see a proper opinion on the topic. And I think that you could be a good person to write it.
Meh, I could care less about so-called loyalty. I only care which carrier has premium seat availability to the destinations I want and which credit cards allow me to MS in scale. So if raising amount of miles needed for awards and going revenue-based reduces the competition for awards, I'm all for it.
The moral of the story is I'd never have traveled so much, or flown front of the bus, if not for...
Meh, I could care less about so-called loyalty. I only care which carrier has premium seat availability to the destinations I want and which credit cards allow me to MS in scale. So if raising amount of miles needed for awards and going revenue-based reduces the competition for awards, I'm all for it.
The moral of the story is I'd never have traveled so much, or flown front of the bus, if not for credit cards reward schemes that are subsidized by those who willing pay usurious interest just to buy mostly worthless crap. I find that deliciously ironic and satisfying. Keep it up airlines - sell those miles to big banks and market the heck out of them to undisciplined rubes.
The AS/Skywest FA scared me yesterday on my flight. In her AS credit card pitch she constantly referred to the bonus POINTS you would earn. She said this numerous times. She was not reading off the script, instead having memorized it, but I am hoping she was just making a mistake and there isn't a new script out...
Totally agree. I fly two to three times a month within Europe on the cheapest fare as per corporate policy. I chose one airline becuse it has a loyalty program, yet I stuggle to qualify for anything but the basic level. Three transatlantic flights, with little or no competion on routes, in business class will get you top tier. Who is more loyal?
Still doing milage runs. Premium economy on British, London to Muscat.
Will get platinum again under me, after it expires under my wife. Then if they pull that option no status and no flying with AA ever.
I already reduced my flying with them by at least 50%. 100% is easy if they push. Same goes for plenty of folks.
Why do I fly AA in US.... OneWorld and BAEC.
But when the reward in being loyal is less, I guess I get less loyal, 6 billion people in the world I can’t be the only one.
As an example no more AB, then the reward for me being In Oneworld has degraded, so I am considering leaving BAEC.
Me maybe leaving with my apr. 20 flights a yr will not rock anything, but again I am not so special so I can’t be the only, and BA is not the only airline with a CC deal.
Absolutely the wrong track. You have to give good customer service to EVERYONE. Imagine this same broken philosophy elsewhere that these execs want... Going to a restaurant? Imagine getting worse service because you didn't buy the expensive wines on the menu. Or how about a fast-food restaurant that caters to those $30-40 tickets that rarely come.
This shows they are living and working in whole other reality.
@Lucky well, you need to realized US airlines market is not as competitive as you may thought. Take your consultant example, for business trips, we ALWAYS try to book non-stop flight, and ALWAYS prefer flights in certain time of day. It turns out for most of routes, there is only ONE airline meet our needs.
There were many sound reasons the airlines used miles instead of currency when they set these programs up, including concern over whether frequent flyer accounts could be considered taxable income. If the US starts taxing these accounts as income, frequent flyer programs won't last very long. The closer AA moves to a bitcoin model, the more these accounts start to look like bank accounts.
I think the other thing AA will lose by moving...
There were many sound reasons the airlines used miles instead of currency when they set these programs up, including concern over whether frequent flyer accounts could be considered taxable income. If the US starts taxing these accounts as income, frequent flyer programs won't last very long. The closer AA moves to a bitcoin model, the more these accounts start to look like bank accounts.
I think the other thing AA will lose by moving to a crypto currency model is the ability to devalue their program. Once they put a firm stake in the ground on the monetary value of a unit and get a lot of third parties in the act accepting the currency for payment of goods and services, AA will lose control of their ability to change the value of the miles.
Finally, Mr. Parker should remember that airlines have openly encouraged mileage running in the past, offering triple elite mileage promotions to get people on planes. They also use that aspect of their program to move passengers through their dreaded mega hubs instead of competing non-stop services.
Bit coin is 100 billion cap, more than many car, airline and tech companies.
Any finance ding dong that puts up bitcoin as a comparison point should really be laughed at.
Anyone who accepts bit coins in place of USD without being hedged is a moron.
Doesn’t loyalty to an airline mean I continue to come back to your airline, not spend big once and never fly you again???
I am one of those corporate travelers you mention. I haven't done a mileage run in over a decade -- I haven't had to. I do have a choice of carrier (within some limitations) and the AAdvantage program remains my prime motivator for choosing AA or Oneworld carriers over others, despite the devaluation. Why? Because I fly almost exclusively on paid business class tickets. As an EXP, I earn 11 miles per dollar and on...
I am one of those corporate travelers you mention. I haven't done a mileage run in over a decade -- I haven't had to. I do have a choice of carrier (within some limitations) and the AAdvantage program remains my prime motivator for choosing AA or Oneworld carriers over others, despite the devaluation. Why? Because I fly almost exclusively on paid business class tickets. As an EXP, I earn 11 miles per dollar and on a $5000 ticket, that adds up fast. I am without question earning more miles per trip now that AAdvantage awards miles based on spend than when they were awarded based on distance. So many more to the point where the devaluations do not have a major effect on me; the cost increase is more than offset by the extra miles I earn. The structure has motivated me to chose AA over a Oneworld carrier if that is an option, because flying AA is so much more lucrative. So, in my case, it is working and is driving high yield dollars to AA.
Ben, no truer words have been spoker. The shortsightedness of the current crop of execs illustrates that maybe they don't really understand the diversity of their customers and they are just skimming the surface of what they think loyalty is.
AADVANTAGE is nowhere near as valuable as it once was and they know that but what gets me is that they act like if they don't.
I would just point out though that before the last 5 years, the airline industry lost a cumulative $60 billion in the 30 plus years before that, so maybe not so much on the predecessor genius theory.
I’m not sure what to think after American revealed how few passengers as a percentage of total actually collect miles on airplanes. Seems the vast majority of passengers do not. Probably why the minority who do fly & collect points or status are increasingly talked about as a nuisance to the airline.
If only we lived in a world where loyalty brands competed in becoming better, to gain customers; instead of increasingly getting worse and losing them.
All I can say is thanks for expressing the exactly same thoughts we all here share and would like to be heard.
Buuuuuurnnnn (the final Bitcoin comment)