There was a sigh of relief across many frequent flyer circles today as a couple of snippets from an interview by Business Travel News with American Airlines CEO Doug Parker made the rounds. (HT: Pizza in Motion)
In response to a question regarding upcoming milestones from a customer standpoint, Mr. Parker responded:
“There are a series of them, but the next major one will be the integration of the frequent-flyer programs. They’re separate today, and we’re planning to integrate those [in the first half of next year].”
During an onstage appearance at the GBTA convention, Parker was asked whether American would follow Delta and United in moving to frequent-flyer program based on revenue accrued instead of miles flown. Such a move was “not even on the plate right now,” he said. “We have to get the two frequent-flyer programs merged first. If it makes sense to make that innovation, we may do that, but to try to change the program now would be foolish.” (emphasis mine)
I’m not exactly sure when I thought American would get around to merging AAdvantage and Dividend Miles, but I’m pretty sure I did not think it would be during the first half of 2015. They’ve got some wiggle room if the back-end systems preparation does not go as well as planned. All in all, I think it’s a good thing that the programs will be coming together a little sooner than I anticipated. While the two airlines are offering some reciprocal elite benefits, ensuring elites enjoy true reciprocity and equivalent benefits is not happening yet, and it may take a program merger to get it there.
I suspect the biggest sigh of relief followed the blurb about a move to a revenue-based program saying it was “not even on the plate right now.” To me, this is not surprising. Having only been tacitly involved in one merger in my airline life, suffice it to say that there is a lot going on behind the scenes as two airlines become one. American is making the right call IMHO by not making major changes to its frequent flyer program for a couple of reasons. First, there’s too much other work to do that needs to be done right. Second, while they’re accomplishing that work you can bet that it will be someone’s job to measure the effect of changes at Delta and United.
Overall, I think management is taking a smart approach to the merger. While I tend to think the idea of rewarding based on spend is a good thing overall, it remains to be seen how it will work in practice. I’ve said here that I think AAdvantage could chart its own course, and I continue to believe that. You’ll note that Mr. Parker did call revenue based programs an “innovation.” Whether that is an insight into what he’s thinking or not is beyond me. What will happen? Only time will tell.
-MJ, August 8, 2014
@MJ I agree, what concerns me is these airlines are going to start needing to compete on price then at the lower levels, and the whole point of a “loyalty programme” is really to make people pay more to fly your airline over others.
My sister would consistently pay 50 more per flight to fly UA… Now she will buy whomever is lowest, hence if UA wants to sell that same seat to her, it has to lower the price 50 to 51, so they are going to lose that customer and let’s be honest airlines need those customers that will pay 50 more because if they have to go head to head on price, the low cost carriers are really going to start taking a bite out of them.
I’m a 1K on UA 1.89MM (so 110K to go before lifetime Plat and a wave goodbye) and AA Exec Plat.
What UA has now done for me (and assuming AA goes the same route) is just buy tickets based on lowest fare. I routinely pay 400+ more to fly UA over partners because of earnings, as of Mar 1st I buy that 400 cheaper fare on the Asian airlines (that do not share revenue with UA if I can).
Lets look at Skymiles in 1999 or 2000 where they started giving 25% or 50% mileage on the low K/L fares I believe, the next year they raised the minimum to 750 to try and then the year after it went back to normal because they got killed… I see this as having the same effect and United is just so fricking stupid to follow.
They needed this 1 year to really try and steal back the 10-15c mileage flyers from DL but instead they followed and will lose those as well to AA, AA will be able to raise prices because they are running 100% capacity as UA sees traffic fall.
Airlines cannot survive alone on the 20c+ per mile passengers they need all of them.
@Scott,
I can’t even begin to pretend that I know how things will turn out. I lean towards revenue being a reasonable way to reward, but… this is such a drastic change. In my own purely personal circumstances, I wind up with more miles overall in SkyMiles 2015 than I currently earn. That could change at the drop of a hat….different travel patterns, different job, etc. I’m somewhat indifferent to “revenue based” programs, but I am truly curious to see what unfolds over the next year or 2.
I can tell you that going revenue earning will hurt their pull of customers at the lower end. My sister travels about 2-3x a year, flies the same carrier no matter what (unless it’s more than $100 more) so she can earn a free ticket to Europe, etc. Now she realized she has to spend 13,000 to earn 65,000 miles to earn a free ticket and she just basically said that’s IMPOSSIBLE and I’m just going to fly the cheapest airline whenever.
You have basically taken a punch card system and monetized it; that free ticket now costs $5,000 in spend.
I used to go to Starbucks because it took 12 drinks to get a free drink, if they went to me having to spend $50 to get that free drink I’d be gone because I don’t buy the high priced lattes, I buy coffee.
When you monetize a “punch card” type system people are taken aback and how much money they really have to spend to get that free item and then they base their purchases on price/convenience alone.
Airlines like Delta may be able to afford to do this because we all have colleagues that fly them because it is just a really good onboard experience for a US Airline; United? well that’s a miserable experience and certainly not worth spending extra money on anymore if you earn miles based on spend. See United forgot to place the carrot on the end of the stick and there is just a string hanging there.
@Scott,
I think it will be interesting comparing and contrasting the results of Delta’s program switch to that of United. I agree that Delta has a better shot at making this stick than UA.
Next year will indeed be a most interesting time for ff programs and flyers. If price becomes more important to the decision on if to fly and which carrier to use, that will have ramifications too. It is always fun to speculate and I appreciate your thoughts on this perplexing issue.
I may be missing some things but it seems that for the overwhelming majority of those in today’s ff programs, it will be nearly impossible to earn free travel by flying in a revenue-based ff program. Basing points on the net cost of a ticket means that, for most, free travel on airlines may only be attainable through credit-card bonus promotions. And how many have the time, interest or resources to play those games? Even many FOs and GMs will struggle to get enough points for even low-level international coach or business-class tickets, which are the carrots at the end of the stick for many ffs. Do you think putting these goals out of the reach of many could reduce the overall level of flying?
@John,
I think the majority of members under revenue based programs will earn fewer miles than before. Frankly, I think that’s the point from the airlines’ perspectives, even if they don’t say so. Will that reduce the overall level of flying? I doubt it, but it may lead to more rational economic decisions by travelers by making it more likely that they choose specifically for price, convenience, and perhaps perceived quality vs. being loyal to one program for the sake of amassing miles.
I have nothing to back this up, so it is pure speculation on my part – but I believe the majority of frequent flyer program members are probably more focused on that low level domestic award than most of us who have been around FlyerTalk, Milepoint, and the blogs are which means they may not really care about those international awards or premium class tickets.
No matter what happens, it is going to be interesting watching things unfold next year.