Will American AAdvantage Go Revenue Based?

Hi, welcome to 2014, the year where the airlines have us by the you-know-what!

There’s no doubt that the past couple of years have been amazing for the airlines — the economy is recovering and capacity has decreased, leading to airfare and load factors that are at a near all-time high.

While American and US Airways work on their integration, Delta and United have been taking steps to “fine-tune” their frequent flyer programs…at least from their perspectives.

Or more accurately, I should say that Delta SkyMiles has been making changes, and United MileagePlus has been matching them.

Here’s a video that perfectly sums up the dynamic between Delta and United (I’ll let you guess which airline is the duck):

So what has happened so far?

Unied-Changes
Credit to Charles M. Kunz for this

I’m sure it’s just a coincidence. šŸ˜‰

Will American AAdvantage go revenue based?

Or perhaps the more accurate question is when will American AAdvantage go revenue based?

It has been almost 18 months since Delta first announced that they’d add a revenue requirement for status, though we haven’t heard a peep from American regarding the possibility.

I wouldn’t assume that this means it’s not coming, however.

It’s tough to change frequent flyer programs during a merger

I think the main reason American hasn’t matched either (or probably both) of the above changes is because they’re in the middle of a merger.

We’ve seen changes, though they’ve mostly come in the form of aligning policies and not coming up with new ones altogether. Obviously they have bigger fish to fry right now, and they have such massive technological limitations merging these two airlines that they’re not really in a position at the moment to complicate things even further.

I don’t think AAdvantage will go revenue based in 2015

Yesterday American confirmed that elite qualifying miles between American and US Airways won’t be combined for this program year. Instead there will be a new combined mileage program next year, and I suspect they’ll be outlining what the new program will look like in the next couple of months.

Chances are that it will take elements from both programs, and ideally they’ll meet somewhere in the middle in terms of benefits.

For example, right now American offers their Executive Platinum members eight systemwide upgrades with no fare restrictions, while US Airways offers their Chairman’s Preferred members two systemwide upgrades (also valid for a companion). I’d wager they’ll somehow split the difference, and maybe offer four systemwide upgrades with no fare restrictions, or something like that.

But in practice I don’t think they can move quickly enough to introduce both a revenue requirement and revenue based mileage earning in 2015.

I predict AAdvantage will go revenue based in 2016

I suspect it will be announced at some point in 2015, and that starting in 2016 they’ll adopt some aspects of Delta and United’s programs.

Maybe they won’t adopt it completely, but at the same time there’s no way they’ll just permanently keep their programs as is, in my opinion.

Bottom line

I could be wrong.

It could be sooner, it could be later, or it could be not at all.

But my guess is that American isn’t intentionally not matching these MileagePlus and SkyMiles changes, but rather the merger and technological limitations are preventing them from implementing these changes as quickly.

What do you think — will American AAdvantage go revenue based? If so, when?

Comments

  1. Now that UA’s done it, AA’s certain to do it, once the dust has settled from the merger. On the plus side, since DL & AA didn’t switch to revenue based REDEMPTION, I don’t think AA will do that either. As long as they don’t go to revenue based redemption, I don’t think the world will end.

  2. “Thereā€™s no doubt that the past couple of years have been amazing for the airlines ā€” the economy is recovering and capacity has decreased, leading to airfare and load factors that are at a near all-time high.”

    You seem to be leaving out what I consider to be the primary contributing factor. Namely unprecedented and largely unchecked consolidation. You don’t have to get all the way down to a single airline before you begin to feel the effects of an oligopoly. Which isn’t that different from a monopoly from the perspective of the average passenger.

  3. The US Airways website you linked to says all fare classes are available for the International upgrade from coach to business class. I’m a current US Chairman’s and I can confirm no fare minimum has held up my use of a SWU. I wish I had more of them like Executive Platinums.

  4. I don’t think they’ll do it. They really don’t want the perception of collusion between the big 3 which could draw the scrutiny of regulators. I think United did this so that AA could not follow their lead. At this point I think AA can use this as a competitive advantage, given their recent attempts at marketing themselves as a more friendly airline.

  5. But what if American Airlines notices that by offering the best frequent flier program (it was already the best pre-devaluations by UA/DL, and now even more so) brings it significantly more high value customers?

  6. I am so glad when I did my mileage run and became EP and was able to enjoy it. Now with the future change to rev based, mileage run will be out of the picture. Now you have to do around the world multuple times to get EP.

  7. Quote:
    “American Airlines Group Inc., which merged last year with US Airways to become the largest airline by traffic, recently said it couldn’t make such structural changes until it integrates its two loyalty programs, which likely means not until next year. “But conceptually, it certainly makes sense to reward your best customers the most,” said Scott Kirby, American’s president.”

    Source: http://www.foxbusiness.com/industries/2014/06/10/united-to-award-miles-based-on-ticket-price-1091674525/?intcmp=fbfeatures

  8. Wishful thinking, but if American were to eliminate the fee for requesting a status match, they could really capitalize on angry Delta/United elites.

  9. Won’t happen in 2015 because of the merger.

    It makes no sense to predict 2016 at this point, it’ll depend on how profitable they are in the meantime, whether they gain market share, lots of data points will come in between now and then that will inform a decision.

    The merger actually protects us for now, and gives them a chance to outperform going their own way. And if that works well for them, why would they change? If it does, if United and Delta do well with their new program, well American will see that too.

  10. Airlines are all copycats. Delta is the evil one so the others stay put and just copy and paste whatever Delta invents to hurt customers. Customer service is a word that is extinct from the dictionary in the US. Airlines are printing money at customer’s expense. FYI, Delta stock is up 129% from June 2013 to today.

  11. @Santastico. US airlines may be experiencing a couple consecutive quarters of “record” profits, but do remember the airline industry as a whole have destroyed more shareholder capital than any other industry that I can think of. Just count the number of bankruptcies and failed airlines?

  12. @ David W — Well and in the past they have on a targeted basis offered “free” status match opportunities, so I wouldn’t be surprised to see that return.

  13. @ Simon — Except the airlines are largely run by bean counters. The “truly” high yield customers won’t be negatively impacted by these changes, and ultimately I think there’s so little competition at this point that they’re not worried about losing the “average” business traveler.

  14. I guess my point was, revenue !== profit. Each flight and route are different, and airlines sell seats based on supply and demand. So having someone pay $500 on route A might be more beneficial for them than having someone on route B pay $1000. This would happen for example if they were pretty much guaranteed that route B would be filled by other passengers at that rate, whereas route A would just fly with the an extra empty seat.

    It seems like attempts to tightly couple revenue with the loyalty program breaks the airlines interest in how they manage revenue through complex algorithms. Some routes/dates are going to be more expensive than others. If someone wants to fill their otherwise less lucrative routes, I wouldn’t want to discourage them from doing so, if I was running the airline.

    I guess I can understand wanting a minimum spend before offering status, maybe, but I think systems like BA’s tier point approach does a better job with this anyway (with a heavy weighting on business and first class sales, rather than directly proportional to price).

  15. It also depends on how well it goes for DL and UA during 2015. If consumers flee to AA or other airlines AA could avoid taking the same steps after the merger. In a way I wonder more about how well both airlines will do after this than the step AA will take. If they loose business because of those changes will they still abide by those rules come 2016?

  16. Maybe they will but if they don’t thay’ll be able to add more routes and planes for all the new passengers they are picking up. Last time I flew AA never. Last time I flew DL or UA 3 times each this year. Next time will be to use up more FF miles. Next flight is already bought on AA!

  17. American has gr8 potential AAdvantage here by avoiding Delta and United’s Skypesos earnings scheme. They can poach a host of loyal UA & DL elites whom will add to their bottom line. Alternatively, mimic DL-UA Skypesos, and there is no longer any incentive for loyalty. Perhaps being a free agent is the best thing that can happen for savvy travelers.

  18. I think the revenue-based model — as presented by DL and UA — will flop and AA will be lucky to not have implemented it. They will then come up with a hybrid model (taking the best of the old and new systems) and will be leaders. Purely by luck.

  19. As Gary mentioned, not in 2015 and – perhaps – by not being able to make changes right now due to merger activities, AA may unintentionally benefit if DL/UA fliers switch over and, especially, if the new systems don’t produce positive results for DL/UA.

    P.S. That duck can’t possibly be United — it’s too adorable!

  20. Might just be whistling in the dark here, but it’s possible that AA won’t go revenue based. Aadvantage has always been more generous than the other airline loyalty programs, and BIS miles would be a clear differentiation.

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