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Is American AAdvantage going to stop awarding miles based on how far you fly?

by on Fri July 24, 2015 • No Comment
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This year, Delta and United Airlines have radically altered their frequent flier programs so that award miles are earned based on how much you spend, and no longer based on how far you fly.

Their goal is to hand out fewer miles, reducing their cost, while concentrating the rewards on flyers who pay the most money.

American AAdvantage has yet to implement the change as the airline focuses on merging with US Airways.

So this year there’s a fascinating real world test going on that will show whether a traditional mileage program that rewards both spend and how far you fly can really drive more loyalty than Delta and United’s purely spending based models.

The conventional wisdom is American will just follow suit with Delta and United because, well that’s what big airlines do: copy each other.

But airlines use frequent flier programs to attract as many high paying business travel customers as possible and steal business from each other.

In theory, if business travelers really valued earning miles the old fashion way, they would go out of their way to fly American and avoid United and Delta.

So if that’s the case, American should outperform United and Delta – either by better filling seats or (more importantly) getting higher fares for the seats that are filled.

As of this week, all three airlines have reported their financial results for the first half of 2015, which gives us a six month read on the experiment.

Here’s how they did in terms of filling planes more effectively this year…

(Load factor: The % of seats filled by passengers)

  • American: 81.7% (down 5 basis points from last year)
  • Delta: 83.8% (down 9 basis points)
  • United: 82.6% (down 9 basis points)

American fared a bit better than Delta and United on this front.

And here’s how they did in charging more for those seats…

(Yield: The average fare per mile flown by a paying passenger)

  • American: 16.53 cents (down 3.9% from last year)
  • Delta: 16.9 cents (down 2.3%)
  • United: 15.98 cents (down 2.1%)

American fared substantially worse on this front.

So on the surface, it doesn’t look great for American. United and Delta did a better job keeping their prices up, though American did a bit better in terms of keeping its planes as full as they were a year ago.

Granted, these are really blunt metrics and the fare environment has been weaker than they all hoped for, so things are muddy.

It would have been clear if American to showed growth while the others declined.

Still, it ‘s possible American has been helped by standing firm with its award program.

For example, a good amount of American’s weakness is because the government started allowing longer flights out of Dallas Love Field where its competitor Southwest Airlines has a hub. So lots of Dallas flyers are flocking to a more convenient airport. United and Delta aren’t as exposed to that, since they don’t have big Dallas operations.

But in more competitive cities American seems to be faring well.

During its earnings call, American said that In New York, it grew its average fare per seat.

Since New York is a market with a lot of choice, that might be a sign they’re taking share from United,  Delta, or both, which would support AAdvantage being one factor of success for American. Of course there are many other factors like being on time, having good schedules, and decent service.

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And while United and Delta said on their earnings calls that Chicago is a weak spot, American said it’s not seeing issues there.

Again, Chicago is a very competitive market that’s a hub for both American and United. So it’s possible American is getting some business thanks to keeping its mileage program intact.

A glimmer of hope is this bullet point in American Airlines’ earnings press release:

aadvantagemarketing

Granted it was buried as the last bullet point under ‘Marketing Accomplishments,” just after being recognized by Air Cargo News as Cargo Airline of the Year. And it was probably snuck in as filler by the marketing department. But it’s at least a reminder to stakeholders of how strongly loyal AAdvantage members feel about their program.

When pressed on this previously, American has simply said it’s ‘monitoring’ the changes at other airlines.

So if you care about a loyalty program that rewards you on more than just how much you spend – keep supporting American Airlines with your business.

While American would love to reduce costs, it’s still a toss up whether that will lose them some profitable business they’re winning today.

The weak fare environment shows how this is still a very competitive business where investing in and not simply cutting reward program value could yield a return. That’s especially true when some of the most valuable markets like New York, Chicago, and Los Angeles, still have lots of choices from several big carriers.

 

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