It Appears American Airlines Has Determined Their Changes To The AAdvantage Program In 2016

There’s been a lot of buzz in the blogsphere about leaked information about potential changes to the American Airlines AAdvantage program.

Keeping in mind these are still rumors, they come from really good sources. And, with both One Mile at a Time and View From the Wing posting about the changes, I think it’s safe to assume that the official announcement will be markedly similar.

To that end, let’s summarize the changes and then I’ll offer my opinions:

  • Elite-Qualifying points (EQPS) go away.  This was the tool American used in the past to reward high-revenue travelers with the potential to achieve status quicker.  But, it was more cumbersome than the model United Airlines used, where buying more expensive tickets yielded you more Elite-Qualifying miles (EQMs). Which leads to…..
  • American will award more EQMs to travelers who buy more expensive tickets. This is likely a plus for a decent number of elite travelers, myself included, who buy a mix of fares. The rumored tiers are:
    • Refundable (full fare) first class and business class tickets will earn 3 EQMs per mile flown.
    • Discounted first and business earn 2 EQMs per mile flown.
    • Refundable (full fare) coach tickets will earn 1.5 EQMs per mile flown.  I can imagine this will include more than just Y fares (likely B fares as well).
    • Discounted coach tickets (what most of the free world buy) earn 1 EQM per mile flown.
  • Executive Platinum members (EXPs) will receive 4 systemwide upgrades (SWUs) after qualifying in 2016 as opposed to the 8 received in 2015 (and years past for as long as I can remember).  There does not appear to be any indication there will be a restriction/requirement on fares for SWUs.
  • Gold and Platinum members will earn 500-mile upgrade certificates (I still can’t help calling them stickers) at a slower pace, 4 every 12,500 qualifying miles flown.
  • Though the date isn’t set, American plans to move to a system of awarding redeemable miles (RDMs) based on how much you spend on your airline ticket, with a bonus depending on your level of elite status:
    • Non-elite members: 5 miles per dollar spent
    • Gold members: 7 miles per dollar spent
    • Platinum members: 8 miles per dollar spent
    • Executive Platinum members: 11 miles per dollar spent

I’ve been accused in the past of having rose-colored glasses when it comes to American Airlines.  They are, by far, my favorite domestic US airline.  That being said, I don’t feel very rosy about the news.  I wouldn’t say the sky is falling, but here’s my take on each of these areas:

EQPs Going Away and Bonus Miles For Premium Fares

I’m torn on this.  Personally, it’s likely to make the process of re-qualifying for EXP easier for me.  That’s definitely a positive.  But, it should also make the process easier for others as well.  American has long stuck to the notion that they’re fiercely protective of their top-tier elite status, wanting it to be truly special.  I’ve enjoyed near 100% success on domestic upgrades in the almost 10 years I’ve been an Executive Platinum member.

Conversely, I rarely broke 60% success while a top-tier elite with United.  Even after trimming their elite ranks with spending requirements, my flight home today still had over 40 people who didn’t clear the upgrade list.  This change won’t lead to those sorts of numbers since American doesn’t give complimentary upgrades to Gold and Platinum members.  But, it will bloat the elite ranks.

Verdict: Neutral/slightly positive.  Looking back, I’ll probably prefer they didn’t change this.

Executive Platinum Members Receive 4 SWUs Instead of 8

Wow, this one hurts.  Why is this such a big change?  When I’ve spoken at Frequent Traveler University in the past, I’ve referred to the AA SWUs as “liquid gold”, “unparalleled greatness”, and “the single best benefit I get every year”.  In case you’re not familiar, a SWU entitles you to upgrade your travel to the next class of service on virtually any paid ticket, subject to availability.  American has done a great job over the years providing availability for SWUs, though they don’t clear as early as they used to.

United offers their equivalent (GPU) with a restriction that forces you to purchase a higher fare ticket and still potentially wait to see if your upgrade clears.  Delta used to do the same but now offers 4 SWUs that are largely unrestricted.  If this change is real, then American is no longer a leader in this area.

I “get” that it can be beneficial to analyze what your competitors offer their customers when trying to evaluate how to address changes.  But, SWUs aren’t “balance sheet items” like miles an airline awards.  They expire each year and can be more efficiently controlled by revenue management if the intent is to give away these seats only when the airline doesn’t have a reasonable chance to sell that premium seat.  This change screams that AA is going to more aggressively try to price these upgrades where customers are willing to purchase them, especially after giving their best customers less free shots at those upgrades.

If it is only 4, that means I won’t even be able to plan one trip for my family of 4 using SWUs to upgrade our round-trip.  There’s still hope, in that the rumored language references “the ability to earn more SWUs”.  I tend to think that’s code for someone flying more than $100K or spending a boatload of cash, though, which means very few travelers.

Verdict: If it’s 4, it’s the most painful change for me.  It also brings AA WAAAY back to the pack in regards to this benefit.

Less 500-mile Upgrades for Gold and Platinum Members

It may be easy for me to say this isn’t a big change since I haven’t had to buy 500-mile upgrades stickers in many years.  But, one of the big reasons I like American’s system of not upgrading everyone for free is that it allows Gold and Platinum members who are actually willing to pay for upgrades a great chance to get upgraded on many flights.  As a Gold member, I averaged roughly 50% on scoring upgrades and 75%-80% as a Platinum.  Sure, I had to buy some stickers here and there, but I felt like that was a fine trade-off.

A typical Platinum member flying 50,000 miles a year will now earn enough upgrade certificates to upgrade 8,000 miles of flights (16 stickers worth 500 miles each) versus 10,000 miles under the current system.  But, this is in addition to qualifying for free upgrades on all flights shorter than 500 miles.

Verdict: Net-net, I think this is actually a win for frequent travelers, especially when you consider the free upgrades for flights of less than 500 miles.  It might cost a bit more to upgrade, but upgrades should be easier (assuming the extra EQMs earned from premium fare purchases don’t bloat the elite ranks).

Revenue-Based Mileage Earning

I couldn’t help but think that when Scott Kirby, in the recent AA earnings call, talked about innovation in the loyalty program, it likely meant bad news for frequent travelers.

But, there’s no innovation here.  American’s rumored mileage-earning scheme is an exact replica of United Airlines, which is in turn a copy of Delta.  And, that’s just plain disappointing.

I wonder if the discussion on Amon Carter Blvd. centered around not wanting to give customers a reason to go elsewhere by offering something less rewarding?  Or, did it focus more on not wanting to be more rewarding because they needed to maximize profitability.

I’ve said for longer than I can recall that this is a copy-cat industry.  When American announced their changes last year while combining Dividend Miles and AAdvantage, I was excited!  Not only were the changes good for me personally, but American didn’t photocopy Delta or United when rolling out their changes.  Now, American hasn’t copied all aspects of the new Delta and United loyalty programs, but they did when it came to deciding how to award redeemable miles to folks.

The change itself isn’t actually that bad.  I’m not as big an opponent of revenue-based earning as View From The Wing is (or, lots of folks in the blog world for that matter).  As a businessman, I do understand wanting to reward customers that spend more.  Where Gary and I do agree is that the airlines and hotels are in a somewhat unique position, in that one more passenger or hotel room booking on any given day can be almost pure profit.

American is likely moving to a system where they reward folks less when they buy very cheap tickets.  When coupled with this, they may not be doing much to drive incremental business.  We’ll have to wait and see how the two dovetail into each other.  Overall, I don’t think many folks will lose out a ton here.  And, awarding fewer miles could, in theory, mean more award space.

Verdict: Yawn.  I was hoping to see something here that encouraged folks to spend more money.  American appears to think this is it. But, this won’t encourage me to bring incremental business to American.  I’ll book the flights I need to so I can retain EXP, and I’ll look to other benefits to encourage me to buy more airline tickets.  But, I won’t be buying more expensive tickets to earn more redeemable miles.

Bottom Line It For Me, Ed

Two folks I respect a great deal have differing opinions on these changes.  View From the Wing seems to think they’re not horrible, though he’s clearly not a big fan of revenue-based earning.  He’s pretty upset about the notice.  Ben at One Mile of a Time is, well….his most recent post on the subject is titled “Here’s Why American’s AAdvantage Changes Are Terrible“.

I’m conflicted, though definitely not pleased.  If the change on SWUs doesn’t take effect until you qualify for EXP in 2016, then I think the notice is appropriate on pretty much all accounts.  Folks are getting what they promised in 2016 for the business they gave the airline in 2015.  That still remains to be seen.

I think the changes relative to elite status are very minor and will benefit more people than it hurts, by far.  Reduced domestic upgrade certificates for lower elites can’t be a change to get yourself lathered up about.

So, that leaves revenue-based earning.  I don’t love the philosophy, but I’m more concerned to see what they do with instances where they offer fares to compete with Spirit and Frontier.

I would have preferred American be more innovative in implementing revenue-based earning.  EQPs were a potential avenue to do so, but they’re gone now.  In their place, we have a mechanism that boils down to ticket price.

Change is here, and it’s earlier than expected.  It won’t kill us, but ultra-cheap fares will be just that in the future, not an opportunity to maximize mileage earning for future award redemptions.

If these are the real changes, what’s your opinion?

12 Comments

  1. Good take on these changes. As someone who struggles to qualify for Gold but earns a ton of AA miles through spending, etc. It will all come down to the award chart that’s not been leaked yet. I can handle say a 10% hit there but beyond that I won’t be happy. I feel I’ve already suffered big increases on awards in business to Europe from the 60k off season in US air Envoy to 100k with AA.

    1. Dan, the problem I had with US Air was the inconsistent pop-up of old 757s with age-old seats on some primary Envoy routes here and there. And, the service quality on US Air, IMO, pales in comparison to AA. I’m okay at 100K for the AA product versus US Air’s Envoy product as it stands today (showing some age). I still think EXP will be the best of the 3 top-tier status levels. But, if you’re only earning Gold, I can’t imagine you’ll see a big difference across the 3 carriers come later this fall.

  2. To me come Oct 2016 all the airlines will be the same and there will be no reason but to buy the lowest fare anyway.

    I can get the same benefits with a CC since upgrades RARELY ever clear anymore.

    The difference is 6 miles per dollar spent as a top tier person, so if a flight is $500 on AA and $450 on UA, the 3000 miles (Assuming I was ExPlat vs GM) are not worth $50 to me.. And this is where AA and these other airlines have not done their homework.

    So let’s say I’m an AA-ExPlat and UA-GM I have the option to buy 5- $500 fares at AA vs 5-$450 fares at UA.

    I can earn 27,500 miles for $2500 and earn a free domestic ticket on AA
    I can earn 11,250 miles for $2250 and have earned the equivalent of $250 savings 56% of a new ticket and 45% of a free award ticket. So to me as a shopper that is nearly neutral (no one ever uses their free ticket immediately) so ultimately one saves me cash and one gives me miles that will devalue.

    I’m a FREE AGENT NOW! Can only thank AA a ton for this because now I can fly whomever is cheapest, get Credit Cards that waive the annual fee anyway. AA is going to save me a lot of $$.

    1. Scott, I like the approach you’re taking to analyzing the mileage-earning components here. My calculations would be different because I prefer to use my miles for international business class awards, such that the miles can be worth more than 2 cents to me for those sorts of redemptions. But, if you’re redeeming mostly for domestic awards, the math will be pretty comparable. And, if you happen to live near a city with a decent Southwest network, there’s good value to be found there as well, especially if transferring points from Ultimate Rewards that you earn in the bonus categories.

  3. To me it’s all about what they do with the award charts. The really big outsized value to me with American miles is the great off-season award pricing to lots of parts of the world. That’s what I’m concerned about losing.

    1. Hit “Reply” too soon. I’m really not sure what tact they’ll take with the award chart. Given than they already moved to some “dynamic-ish” pricing for higher priced awards, I think it’s possible we’ll still be able to find some value here and there. I still think there’s going to be enough reasons to collect miles even after they mage changes. Maybe not as many great opportunities, but smart travelers will find ways to get great value.

  4. It’s not just you, Ed, but everybody else who *correctly* recognizes that there is “outsized value” with the AA award chart. No way AA makes any money when someone redeems 40K AA miles for EY Apartments on LHR-AUH. Similar with the cheap awards to Asia, etc… everywhere, really. If it’s “outsized value” for the consumer, then it’s just as opposite on AA’s size.

    AA management is not dumb; they recognize the same gaps as we do, but they are likely looking at it from a P&L perspective. It may not be in the initial changes in late 2016, or even 2017…. but believe me, the “outsized value opportunities” will be going away. AA management would be dumb to keep them.

    1. DiscoPapa, actually, I think they’d be dumb to get rid of all of them. Maybe some, but for people to believe in the value of miles, they have up believe they can get to Hawaii and Australia with the occasional Cancun thrown in there. EY apartments? Yeah, get that award while you can.

      1. I agree. I’d argue that Hawaii/Cancun are in a different league than EY Apartments and CX First. I think we are on the same page! 🙂

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