American Airlines recently changed the award charts on its website, and added some new charts to the mix. The new charts will go into effect on May 4th, and the old charts will remain in place until then. The charts are kept secret, but the airline says that they’ll be based on the actual ticket prices for the specific routes.
American Airlines is preparing to drop award charts, and the result will likely be a significant shakeup in the way international travelers book tickets. The airline says it will soon be dropping its award chart, which shows what it calls the “predictive” value of different flights and awards. In its place, the airline will be adding a new “value” award, which includes a fixed dollar value to the ticket, plus taxes and fees. The change would be significant for travelers, since it would mean they would essentially have to book a flight that provides an amount of miles or points equal to the same amount of money they are spending on the ticket.
On October 17th, American Airlines will drop their award charts for award tickets. Even though AA does have some fairly good award chart options, I don’t know if I will be using them much anymore. If you are familiar with AA’s award charts, you know that they are incredibly complicated, and even though you can redeem awards for one-way awards, you still pay the higher fuel surcharges.
American Airlines is preparing to do away with bonus boards. That’s according to an interview the president of the AAdvantage program gave to The Points Guy. No airline or hotel loyalty program has ever increased the value of its programs to members after the abolition of the award charts. American Airlines… always publicize their award cards – if there’s an opportunity to earn an award, the card will tell you exactly how many miles you need. But not for long, as Rick Allison, president of American Airlines’ AAdvantage frequent flyer program, explained during a meeting with TPG at the airline’s Skyview headquarters. The team is actively working on what I can give you that would be most helpful to you, he said in response to a question about maintaining the AA premium tables. The TPG article is full of nice talk and doesn’t put pressure on Allison when he reports that he has no intention of devaluing the program if they remove the premium tables. Here’s what they suggest to expect instead: Allison compared the next iteration of the AA premium tables to a real estate website that shows how many people bought a home in a particular area and in what price range, and also shows how many people are considering a particular home. For an airline, this will likely be a website where you enter your departure and destination, and the algorithm will produce a range of historical award prices, as well as the prices travelers are currently paying.
Premium Tables – the cornerstone of thecustomer loyalty offering
In January 2020, American Airlines assured that it would maintain premium tables. And when Rick Allison took over the program, he reiterated in October 2020 that they weren’t going anywhere. He said he did not understand the value of the reward cards, but understood that they are important to members. Now it looks like they’re changing course. But reward charts are a cornerstone of the value proposition for customer loyalty.
- Participants are asked to first participate in an activity – to show their loyalty, to earn money – and to believe that these points will have value in the future.
- To create trust, the program must determine in advance what that value will be. This is particularly true for airlines that have abused consumer confidence in the past.
- Without a concrete value proposition and a credible commitment to deliver on it, there is no reason to raise money. If AAdvantage doesn’t even tell you how much your points will be worth in the future, why should you believe in their value?
Bonus plans involve the airline notifying members of changes. You can’t quietly make changes without acknowledging them. Moreover, the need to make changes is itself a deterrent to frequent and extensive devaluations. If programmes no longer need to publish their changes because the price is what it is at the time of the search, then there is no need to inform participants when the currency underlying falls. When it is opaque, devaluations are more common.
Eliminating premium tables was never good for consumers – never
It is no coincidence that American AAdvantage did not devalue its miles during the pandemic. They have premium tickets and need to acknowledge the change. On the other hand, let’s look at the behavior of airlines and hotel programs that have already done away with their award charts.
Ten billion reasons to devalue AAdvantage.
American Airlines has promised a $10 billion AAdvantage program. The airline has the most debt of any airline, and bondholders now have priority for AAdvantage revenue – ahead of members using their miles. With American Airlines needing to be more transparent to AAdvantage investors in order to protect the value of its AAdvantage-backed debt and potentially use the program as a source of liquidity in the future, the company must be able to demonstrate sustained growth in net income. The American is not alone in this. United, for example, has borrowed $6.5 billion for its MileagePlus program and plans to double its net revenue from frequent flyers in four years. That’s a lot of pressure. It is unlikely that the co-branded credit card business, which is an important source of revenue for airline loyalty programs, will be able to grow revenue at this level. It is therefore only natural that we are under pressure to reduce costs. The CEO of American Airlines says the company’s goal is to improve efficiency.
reward cards are critical to the competitiveness of the AAdvantageprogram.
Airlines cannot compete in a premium card environment based on ticket redemption. Your products do not have the same value as bank points. At best, you get a penny per point, but Chase Sapphire Reserve customers use those points at 1.5 cents each for travel or as part of the bank’s Pay Yourself Back program. AAdvantage what the airline has is access to perishable inventory that it can pass on to consumers at a deep discount through its miles program, giving members the chance to get great value for their miles. Without this element – which is fundamental to the bonus picture – airlines lose their competitive advantage in customer loyalty. In fact, the award charts are a big reason why I prefer AAdvantage over MileagePlus or SkyMiles. And I note that AAdvantage’s co-branded card portfolio has a higher accumulation volume than the other two portfolios – so by eliminating the bonus tables, they are copying the tactics of their less successful competitors. But why keep your competitive edge?
Notes on allocations under the table are excuses
There is no reason to eliminate premium tables to ensure the availability of premiums based on turnover. American Airlines proves this by offering special online prices and ticket rates. The Americans are not the first to do so. United introduced this system 15 years ago in their Choices program, making points an option for co-branded cardholders but allowing redemption based on award charts (until two years ago when they dropped the charts and started devaluing them). However, Allison tells TPG that the reward charts won’t work because he wants miles to be used not only for flights, but also for income-based purchases, The airline wants to make miles a form of payment that replaces cash throughout the trip, not just for the flight itself. I want you to redeem your miles for more and more things, not just bonuses, he told TPG. In the current award charts, mileage options are listed for flights only – there is no mention of using miles for other additional purchases, such as extra seats, upgrades, etc. It’s like when Delta said five years ago that they wanted people to use their miles to get a haircut. Delta has such a good reputation in its major hubs, and its customer service and reliability are traditionally good, that it can get away with that. A former account executive with an intimate knowledge of United’s MileagePlus program told me that the elimination of the bonus tables was United’s day of death. While Delta was able to avoid the devaluation, United’s devaluation resulted in negative financial results in their 10-Ks. American Airlines is taking the right approach by making miles more useful with revenue-based options in addition to and in addition to traditional award charts. There is no reason to abandon flight award cards to allow the redemption of miles for fees or extras. But a free checked bag or a seat with more legroom as a reward for miles won’t create lifelong loyalty like a honeymoon or business class travel for a special anniversary. Unfortunately, peer pressure to change direction, coupled with $10 billion in program debt, makes it urgent to demonstrate steadily improving financial performance. This will be a short-term gamble and a long-term loss for the program itself and its participants. Airline frequent flyer programs are the most successful marketing innovation in history. They capture the imagination of participants and offer them the chance to experience journeys they could not otherwise afford. The push for opaque pricing – and the resulting average cost per point – is a strategy to negate the leverage that programs have to ensure their success. Direct discounting (albeit opaque) puts the program on par with a debit card in a sandwich shop and at a disadvantage to cash, which pays a higher interest rate, earns interest if you keep it, and has less risk of devaluation (despite current inflation alerts).
Lake View from the Wing
American Airlines has already made the decision to drop its members’ AAdvantage award charts, effective within the next couple of months. This has caused quite a stir in the travel industry, but will it be for the better?. Read more about aa partner award chart and let us know what you think.
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