The AAdvantage programme of American Airlines is the company’s “golden goose,” generating the great majority of the company’s profits (and occasionally all of them) by selling miles to banks.
The AAdvantage programme is essential to making that operate as well since selling domestic connections—a portion of American’s core business—in markets where there are alternatives depends on it. It does this by incentivizing passengers to choose American over rival airlines. American has warned customers to expect “dynamic pricing” of rewards, which most likely means making the currency less desirable to spend on credit cards and less desirable to collect for flights. What we do know is this:
- In 2023, American will discontinue its MilesAAver and AAnytime awards. When these modifications will take effect in 2023 is unclear.
- Partner rewards will still be given out at the current price according to an award chart.
- American “will continue to maintain an award chart. The Managing Director of AAdvantage said that in 2023, “more discussion on what that looks like will take place.
- American has not asserted that these modifications will increase the value of their miles.
Spending on credit cards with the same co-brand has been restrained since American and United devalued their miles. Although they faced less competition and had a more aspirational brand, Delta was able to avoid that destiny, but they have managed to slightly erode that advantage (how long the continuous devaluations of SkyMiles will last is an unanswered question).
- Keep in mind that banks do not just pay for miles; they also pay for the travel brand’s name and access to clients. The bank keeps a share of the rebate, as opposed to the most profitable cards—those without an airline or hotel brand—which give the customer the whole value of interchange.
- The majority of American credit cards reward one mile for every dollar spent, which isn’t very competitive. Low value redemption is one where the mile only has a value of roughly one penny.
- Aside from status, why would you spend money on the card when you can get cash refund of at least 2% and use that to buy the tickets or other items you want?
- American’s margin on its miles is 52%. That suggests that a mile would cost between $0.0070 and $0.0075 to create. (About 6 years ago, they were making an average of 1.3 cents per mile but did a credit card agreement that improved revenue.) However, they sell miles to partners for more than that. The book charges one penny per point in obligation for transportation for miles earned through flying.
- They appear to be trying to lower their cost per mile by increasing the cost of awards, as they have done in the past by offering limited capacity for saving awards on foreign flights, especially for their most enticing awards for high spenders like business class to Europe. Although it could lower total revenue and profit, doing so would boost their margin. At best, these modifications would result in members receiving more average value for their miles and fewer opportunities for outsized value, even though it is this outsized value that can make members’ miles superior to those obtained by using a 2% cash back credit card.
They desire higher mile payments from credit card companies and other parties while spending less miles overall.
- This will lower the value of the co-brand agreement and decrease the amount of money available to American to pay off debt secured by the AAdvantage programme.
American needs to have a more effective loyalty programme than Delta did. American hasn’t traditionally been a better airline to fly with or engaged in as much captive market activity. Therefore, their marketing program’s value is more important.
While AAdvantage devaluations were a hot topic in 2021, they vowed not to alter their reward structure at the same time that they introduced loyalty points as a new means to achieve elite status. The value of the AAdvantage programme, the revenue streams for co-brand partners, and the quality of AAdvantage-backed debt may now be at danger as a result of the delayed consequences.