From the desk of the Devil’s Advocate…
So the long predicted American AAdvantage devaluation finally came to be this week, and as expected, it wasn’t pretty. Of course, no one thought it was going to be a cause for joy and celebration, but some were hoping for a bit of a reprieve from the worst aspects of Delta and United’s recent program changes. Unfortunately it was not to be.
American seems to have gone ahead and copied most of Delta and United’s changes verbatim, once again proving that less is most definitely not more when it comes to competition in the marketplace.
But while no one is ever happy with a devaluation (and yes, this is a big one), there’s been lots of moaning and groaning about this week’s turn of events, some of it perhaps a bit over the top. And since it’s my job as the Devil’s Advocate to argue against the prevailing wisdom, why don’t we take a walk through the wreckage that is AAdvantage 2016 and see if we can’t articulate a slightly more upbeat view on what was changed?
Or more importantly, on what wasn’t changed.
Let’s talk about those elites.
Up until now American has been maintaining 3 different methods of qualifying for status — miles (EQM), segments (EQS), and points (EQP). Miles and segments are self-explanatory, but EQP’s were awarded based on a combination of miles traveled and fare class. Now, starting in 2016, EQP’s will be eliminated entirely and there will simply be bonus EQM’s awarded for more expensive fare buckets.
The Conventional Wisdom is that this will increase the elite ranks because there won’t be two separate metrics. Instead customers will be able to mix and match premium fares with regular fares, allowing those folks who might not have qualified with only points or only miles to now make it to a higher status.
But to that, I say hogwash!
While we can’t know exactly how some of these changes will end up playing out, we know that people who previously qualified via either points or miles will also qualify under the new system. So the only new elites we’re talking about are those people who had some premium fares but also some discount fares and therefore couldn’t qualify on either EQP’s or EQM’s (or qualified at a lower level).
But exactly how many people do we think fall into that category? I’m sure there are some, but we’re not likely talking about tens of thousands.
American is also increasing the multipliers for first and business class, which in theory could mean more elites. But American has also been running an EQP promo for the majority of 2015 that made EQP’s equivalent to the new EQM premium rates (obviously this was no accident by American). So we’ve effectively already had the 2016 EQM earning system in place through most of the past year, which means any extra bump in elites has already happened.
The end result? We’re not going to be fighting a ton of additional elites under the new system.
It’s all about the redemption side.
Yes, the new AAdvantage earning model blows. Despite what American claims about the new system rewarding high spenders, it’s not any more true than it was when Delta and United said the same thing (nor it it any more “innovative” than when United copied it directly from Delta). The fact is the majority of U.S flyers, including those who buy expensive tickets, are now earning less for each flight than they were two years ago.
But for folks like us in the points and miles community, it’s been a long time since we earned most of our miles from flying. Credit card signup bonuses have been the standard method of accumulating miles for several years now, and more recently manufactured spend has become another avenue to increase our miles inventories.
Yes, there are still people who accumulate their miles by flying and those people will take a hit (though the ones who fly a lot and have status will take much less of a hit). But in my estimation, those folks no longer comprise a majority of this community.
Award prices also increased and that also blows. But the much bigger danger — and the one we’ve avoided for the moment — is the possibility that one day the legacy carriers will move to a revenue-based redemption system in which the value of miles are locked to a specific amount or narrow range. This would effectively eliminate any possibility of high-value redemptions for premium cabin space, as the cost in miles would become astronomical.
Southwest and JetBlue have programs like this (though they also have smaller footprints with limited international routes) and the Big 3 are clearly intrigued by the possibility. But I think the legacy carriers realize that making such a drastic move would risk killing the golden goose. Flyers who primarily purchase domestic tickets in economy are already better served with a Capital One or Arrival+ or 2% cashback card than by one of the airline programs. If customers no longer had that pie-in-the-sky first class redemption to aim for, why would anyone even care about loyalty programs anymore?
However, if at some point one of the Big 3 decides to test that theory, it will be a much darker day than the one we saw this week.
The AAdvantage of low expectations.
To be honest, American is benefiting from going last with a major devaluation. Had they been the first ones instituting a revenue-based earning model and 110,000 mile prices for first class one ways to Asia, there’d be a lot more screaming than there is today.
But in basically matching their competitors and not trying to out-devalue them, American can say they’re simply catching up to the rest of the market. They can certainly no longer claim to have the best loyalty program of all the U.S. airlines, but it’s no worse than everyone else.
Also, in all fairness, everyone knew this devaluation was coming for months now. I even took part in an expert prediction game on this question back in February, and while I underestimated some of the changes, I can’t say there are any true surprises in the details. Yes, it might be harsher than expected in some places, but American didn’t go any further than either Delta or United already had.
In fact, we’ve been anticipating this devaluation for so long that one could argue we’ve had more notice of it than any in the history of loyalty programs. Officially we’ve got until March 22, 2016 to book under the current chart, which in and of itself is roughly 4 months of notice. But in essence we’ve been on the devaluation clock for almost a year.
The Devil’s Advocate says the bright side is what wasn’t changed.
Listen, I hate devaluations as much as the next guy, but with miles being printed like candy in the last few years, they are an inevitable part of the game. American had three options here: go small, go big, or just match the others. They chose option #3. While we all would have preferred for them to decide that having a superior loyalty program was an asset to attracting and retaining customers, they obviously don’t see it that way.
But let’s consider the positives — we’ve dodged the revenue redemption bullet, there’s no spend requirement for elite status, miles are easier to earn than ever, and premium airline cabins are improving all the time (like American’s 321T transcontinental first class). It’s not as good as it was, but there’s still tremendous value to be found in the AAdvantage loyalty program.
At least until the next round of devaluations begins. Delta is now on the clock…Devil’s Advocate is a bi-weekly series that deliberately argues a contrarian view on travel and loyalty programs. Sometimes the Devil’s Advocate truly believes in the counterargument. Other times he takes the opposing position just to see if the original argument holds water. But his main objective is to engage in friendly debate with the miles and points community to determine if today’s conventional wisdom is valid. You can suggest future topics by following him on Twitter @dvlsadvcate or sending an e-mail to email@example.com.
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Find the entire collection of Devil’s Advocate posts here.