The creator of the American Airlines AAdvantage program, Hal Brierley, thinks loyalty programs are too generous. He was the very many some 40 years ago that helped develop the program for American, hoping to entice flyers and woo them into paid seats. Now, the tables of turned…
It brings up a great point, and I’m glad I saw this article in the Dallas News. Are loyalty programs too generous?
A few years ago, he looked at “the excessive riches of AAdvantage” and found that an executive platinum customer (someone who logs 100,000 miles in a year) could make three round trips to San Francisco on $250 weekender fares and earn a free $2,500 coach ticket.
“Do the math, and there’s something wrong with that,” he says. “Programs need to evolve toward a sustainable, profitable structure that’s still desirable for the customer. Getting some sanity back into the program makes sense.”
He’s not wrong, to be honest. As an AAdvantage Platinum or Executive Platinum, you’re earning a 100% bonus on every ticket, regardless of fare. Flying two round-trips across the country can basically score you a free domestic round-trip ticket (at the saver level of 25,000 miles round-trip). Because Platinums need 50,000 miles a year to re-qualify for status, and Executive Platinums 100,000, they are basically guaranteeing themselves up to 8 round-trip economy tickets anywhere in the US.
Brierly argues that incentives should be in the form of incentives toward the next trip, such as giving customers $10 toward a future flight purchase after they spend $100. In this case, you’re allowing them to continually spend on your company and essentially re-invest in it, vs. gaming the system of using 25,000 miles towards what otherwise might be a fare of $1,000. Brierly’s model follows a revenue based idea that both Delta and United have toyed with the future of revenue based redemptions.
So, are loyalty programs too generous or is it enticing to keep me loyal?
I’ll admit that the 8 systemwide upgrades I receive is a huge enticement to keep me flying American. But, would I fly someone else if they didn’t offer that? I don’t think so, so as far as those go, I think American is just enticing enough.
Free food in coach? Sure, it’s a nice perk, but am I going to fly another airline if it’s cheaper, knowing I’d be missing a free meal on American? Probably so.
Interestingly, Brierly, who pioneered AAdvantage flies over 150,000 miles a year, mostly for free thanks to purchasing an AAirpass some years ago for $352,000, allowing him to fly for free…and accumulate miles for the same trips. So, the guy that’s arguing loyalty is too generous, is the same one taking advantage of it (no pun intended).
“A lifetime offer in my mind is the all-you-can-eat buffet,” he says. “The challenge is twofold. You have to price it correctly and make sure that the shrimp lovers don’t buy it.”
Is loyalty too generous? Would you continue to fly in your airline’s loyalty program if they removed benefits that otherwise make it too generous?
Jamie Larounis is an avid traveler, blogger and miles/points educator. Traveling well over 100,000 miles a year and staying in hotels for over 100 nights, he leverages miles, points and other deals to fly in first class cabins, and stay in 5-star hotels. The Forward Cabin shares his experiences, musings, reviews, tips, tricks, resources and industry news with you, the fellow traveler.
One thing to also note that Brierley may not have envisioned 40 years ago is how fast information gets spread in today’s technological age. Back then, only a few people knew how to game whereas nowadays thanks to flyer talk and blogs such as this one it is easy to spread information and a lot more people are taking advantage of these sweet spots.
Too generous to fill a seat on a capacity controlled award ticket/seat? Hardly. Same with SWU’s, little to no money lost on a capacity controlled upgrade. No upgrade availability? SWU is useless! And don’t forget, SWU’s are on paid tickets only as well. AAnytime awards are the one exception but the redeemer sure does pay a premium in miles. (100%) Which typically is enough for someone to adjust their plans for a MileSaaver award instead. Don’t let the airlines fool you that they are too generous now. That’s absolutely an illusion…
At first I thought this was silly. You’re not getting a $2500 coach ticket for 25000 miles. Obviously award tickets are capacity controlled. But I think this is meant to be for a one-way AAnytime award for 30K miles. That’s not likely to be $2500 either, but the most expensive Y ticket from SFO-JFK on Thursday (and it is in full-fare Y) is $1663 one-way. Not $2500, but that would be a tremendous redemption from a miles/dollar perspective (5.5 cents/mile).
I don’t think this sort of redemption is all that common, though, or they would have raised their AAnytime prices by more. I also certainly don’t think most Executive Platinums are flying around on the cheapest fares and subsequently redeeming for AAnytime awards on nearly sold-out flights.
That said, I would agree that such a pattern would not be a good value for the airline. But the solution is to charge more for AAnytime awards, not a revenue-based program. A revenue-based program wouldn’t buy my loyalty (even if it were really a 10% discount — and you know it would actually only be 5% or something). The loyalty proposition comes from the ability to sell distressed inventory at a discount. Then the airline can sell me something that’s “worth” $4000 (even though it costs them maybe $400) and my rebate on $10000 spend is more like 40%.