April 10 2014

Contrasting Perspectives on the American Airlines Devaluation

The miles-and-points world has been all a’twitter over American Airlines’ sudden devaluation of its frequent flyer program this week. While it was destined for devaluation, as all loyalty programs are over time, we were stunned by the manner in which AA communicated – or failed to communicate – the changes. Indeed, AA quietly loaded the changes to its online booking engine in the middle of the night, then released a statement the next morning touting program “enhancements.”

If you’re already familiar with the new changes, feel free to scroll to the next section lest I bore you recapping the changes.

The Changes

I shared a side-by-side comparison of the old and new programs, which showed that for many award tickets – particularly those in premium cabins – the miles required increased significantly.

For example, look at the price of a first class ticket between North America and Europe.

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The price of a MileSAAver award (an award with limited availability and subject to capacity controls) did not change from 62,500 miles. However, the more flexible AAnytime ticket, which required 125,000 miles pre-devaluation, will now vary (but certainly increase) in price depending on which day you travel: 140,000 miles for a low-demand day, 175,000 for a higher-demand day, and “ * ” for what the press release terms “the busiest travel days of the year.” They haven’t even quantified that asterisked amount, so far only saying that “on those days, American will offer a higher reward redemption option.”

Changes to most other regions follow a similar pattern, and rather than rehash them all let me refer you to this side-by-side comparison of the old and new charts.

While the new mileage requirements affect travel starting June 1, other “enhancements” were effected immediately. Notably:

  • The ability to book a free stopover on an international award ticket was eliminated. Personally this is a significant loss as I got huge value from having a free stopover (of practically unlimited duration) on an international award ticket; it was almost like getting two tickets for the price of one. In fact, I found out about the devaluation while trying to book this very award – and was shocked/perplexed to see the booking engine charge for a stopover instead of making it free.
  • The “oneworld Explorer Award” was also eliminated. While relatively obscure, it was a valuable award akin to a round-the-world ticket.

Other changes include reductions in the number of free checked bags for certain travelers and increased fees here and there. As I mentioned previously, there are some positive changes but they are relatively inconsequential and certainly eclipsed by the negatives.

My Consumer Perspective

Most upsetting is not the changes per se, but that they were implemented without notice. Literally overnight.

Yes, this miles and points hobby is a game (I even refer to it by that exact term sometimes). But, to use a sports analogy, you can’t change the rules in the middle of a play and expect people to be fine with it.

It is a service provider’s prerogative to change its pricing any time, but that doesn’t mean we as consumers have to like it. Many AA customers are making their displeasure known, as they should. The #AAdvantageMAAsacre hashtag isn’t trending without reason.

The lack of notice is, in a word, egregious.

Some people saved up miles for years, planning to redeem them for an aspirational award. They shifted their business to AA and its partners, perhaps forgoing cheaper tickets or more convenient flight times offered elsewhere, to amass enough miles for a particular award.

Then suddenly the rug was pulled out from below. Lack of notice leaves consumers without opportunity to mitigate the damage.

The stopover award I tried to book that night went from costing 20,000 miles to 32,500 miles – a 63% increase – without any advance notice. I hadn’t booked sooner hoping more award space would open up, but had I known the cost would rise that night I would’ve made sure to book before it rose. Simple as that.

My Business Perspective

Whether by increasing revenue, reducing costs, or other means, a for-profit company must be profitable to remain viable. In fact, the “old” American filed bankruptcy just a few years ago.

If AA must make program “enhancements” to remain viable, I accept that. I’d rather have more airlines than less airlines. Because the fewer there are, the less competition there is. And diminished competition usually leads to increased prices (among other drawbacks).

Furthermore, devaluation in itself is a natural economic process. Just as monetary currency loses value over time due to inflation, miles diminish in value over time due to miles inflation.

And I’ve seen a lot of miles inflation over the years. These days, you can get 50,000 (sometimes 100,000) miles at once just by getting a credit card. Consider that many people (myself included) apply for multiple new cards a year for the main purpose of earning miles and points, and you have many miles being earned for relatively little cost and effort.

If earning miles gets easier, redeeming them must get proportionately harder. Otherwise, a supply-demand imbalance results and the system breaks down. Devaluation is a re-balancing mechanism. When there are more miles in circulation than award seats available to redeem those miles for, an efficient market responds by pushing up the price of award seats.

Takeaway

We can’t change this devaluation or prevent future ones. They’re a fact of an efficient market.

And I’m certainly not going to stop playing this game. For me it’s not only rewarding (even post-devaluation), but intrinsically fun.

Instead, my “strategy” is to avoid hoarding miles and points. Yes, I exert effort to earn them, but I’m equally keen to use them. I like to travel, and I redeem miles and points to do so whenever practical. Consequently, I’ve saved a lot of money on travel over the years.

I’m all for saving money, but not for saving miles. Money, invested wisely, grows. Miles are not an investible asset; they are an illiquid currency with little value outside of their respective loyalty program.

So have fun earning miles, but even more fun using them.

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Posted April 10, 2014 by Admin in category "American", "News

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