American Airlines announced that it will no longer allow travelers to earn Loyalty Points or Aadvantage Miles outside of direct booking. OTAs could respond simply, and profoundly.
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American Airlines Earning Change
Starting in May 2024, only clients who book through select American Airlines travel agents (on fares above Basic Economy) and directly on American Airlines website will earn miles and Loyalty Points toward status accrual. The announcement is the first of its kind and lacked key details, principally, which American Airlines approved travel agencies will be permitted to continue to earn Aadvantage miles. The disclosure of those agencies is to come in April.
This move is to push travelers to book directly with the carrier in order to improve opportunities to upsell travelers into ancillary products and higher classes of service but also to reduce the costs associated with booking through third-party sellers.
Impact On Online Travel Agencies (OTAs)
In a call with investors, American Airlines management disclosed that 83% of all its customers are simply one-time per year customers. Most of those clients are presumed to come through third-party online travel agencies like Expedia. American Airlines has made its ancillary revenue business the most important aspect of its product and has asked all sellers of American Airlines tickets to adopt NDC (New Distribution Capability) to sell buy-ups and add-ons.
There is a chance that OTAs like Expedia who have adopted the tech (which is not yet standardized because of reliability issues) will be one of the chosen few favored travel agencies, but I don’t think that really achieves the airline’s goals. If the intent is to move would-be flyers to book direct, thus improving American’s ability to upsell, reduce competition, and cut costs paid to travel agencies then excluding such a large flow of customers wouldn’t really achieve that goal. If they are aiming for the kind of enclosed system that Southwest has established from the very start of selling tickets online, they’d have to migrate the largest sources to see any demonstrable upside.
A Simple (Impactful) Response
If American wants to disincentivize customers to buy from third parties, OTAs already have a built-in remedy for this. They simply demonstrate that miles won’t be earned for fares on American Airlines. If it so chooses, it might highlight that others do. It might even provide a pop-up that says, “on this fare, you won’t earn miles or status; earn 1,879 miles by choosing Delta for the same price.”
It can also shuffle results when prices are the same as peers to elevate those peers above American. Google already has an icon that shows carry-ons aren’t included for some fares, it would be easy to add the same. I think any affected OTA could argue that they have a duty to show that the fare excludes something standard on other airlines. And I don’t think that those OTAs have any reason to state that booking directly would include miles and status accrual.
Do average customers care about miles and points? Not as much as our readership does, however, they also care less about a brand in general. That said, they certainly don’t want to get less for the same price. American might have to drop its fares a few dollars in order to stand out from the pack. This doesn’t help its quest to save money as US airlines pay on average $0-3/roundtrip on most coach itineraries which it would then sacrifice to maintain a price advantage and appear first on results.
For those keeping score at home, even Spirit Airlines awards Free Spirit miles on its fares sold on OTAs.
Conclusion
American continues to innovate but in this particular instance, the goal of reducing its cost of sale may come at some significant loss of revenue. The most beguiling part of this model is that the only significantly profitable aspect of the carrier’s operation is the loyalty program and it’s not close. One would wisely presume that getting as many new members engaged in the program as possible would encourage at least some of them to continue to build their balances and fly American again. This is more short-sighted cost cutting that American management might think leads to a golden row of profitability like reducing business class amenity kits to cardboard boxes. But as Delta Air Lines has demonstrated quarter after quarter, the adage “you can’t cut your way to profitability” is true in the airline business as well.
I hope OTAs and others respond by simply selling less American Airlines fares and demonstrating the value they bring to 83% of American’s customer base by recommending a carrier that doesn’t penny-pinch.
What do you think? Should OTAs disclose that American Airlines won’t award the miles? If OTAs are exempt, is American solely squeezing small travel agencies?
Most people know that frequent flyer programs are not what they used to be.
In the early days, a domestic coach ticket was 50,000 miles. JFK-SFO is roughly 2500 miles. Fly 10 round trips, maybe spending $350 x 10 or $3500 got you a free ticket. If you used your miles efficiently (which is not always possible), that would yield a long term 10% discount.
A few years later, a domestic coach ticket was 20,000 miles. Fly 4 JFK-SFO round trips, maybe spending $1250 and you got a free domestic ticket. That might represent a 25% discount
Now it swings the other way, not only are some ticketing agencies that will no longer result in miles but even if you book with AA, there are fewer miles. A domestic economy ticket might be 35,000 miles (or 55,000 Delta Sky Pesos). To earn 35,000 miles for the traveler that flies 3-4 times a year, they have to spend $7000 or 20 JFK-SFO round trips. This might represent a 5% discount. So it was a 10% discount when FF programs first came out, then 25% discount, now 5% discount.
The international business class award is a different animal to consider, Some think “if I bought a business class ticket, it would be thousands of dollars”. Others think that they would normally buy an economy class seat so a business class seat is just icing on the cake and a rare perk.
Given that AA’s lowest fares have been exclusive to the NDC channelsfor months, I’d think that all or close to all of what Expedia, et. al. are selling is already via NDC. The OTAs should have no problem meeting the booking criteria to remain preferred agencies with AA.
If the online travel agency chooses this route, and the airline then says goodbye to the travel agency, which side loses the most? Travel agencies are a relic from the pre-internet times. Every airline wants customers to book direct.
@T Care – That may be the case, but more than 80% of their business comes via those relics.
Points/Miles and how the airline’s view them is far outside my area of knowledge, with that said, does the once a year customer care earning AA Advantage points or do they just want to go from point A to point B?
If AA believes that the once a year customer does not care about Loyalty Points, than what does it matter to AA if the customer buys from Expedia or AA directly other than missing out on the chance for buy-ups?
Wouldn’t the solution then to be to allow the customer to manage their booking on AA.com where they could be offered ancillary products directly?
OTA’s still being in business shows the stupidity of the average American consumer. Zero reason to not book direct but you can always count on the laziness of the 83% that fly once a year. These Ham & Eggers work 50 weeks a year to go on some crummy vacation and end up in the worst room in the hotel because they thought they got a “deal”. But hey, the world needs ditch diggers too.
What an ignorant comment. People use third-party sites because their time isn’t free, and those sites search all airlines at once.
Are you dumb?
If people only fly AA once a year, they can’t possibly care about the miles. I have yet to hear a single benefit for booking AA through an OTA. Who really misses out here?
Another short sighted US Air like move.
It’s hard to grasp that a whopping 83% are once a year patrons, especially seeing the massive number of Group 1 boarding this first full year of being able to buy status instead of earn it the old-fashioned way. I fly AA and tend to earn Platinum Pro organically. Several others have marveled with me how many people are miraculously status holders (and sure, some are boarding early and not getting stopped–which is about to become a complete disaster with raised bag fees on all the airlines–but even when these groups are enforced it is similar, just less chaotic.). I know 83% total doesn’t equate to 83% per flight, but that’s still hard to believe as much as I fly. Will be interesting to see how this plays out.
PS: Totally off topic, Kyle… you sort of dropped the whole “We’re moving from Pittsburgh to Puerto Rico” thing a few weeks ago. Please, would you tell us MORE already!!!
After NDC, my employer now puts ” please consider a carrier other than American Airlines on all AA fares in concur which flags to manager for review, pretty much making everyone avoid AA unless they really want the miles.
Now, if they take away miles, I’m definitely not booking AA anymore and probably will give up EXP and match to United
For the last 10 years roughly since the rein of Doug Parker and his subsequent chosen ones – the financial performance of the big three is as follows:
UAL + 52%
DAL +20%
AAL – 40%
Do they really think that taking away the now miniscule miles they award in the first place will have any impact on their performance besides incrementally driving away more of their existing passengers?
The airlines squandered all loyalty a decade or more ago, when they made their “loyalty” programs a fraud. That drove everyone to credit-card points anyway.
That’s not to say I won’t punish American if I can by taking business elsewhere. But it still isn’t as bad as United’s “basic economy” bullshit.