American Loyalty Points: The Great Program I Hate

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Beginning in 2022, American AAdvantage is introducing Loyalty Points, a radically transformed way to earn elite status. Instead of earning status based on miles flown, you earn status based on the loyalty points you accrue (including by non-flying means). Today, you can get elite status with just a credit card – spend $200,000 on an American Airlines co-branded credit card and get top executive platinum status.

The program has been around for a few months now, so I wanted to share my thoughts, especially since I’ve been able to observe how others are getting into the program. my conclusion? American’s switch to loyalty points is one of the best frequent flyer program reforms we’ve seen. Unfortunately, for my own situation, I kind of hate it.

What Airline Loyalty Programs Should Achieve

Broadly speaking, a well-executed airline loyalty program isn’t designed to reward people for something they would do anyway. That just makes the program a huge cost center. Instead, the goals of airline loyalty programs should be:

  • Get someone to do more business for the airline than otherwise; this can come in many forms, not just by flying
  • Disturbing consumer behavior; this may be because we crave intangible benefits that are hard to estimate, or because we begin to feel connected to the company

Many believe that frequent flyer programs should reward frequent flyers, not frequent flyers. People think that because they fly a lot, they shouldn’t be competing with people who spend money on credit card upgrades. I hear it, but unfortunately it doesn’t really reflect the reality of the aviation industry.

Loyalty programs for Americans fundamentally change starting in 2022

American Airlines doesn’t make money flying

In the third quarter of 2022, American Airlines reported a record quarterly revenue of $483 million in net income. kicker? Airlines actually lose money on flying passengers:

  • American Airlines passenger revenue per available seat mile is 18.08 cents
  • American Airlines costs 18.28 cents per available seat mile

American Airlines doesn’t make money flying planes. It makes money from everything else, especially the loyalty program. The way it makes money through loyalty programs often involves everything but actually flying.

But let’s assume for a moment that Americans make money by flying planes. In the third quarter of 2022, the airline had net income of $483 million on revenue of $13.5 billion. The profit margin on total revenue is less than 4%.

If American’s flight passenger profit margin is actually 4% (it’s not), what does that mean for the profits of American’s most valuable elite members? Before the launch of the new loyalty points program, American Airlines needed to spend $15,000 with the airline to earn Premier Executive Platinum status.

If you assume a 4% profit margin on that flight, that means Executive Platinum “earns” an average of $600 a year. That’s not much for a company’s most loyal customers.

American Airlines doesn’t really make money flying passengers

Why America’s Loyalty Points System Is So Good

I wasn’t quite sure what to think when American Airlines first rolled out its new loyalty points system, so I’m not sure how consumers would react. Now that the show has been online for a few months, I’m ready to draw a conclusion – this show is simply amazing.

In particular, it’s clear that spending on co-branded American Airlines credit cards is on the rise. How much have people increased their spending on credit cards?

View from the Wing reported that at an internal meeting earlier this month, U.S. Chief Commercial Officer Vasu Raja claimed that in the New York market, more people are eligible for status than before, with 65% of them using credit cards.

Now, some important details are admittedly missing – do people get their identities entirely through credit card purchases, or through a combination of spending and flying?

Similarly, I recently spoke to someone in Miami who talked about how he first got American Airlines status by spending $200,000 on his American Airlines credit card. He had rarely used this card before.

The point is, people are definitely increasing their spending on American Airlines credit cards, and on top of that, increasing their non-flying engagement with the program.

This is great for American Airlines for a number of reasons:

  • AAdvantage members earning status by credit card are far more profitable than members who earn status by flying
  • Giving up status will cost Americans almost nothing; people are competing for a limited number of upgrades (Americans claim 80% of first class seats are sold, so not many seats can be upgraded)
  • Those of high status who fly to the US only occasionally should not be the focus of frequent US flyers in the competition for upgrades; the amount of competition offered by an Executive Platinum member who flies 100 segments per year is comparable to the amount of competition offered by spending 20 on a credit card. $10,000 and then the same 25 people who got Executive Platinum status by flying four times a year
  • Those who achieved elite status with American Airlines were more likely to fly with American Airlines to take advantage of these perks, even if they would not have flown with the airline in the first place

The new AAdvantage program is genius if you ask me. It’s fairly simple, and besides that, it serves its purpose — making people behave irrationally and generating profits — much better than previous programs.

People are more involved in the AAdvantage program

Why I struggle with Americans’ loyalty points system

Funny – while I think the loyalty points program is great, I kind of hate it, and it’s probably something Americans should be proud of.

What is my beef? Well, I can’t bring myself to spend a ton of money on a co-branded American Airlines credit card. This may have been the easiest year for me to qualify for status, but so far this year I have spent zero on US credit cards.

I’ve written about the value proposition of spending money on an American Airlines credit card. Doing so has a huge opportunity cost compared to the best cards for everyday spending.

I am proud of my efforts to be a rational consumer. I assign a value to each point currency, and I only earn or redeem points if I’m sure something is the best option, and the math checks it out. Choosing not to use a card like the Capital One Venture X Rewards Credit Card (review) or Citi® Double Cash Card (review) to earn 2x points on my everyday purchases is hard for me.

But with AAdvantage, that seems to be the cost of playing right now. For what it’s worth, my current annual Loyalty Points are 70,000 points, so I’m only about a third of the way to regaining Executive Platinum status. Granted, it hasn’t been a very busy US travel year for me as I only fly the airline when it’s the best option.

I’m at a crossroads with American Airlines. Either I need to go all-in on my American Airlines credit card, or it’s time to take a different tack on my oneworld flight.

Maybe I should permanently credit my flight to another oneworld program so I always get better lounge access. Frankly, I don’t even care about Executive Platinum membership, I just don’t want to lose oneworld Emerald.

Frankly, I don’t take American’s upgrades that seriously – I haven’t had much luck with upgrades, and I often only pay for first class at a fair price. Unless I invest heavily to earn more loyalty points, I usually fail when upgrading to Executive Platinum membership with a higher rolling total.

I’m certainly open to ideas about what strategy I should take because I don’t think I’m alone…

I just don’t want to lose my oneworld Emerald status

bottom line

I rate American Airlines’ AAdvantage loyalty points program highly because I think it’s one of the smartest frequent flyer program transformations we’ve seen in a long time. It reflects the reality of the airline industry – American doesn’t make money off planes, it makes money on everything else.

American seems to be spending significantly more on co-branded credit cards, so there are a lot of elite newcomers who aren’t necessarily frequent flyers. While I know it’s frustrating for road warriors, it’s only fair that airlines encourage something profitable.

As for me, I’m struggling with the new program. Given the more lucrative options out there, it’s hard for me to get myself to spend a lot of money on an American Airlines credit card. But that’s also the reason for procedural genius — a lot of other people are doing it, even if it’s not rational.

What are your thoughts on loyalty points programs in the US? Is it better or worse for you than the old program?

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