From the Chicago Tribune
American Airlines, the world’s largest carrier, said Tuesday that it is fundamentally changing how it awards frequent flier miles, joining other major U.S. airlines by rewarding dollars spent instead of miles flown.
The change, also made by Chicago-based United Airlines earlier this year, benefits big-spending corporate travelers, who are more profitable for the airline, and hurts deal seekers who take many cheap long-haul flights.
It’s also an outgrowth of how fares have changed. Years ago, fares correlated more closely with miles traveled, so miles were a good gauge of money spent with the airline. That’s no longer true. Flights of the same number of miles could cost $200 or $1,000, depending on the destination, when a flight is booked and other factors.
Industry experts said the switch to a revenue-based rewards program seemed inevitable and was clearly done for financial reasons, with American officials probably not seeing enough of a competitive advantage to keeping the more customer-friendly program based on miles.
Changes to the program overall balance the financial needs of the airline with the desires of its frequent fliers, said Henry Harteveldt, a travel industry analyst with Atmosphere Research Group.
“There’s no way American could make these changes and make everyone happy,” he said. “I think these changes are very smart.”
American is the second-largest carrier at O’Hare International Airport, after United. Its AAdvantage loyalty program changes, which start at various times next year, affect how reward miles are accumulated and redeemed, known as “earn and burn.”
While the changes are not a strict copy-and-paste of competitors’ programs, many features are similar.
On the earning side, regular AAdvantage program members get 5 miles for each dollar spent, while gold members get 7 miles, platinum get 8 and executive platinum get 11. Those earning levels are in line with competitors.
So, a regular member whose fare and airline fees totaled $1,894 to fly round trip from Dallas to London would earn 9,470 under the new calculation. That’s slightly less than under the current system, in which the same flier would earn 9,502 miles because the flight’s actual length is 9,502 miles round trip. Using the same example, a gold member would earn about 12 percent more reward miles, while a platinum member would earn 20 percent fewer miles.
In basing rewards on dollars spent, the dollars include the base fare plus carrier-imposed fees but exclude government-imposed taxes and fees, American said. And American officials said there is no change to how frequent fliers earn miles with American Airlines-branded credit cards. Until the new earning system is in place in the second half of next year — American would not provide a date — customers will continue to earn miles based on distance flown.
In redeeming miles, some award redemption levels will be reduced by as much as 40 percent, American said, adding that awards can be used any day with no blackout dates.
For tickets booked on or after March 22, award redemption levels to popular destinations in Mexico, the Caribbean and Central America will be reduced, American said. And the cheaper level of flights of 500 miles or less in the U.S. and Canada will be redeemable for as low as 7,500 miles one way, it said.
However, award redemption levels on other routes, like some flights to Europe and Asia, will increase “due to changes to market pricing and demand,” American said.
Whether the changes are good or bad depends on individual circumstances, said Brian Karimzad, director of MileCards.com.
For example, if you’re saving up for a coach ticket, not much changes because prices are about the same, with some decreasing.
But if you want to use miles for an international business- or first-class ticket, “it’s all bad news,” Karimzad said. “Prices are going up substantially, although the rub is in most cases prices are a touch lower than what United and Delta are charging for similar award tickets,” he said.
The big losers are road warriors who fly every week for companies that insist on the lowest coach fares. Those business fliers often hope they can use reward miles for a business-class seat during a personal vacation. “Now they have fewer upgrades to use, and it will cost substantially more miles to get that reward,” Karimzad said.
Buying American’s pricier tickets, like business- and first-class seats, will speed fliers’ path to qualifying for elite status, which gets them such goodies as seat upgrades, early boarding and free checked bags.
American notes that it has the most generous multipliers among large U.S. carriers for buying those expensive tickets. For example, buying a full-fare business or first-class seat will earn triple miles, compared with double from Delta and 1.5 times as many miles from United.
For attaining elite status, American eliminated a points system and retained a system for qualifying based on miles or flight segments. Unlike other airlines, it has no minimum spending levels for achieving elite status.
American is also changing the calendar year for using elite status, aligning with the competition to run Feb. 1 through Jan. 31 of the following year.
In changing its rewards program, American is tinkering with what’s generally regarded as the best frequent flier program among major carriers. For example, the 2015 annual Freddie Awards named American Airlines’ AAdvantage program of the year for the fourth consecutive year.
Brian Kelly, founder of ThePointsGuy.com, said in a blog posting Tuesday that he’s not crazy about the changes, but he still likes American’s AAdvantage program, especially its top tier, called executive platinum.
“While I would love to live in our current system forever, it just isn’t sustainable, and American needs to justify to its shareholders that it is being competitive and doing everything to keep top customers engaged,” Kelly wrote.
Get other details, including those about seat upgrades, at aa.com/aadvantage2016.
Next up? “We’ll see if the other airlines evolve their programs to match what American has just announced,” Harteveldt said.