At media day earlier this year, American admitted that it needed to loosen up on award availability. The airline has recently, quietly, done just that but only on connecting flights. Weird? It may seem that way, but there is a method to this madness. I don’t write about miles and points often, but this is a change worth discussing.
Let’s use a simple example in order to illustrate what’s going on here. Say you wanted to go from Richmond to Philly at 11:05am on Feb 10. American shows no MileSAAver (low level) award available on that flight, so you’d have to pay the full AAnytime award amount. Separately, let’s say you wanted to fly from Philly to LA on the 3:40pm flight that day. That’s the same story: no low level availability. But, what if you want to fly from Richmond to LA on both those flights as a connection? Behold, a MileSAAver…
And this isn’t just limited to domestic markets either. We found all sorts of examples including Knoxville to London and Sacramento to Tokyo. Though I can’t be sure of the exact scale of this, it seems to be very widespread. If you want to use your miles to fly coach in a connecting market, then your chances of finding a MileSAAver award just went up significantly.
I reached out to American, and the airline confirmed that this was just recently rolled out. I was also told that there hasn’t been a change to the way they decided to open up space in nonstop markets (not that I have a way to actually confirm that). These are purely incremental seats being opened in connecting markets. The natural question is… why? I think there are several things going on here.
But first, you have to abandon the basic premise that a loyalty program has anything to with loyalty. Instead, think of it as just another way for the airline to generate revenue. Just as with paid tickets, American has to strike the right balance to make the most profit. This move helps in a few ways.
American Wants You to Use Your Miles
Beginning next year, the way airlines account for mileage on the books will change. In short, liabilities are going to spike higher, and they’ll only go down once those miles are burned. So the incentives are going to be greater for airlines to get those miles off the books. American has for some time been going down a path of stinginess. It has tightened up on availability and that makes it harder for people to burn their miles. Next year, American gets a nice kick in the pants to get people to spend more.
American Makes a Ton Off People Earning Miles
But wait, didn’t I just say that American will be better off when people use their miles? Yes, but American makes a ton of cash when people earn them. How? It’s not off the traveler but rather the others involved.
If you have the Citi or Barclays American credit card, the banks pay American for every point you earn. If you have Starwood Starpoints, American gets paid every time you transfer miles into American’s program. The same goes for shopping portals and anything else that earns miles. And if you have points with any partner, say British Airways Avios, then BA pays American for every redemption. The companies involved pay American, and it adds up.
For those relationships to work, American has to make it easy enough for travelers to redeem those points. If not, people will stop earning (or start earning in other airline or credit card programs), and American will stop making as much money. Remember, flying an airline is one of the worst ways to earn points these days. With credit card offers getting richer and richer, it’s a lot easier to shift where you earn. So by opening up more space, American is creating more incentives for people to actually bother earning those miles in the first place. On the other hand, American doesn’t want to dilute revenue from paid tickets, so it’s a delicate dance.
Goal: Open Award Space While Hurting Paid Ticket Revenue as Little as Possible
Thanks to improved revenue management techniques, American has become much more skilled at maximizing its revenues on every flight it operates. So if the airline is going to open up more award availability, it wants to do it in a way that can have the lowest impact on ticket revenue.
In most markets where American flies nonstop, the airline knows that it has a big advantage. If someone wants to fly from Richmond to Philly or Philly to LA, American is probably going to get the lion’s share of the business, especially from those high-dollar, non-flexible travelers. But in a connecting market like Richmond to LA, American has no pricing power. It also has little, if any, competitive advantage.
If American wants to open up more award space for the reasons stated above, doing so in a connecting market should have the least impact on the bottom line. Not only are fares generally lower (in mid-size to large markets anyway), but there’s a better chance that if someone does buy a ticket, it’ll end up being on another airline anyway. So, opening up space on connections runs the least risk of diluting those high dollar revenue opportunities.
This wasn’t an easy shift. This requires having an revenue management system that allows you to assign availability not just flight by flight but by full origin and destination. American now has that, at least in coach, so it can start doing these kinds of things that it couldn’t before.
If you live in a non-hub that requires connections today, then there’s a good chance you’re going to find a lot more seats available for your miles. Of course, this is just for travel in coach at this point, but I imagine that we’ll eventually see the premium cabin come along, eventually.
In the meantime, everyone should be happy to see American doing something to loosen the reins here. The incentives are all there for American to try to get people to burn those miles. I’m hoping this is just the first initiative of many to help make that happen.