American Becomes More Willing to Experiment, Says Revenue Management Boss

American

A mental shift appears to be taking place in American’s revenue management department, and it should be good news for travelers. I spoke with American’s VP of Revenue Management, Scott Chandler, to understand this shift toward action.

When American instituted a temporary policy change allowing AAdvantage members to use credits for other travelers, my attention was piqued. As a former pricer myself, I know that name changes were always off limits. It was the epitome of the “slippery slope” argument.

What do I mean by that? If airlines allowed name changes, it would completely ruin the entire revenue management house of cards. People would begin selling credits on the secondary market, and revenue integrity would fall apart. Then the world would plunge into never-ending darkness, and people would retreat into primitive tribes, fighting each other for scarce resources.

What happens when airlines allow name changes

Ultra low-cost airlines have allowed name changes for some time, but that’s a different dynamic for a variety of reasons. For the network airlines, this has just been a scary, scary idea.

So it took me by surprise when, on October 6, American announced it would allow the practice through January 31, 2022. There were caveats, of course. A traveler couldn’t just change the name on an existing ticket and have the price stay the same. (That move prevented the certain doom of perennial darkness.) And both the credit owner and the new credit user had to be AAdvantage members so American could more accurately track usage. (It should be noted that the owner and user just have to sign up for AAdvantage before the exchange is done, so it’s not a meaningful restriction.)

In practice, this means if you have a $500 credit on American, you can give it to anyone else. And if you wanted to sell that credit for, say, $250 and pocket the cash? American might not like it, and it’s undoubtedly against the rules, but it’s entirely unclear how they could police it.

This is a big move and it addresses a huge pain-point for travelers who are stuck with credits that they can’t use, and that group is an ever-growing number of travelers. In our discussion, Scott acknowledged that American “built up, just like every airline, a pretty big mountain of credits over COVID time.” American wanted to start whittling that down, so it came up with this idea. And sure, there are naysayers who believe this won’t end well, but Scott counters that argument.

We have operated sometimes under the fear of what will happen without actually having data on what is happening. So we’re gonna track this…. I don’t want to operate under fear when it’s something that’s good for customers and we can go out and do it.

This is not the kind of sunny outlook I expect from my fellow cold-hearted revenue managers, but it’s actually a welcome change. And part of this change is because American actually has tracking capability now. Or as Scott says it, “before we had no idea how these things were being used.”

How is it possible that they didn’t have adequate tracking? This is a legacy systems issue. In another example, Scott says that it took 6 months of work by Sabre (American’s reservation system provider) just to be able to extend ticket expiration dates. They used to be automatically set at one year, and it took a significant investment to get that to change during the pandemic. Anything involving legacy systems takes a long time to change.

To help counter this issue, American is moving in the direction of having one type of credit instead of the 5,384,082 types of credits (rough estimate) the airline offers today. There are still paper vouchers out there that you have to mail in or use in person. There are flight credits (value tied to an unused ticket) and trip credits (a more flexible voucher that people can use for other travelers by default). In the end, American is hoping to consolidate around trip credits as a single holder of value that will exist in each traveler’s wallet to be easily redeemed online. Having a single type means that any IT work in the future will be quicker since it doesn’t require handling multiple different cases.

Trip credits have already given the airline insight into customer behavior. Scott explained that with trip credits, the airline “can track how much it’s used for the same person, for somebody who has the same last name, or somebody with a different last name. The vast, vast majority of those are same person or same last name.” That is the kind of data that emboldened American to put this plan into motion. The airline doesn’t seem to mind when people transfer credits within a family, and that’s what most people are doing.

Does this mean transferability could become a permanent feature? “Everything’s on the table,” says Scott. But he said it was too early to share any data with me on how it’s going so far. I’m sure there is data available, but he wasn’t willing to part with it.

Reading the tea leaves, American does seem to be moving in this direction. The trip credits that Scott hopes will become the single airline currency already allows travelers to book trips using the credits in the name of other travelers. This means travelers can’t just give someone a credit, but as long as they do the booking, they can do it in anyone’s name. That might be the blueprint for more sustained credit flexibility into the future.

Either way, Scott says this isn’t a one-off thing. American is interested in adding “incremental flexibility” in general when it can, but he noted that there can’t be 6 month IT projects to get them done. Simplifying credits and collecting better data should help the airline to do more experiments like these, and with any luck, those experiments will actually benefit the customer. Dare to dream, right?

22 comments on “American Becomes More Willing to Experiment, Says Revenue Management Boss

  1. ” If airlines allowed name changes, it would completely ruin the entire revenue management house of cards. People would begin selling credits on the secondary market, and revenue integrity would fall apart. Then the world would plunge into never-ending darkness, and people would retreat into primitive tribes, fighting each other for scarce resources.”

    The airlines are frightened of end stage capitalism? That’s weird.

  2. AA should match BA and allow household accounts to share miles.

    I left them to BA for that benefit alone.

    1. Hawaiian doesn’t have household accounts, but it does allow members who have the HawaiianMiles credit card to send or receive miles from family and friends with no fee.

  3. I think all three legacies in the US have discovered that increasing the flexibility of change/cancel and credit rules isn’t the disaster that one might have thought. It’s a more modern take on fare fences, and one that is unabashedly good for the consumer. The vast majority of customers don’t have the knowledge or time to game the system, even when new rules make it possible (i.e., AA’s name change policy and UA’s policy of allowing residuals when changing to a cheaper flight, both of which are a metaphorical arrow in the heart of traditional pricing practices). At least in the domestic market, I expect RM to become a larger component of capturing a premium for business travelers, rather than the traditional pricing mechanisms of min stay/penalties/AP.

  4. The more that I think about it, the more I think that there would be a good PR opportunity for an airline (perhaps WN, as it’s long been known for its lack of change fees, though that is less of a differentiator now, or one of the more leisure-focused ULCCs like NK) to pitch a new version of the frequent flyer / loyalty program, with one account per family and nominally fewer restrictions. They could pitch it as a more consumer-friendly program, with the ability for a master user (or primary account holder) to add up to 10 or 12 people who will all earn FF points on the same account. Sure, more miles/points would be used, but the program could be tweaked/diluted a little to account for that.

    Personally… I have my airline preferences, but I don’t bother to deal with FF programs, because it’s frankly not worth the time (or risk of identify theft from all the credit card offers the FF programs send members) when I fly 2-4 airlines a year for a combined total of 3-7 domestic round trips annually that only total 7-12k miles.

    If I could easily earn miles for family members who might actually use them, it would make me more likely to try to dig for the FF number when booking flights, and while it may or may not increase my loyalty to an airline, it would definitely allow the airline to market more effectively to me (“Book a flight with us and use your FF number so that your brother John can help reach his goal of 100,000 miles and take his kids on a vacation to Orlando!” is a much more compelling pitch than telling me to earn FF miles that I’ll never be able to use myself), and would probably increase my family members’ loyalty.

    I’m sure I’m missing something, as I’m not in the industry, and I know that such a program would be very challenging from a technical side, but that’s just my 2¢ as an outsider.

    1. That is exactly the benefit of BA household, family does not now have to be at the same address and even friends are now allowed. Flights on AA can be be credited or debited to the account as they are a one world partner. Win – win -win!

  5. I think the airlines are beginning to realize that a little good will can go a long way to keeping a customer base happy & therefore keeping them loyal without resorting to toxic policies.

  6. FWIW, AA is not allowing name changes on tickets booked via OTAs. At least that’s what I was told multiple times. Sucks but c’est la vie.

    1. Ben – That isn’t the case. Any agency is able to make the change. If the OTA won’t handle it, then that’s just the OTA providing garbage service which wouldn’t be surprising at all.

  7. Alaska Airlines has allowed this for years. We can cancel any ticket, and the value goes into “My Wallet” on your Alaska Mileage Plan account. I haven’t seen many people try to sell off “credits” – maybe only a few a year, so I’m either wondering if 1. Alaska travelers actually USE it, 2. Alaska Air customers are more honest or 3. Alaska Air has found it to NOT be a problem…

    (with My Wallet, the owner of the account still has to be the one to use it, but you can book almost anything the website allows)

    1. I use this feature all the time on Alaska. It definitely makes booking trips they might be cancelled much easier knowing that I’m be able to use it for family members.

  8. When American Airlines tells you they are improving the passenger experience you can be sure that the worst airline in the world really means improving the management experience by increasing revenues and reducing benefits. Duh.

  9. I think its great if AA wants to be more flexible and customer friendly, we know that sounds oxymoronic. I can’t help but think just saying they are tracking it by last name sound anachronistic. More and more marriages don’t result in any name change. Every year goes by that becomes a less and less valid way to know spouses or child relationships. Not to mention in many of AA’s key Latin American markets last name was never an easy way to know husband/wife relationship. There has to be a better more accurate way to accomplish this.

    1. Agreed (and my parents and I each have spouses with different last names). But if most of these are being used by people with the same last name, that just strengthens the argument: a significant fraction of the tickets redeemed by someone with a different last name are likely spouses, unmarried partners, children, in-laws, or other family members with different last names.

      (And I’m just as happy that they don’t immediately know who my spouse is, though they could trivially figure it out if they wanted to.)

  10. I am not from the Airline Revenue Management clan, but I wonder why Airlines have such amazing problems with legacy IT systems.

    Is it really that hard to accept a paid-for-reservation and put the revenue on the Balance Sheet until it is used and then flow through the Income Statement? A name change would require that this “record” be updated AND some type of compliance (family member validation) action take place.

    Most of the Corporate World (..think Fortune 500 and beyond) is run from a variety of advanced database products offered by Oracle and SAP, and Airlines are not the only Consumer Product that is reservation based. I’m sure it would be possible to hire top Cloud Developers from the Cloud Titans in order to upgrade these systems.

    In a Smartphone-&-App in every Purse-&-Pocket world, the name of the game is Convenience, Choice, Control, Cost, and Customer Experience. I sense that this is driving massive IT systems modernization that should enable many of the Legacy Policies tied to Legacy Systems to be eliminated.

    Telcos have very successful Friends-&-Families programs, so there is “data” from other industries as to Consumer Behavior. I do realize the slippery slope when Credits are allowed to be Resold and this is why every Marketing Program ever invented has Terms-&-Conditions. Perhaps The Airlines would be wise to create The Exchange where Credits could be resold and prevent the slippery slope. Probably some Anti-Trust issues to get over, but alas if AA-&-B6 can partner in the Northwest, then other Alliances that are Pro-Competitive can be done too!

    Perhaps IT Systems Modernization is the heart of the recent Meltdowns too.

    I realize that an Airline is a complicated business, but every industry has its own unique issues. Something tells me that these IT Modernization issues may actually exist because the Cloud Titans have been attracting, recruiting, and hiring all the top talent for the last decade.

    Perhaps the multi-decade Profitless Prosperity of the Airline Industry has resulted in tight budget-&-investment constraints?

    Given this blog is read across The Airline Industry, perhaps CF can write a humorous and snarky Call-To-Action to the Industry!

    Thanks to all those who participate on this blog, especially CF, as I sense it actually makes a difference for this industry!

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