American Loyalty Factors: A Sensible Program I Hate

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New as of 2022, American AAdvantage launched Loyalty Factors, a radically remodeled method to earn elite standing. You now not earn standing primarily based on what number of miles you fly, however relatively you earn standing primarily based on what number of Loyalty Factors you rack up, together with by non-flying means. These days you possibly can earn elite standing completely by bank cards — placing $200K of spending on a co-branded American Airways bank card would earn you top-tier Govt Platinum standing.

This system has now been round for a number of months, so I needed to share my ideas, particularly as I’ve been capable of observe how others interact in this system. My conclusion? American’s swap to Loyalty Factors is among the most sensible frequent flyer program overhauls we’ve ever seen. Sadly for my very own state of affairs, I sort of hate it.

What an airline loyalty program ought to obtain

Broadly talking, a effectively executed airline loyalty program isn’t there to easily reward individuals for what they’d do anyway. That will simply make this system an enormous price middle. Relatively the objective of an airline loyalty program must be:

  • To have somebody give extra enterprise to that airline than they in any other case would have; this will are available in many kinds, and doesn’t simply must be by flying
  • To make shoppers act irrationally; this may very well be due to our want for intangible advantages which are onerous to worth, or it may very well be as a result of we begin to really feel a connection to the corporate

Many individuals argue that frequent flyer packages ought to reward frequent flyers, and never frequent patrons. Individuals assume that as a result of they fly quite a bit, they shouldn’t must compete with these spending cash on bank cards for upgrades. I hear you, however sadly that doesn’t actually replicate the fact of the airline enterprise.

American’s loyalty program modified radically as of 2022

American Airways doesn’t make cash flying

Within the third quarter of 2022, American Airways reported a internet revenue of $483 million, with file quarterly income. The kicker? The airline truly misplaced cash flying passengers:

  • American’s passenger income per out there seat mile was 18.08 cents
  • American’s price per out there seat mile was 18.28 cents

American Airways doesn’t make cash flying planes. It makes cash with the whole lot else, and particularly the loyalty program. The best way it makes cash with the loyalty program typically includes the whole lot aside from truly flying.

However let’s assume for a second that American made cash flying planes. For the third quarter of 2022, the airline had internet revenue of $483 million on $13.5 billion in income. That’s a margin of below 4% on total income.

If American’s revenue margin on flying passengers had been truly 4% (it’s not), what would that imply for the way worthwhile American’s most respected elite members are? Earlier than the brand new Loyalty Factors program was launched, American required spending $15,000 with the airline to earn top-tier Govt Platinum standing.

Should you had been to imagine the margin on that flying had been 4%, that will imply the typical Govt Platinum is “incomes” American $600 per 12 months. That’s hardly quite a bit for an organization’s most loyal buyer.

American doesn’t actually make cash flying passengers

Why American’s Loyalty Factors system is sensible

When American first launched its new Loyalty Factors system, I wasn’t fairly certain what to assume, and for that matter I wasn’t certain how shoppers would reply. Now that this system has been reside for a number of months, I’m ready to attract a conclusion — this program is solely sensible.

Particularly, it’s clear that spending on co-branded American Airways bank cards is manner, manner up. Simply how a lot are individuals rising spending on bank cards?

View from the Wing experiences that in an inner assembly earlier this month, American Chief Business Officer Vasu Raja claimed that within the New York market, extra individuals are qualifying for standing than earlier than, and 65% of these individuals are doing so with bank cards.

Now, admittedly there are some essential particulars lacking — are individuals incomes standing completely with bank card spending, or by a mix of spending and flying?

Alongside related traces, I not too long ago had a dialog with somebody in Miami, who talked about how he earned standing with American for the primary time, by simply spending $200K on an American Airways bank card. He didn’t beforehand use the cardboard a lot.

The purpose is that individuals are completely upping their spending on American Airways bank cards, and are rising their non-flying engagement with this system past that.

That is sensible for American Airways for therefore many causes:

  • The margins on AAdvantage members incomes standing by bank cards is a lot better than the margins on members incomes standing by flying
  • Giving out standing prices American nearly nothing; individuals are competing for a finite variety of upgrades (American claims 80% of top quality seats are bought, so there aren’t many seats to improve to)
  • These with excessive standing who solely sometimes fly American shouldn’t be of concern to American frequent flyers in relation to improve competitors; A single Govt Platinum member flying 100 segments per 12 months gives the identical quantity of competitors as 25 individuals who earned Govt Platinum standing by spending $200K on a bank card, after which flying 4 occasions per 12 months
  • Those that earn elite standing with American Airways usually tend to fly with American Airways to reap the benefits of these perks, even when they wouldn’t have flown with the airline in any other case

The brand new AAdvantage program is genius, should you ask me. It’s relatively easy, and on prime of that it serves its objective — to trigger individuals to behave irrationally and generate earnings — a lot better than the earlier program.

Individuals are much more engaged within the AAdvantage program

Why I battle with American’s Loyalty Factors system

Right here’s the humorous factor — whereas I feel the Loyalty Factors program is sensible, I sort of hate for it for myself, and that’s in all probability one thing that American must be pleased with.

What’s my beef? Effectively, I can’t carry myself to really spend a major amount of cash on a co-branded American Airways bank card. This might have been my best 12 months ever of standing qualification, however up to now this 12 months I’ve spent zero {dollars} on an American bank card.

I’ve written concerning the worth proposition of spending cash on American Airways bank cards. There’s an enormous alternative price to doing this, in comparison with the most effective playing cards for on a regular basis spending.

I pleasure myself in attempting to be a rational client. I assign a worth to every factors forex, and I’ll solely earn or redeem factors if I decide one thing is the best choice, and the maths checks out. Selecting to not earn 2x factors on my on a regular basis spending with playing cards just like the Capital One Enterprise X Rewards Credit score Card (evaluation) or Citi® Double Money Card (evaluation) is one thing I battle to do.

However with AAdvantage that appears to now be the associated fee to play. For what it’s value, I’m at the moment at 70,000 Loyalty Factors for the 12 months, so I’m solely about one-third of the best way to requalifying for Govt Platinum standing. Admittedly it hasn’t been a really busy American journey 12 months for me, as I solely fly the airline when it’s the best choice.

I’m at a crossroads with American Airways. Both I have to go all-in on American Airways bank card spending, or perhaps it’s time to take a distinct technique with my oneworld flying.

Possibly I ought to simply completely credit score my flying to a different oneworld program, in order that I can persistently get higher lounge entry. Frankly I don’t even care that a lot about Govt Platinum standing, I simply don’t need to lose oneworld Emerald.

Frankly I don’t actually worth upgrades on American that a lot — I don’t have a lot luck with upgrades, and I typically simply pay for top quality, when the pricing is honest. Until I make investments vastly in incomes extra Loyalty Factors, I usually lose out on upgrades to Govt Platinum members with a better rolling whole.

I’m definitely open to concepts as to what technique I ought to take, as I think about I’m not alone…

I simply don’t need to lose my oneworld Emerald standing

Backside line

I give American Airways quite a lot of credit score for its AAdvantage Loyalty Factors program, as I feel it’s one of many smartest frequent flyer program transformations we’ve seen in a very long time. It displays the fact of the airline business — American doesn’t make cash flying planes, however relatively makes cash on the whole lot else.

American appears to be seeing a major uptick in spending on co-branded bank cards, so there are many newly minted elites who could not essentially be frequent flyers. Whereas I get that this frustrates street warriors, it’s solely honest for the airline to incentivize what’s worthwhile.

As for me, I’m fighting the brand new program. I’ve a tough time getting myself to spend vital quantities on American Airways bank cards, given the rather more profitable choices on the market. However that’s additionally what makes this system genius — a number of different individuals are doing that, even when it’s not rational.

The place do you stand on American’s Loyalty Factors program? Is it working higher or worse for you than the outdated program?

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