I can’t assist however level out how in 2022, American appears to have radically modified its method to promoting miles on to customers. I’m undecided I could make sense of it?
American used to aggressively promote miles
Traditionally American Airways has been essentially the most aggressive of the “large three” US carriers in relation to promoting airline miles on to customers. Nearly all US airways will instantly promote members miles, however most often it’s not really a great deal.
The exception has traditionally been American, because it has been doable to purchase AAdvantage miles with large bonuses or reductions. This can be a apply that goes again to method earlier than the present American AAdvantage program, as that is one thing that US Airways Dividend Miles did extra aggressively than some other airline again within the day (and take into accout it’s nonetheless US Airways administration in cost at American).
In the end promoting miles to customers is a incredible enterprise mannequin, particularly with the worldwide alliances (associate redemptions are typically fairly low value), and with airways more and more switching to dynamic award pricing. That is large and worthwhile enterprise for airways.
This instantly stopped this yr
Fairly oddly, earlier this yr American AAdvantage appeared to seriously change its method to promoting miles. In January 2022, American elevated the fee to buy miles by 19%, from 2.95 cents to three.5 cents per mile (pre-tax), earlier than any promotion reductions or bonuses.
My assumption on the time was that this was a advertising and marketing technique, in order that American might market providing larger reductions and bonuses. In different phrases, I figured this system would possibly go from providing a 75% bonus on bought miles, to as an alternative providing a 100% bonus on bought miles (with every mile being dearer). It’s form of like how airways by no means purchase planes on the precise sticker worth.
However that’s not what has occurred. Whereas American has traditionally had a distinct promotion on bought miles each month, for all of 2022, American has had the identical provide — it can save you 35% off the acquisition of AAdvantage miles, and this makes the fee per bought mile 2.45 cents.
For context, American AAdvantage has traditionally offered miles for nicely below 2.0 cents (and in some circumstances round 1.7 cents) throughout promotion durations. For what it’s value, I worth AAdvantage miles at 1.5 cents every
For those who can purchase AAdvantage miles for below two cents every, I’d say there are every kind of fantastic makes use of for miles the place you may get outsized worth. Nevertheless, at 2.45 cents per mile, I’d say it’s a distinct story.
Why doesn’t American wish to promote miles anymore?
American may be very a lot countering the development by not aggressively promoting miles anymore, and I can’t assist however surprise why. I assume there are two potential explanations.
One potential clarification is that American hasn’t really given up, however moderately has discovered that promoting miles at the next value is extra worthwhile. I’d have assumed the airline has seen a large dip within the variety of individuals shopping for miles this yr, as shopping for AAdvantage miles for practically 2.5 cents every isn’t value it in a overwhelming majority of circumstances.
However maybe the numbers don’t mirror that, and the mileage promoting enterprise stays strong. Clearly the margins on promoting miles for two.45 cents are higher than when promoting miles at 1.7 cents. However how a lot of a drop in enterprise has American seen? I suppose if it’s “solely” 50%, then the airline is likely to be higher off. I’d assume the drop could be extra vital than that, although, particularly as American’s promotions on bought miles haven’t gotten as a lot press as prior to now, on condition that the provide has been the identical, and isn’t superb.
The opposite clarification is that promoting miles merely isn’t as worthwhile because it was once for AAdvantage, and/or this system has reprioritized:
- This yr we’ve seen the introduction of Loyalty Factors, which has enormously modified how standing is earned, and even bank card spending counts towards standing; nonetheless, shopping for miles doesn’t rely towards standing
- Bank card corporations purchase miles from airways in bulk, and aren’t paying anyplace near 2.45 cents per mile, so promoting miles to customers is considerably increased margin (although additionally considerably decrease quantity)
- Has AAdvantage already met all of its efficiency targets with the brand new Loyalty Factors system, and administration desires to quickly throttle again promoting miles, in order that it has one other lever to drag when progress is required?
- Did American in some way do some math and determine that it wasn’t making as a lot cash because it thought on promoting miles to customers?
I don’t have the reply, however I’m certain somebody has some insights, and I’m curious what OMAAT readers assume.
Backside line
Promoting miles will be large enterprise for airways, and traditionally American AAdvantage (and earlier than that, US Airways Dividend Miles) has been one of the crucial aggressive about promoting miles.
That has modified this yr, although — AAdvantage not solely elevated the bottom value to buy miles (earlier than any promotions), however has additionally stopped providing profitable promotions on shopping for miles. This most positively counters the business development, and I can’t assist however surprise what the reason is.
Why do you assume American AAdvantage has seemingly given up on having profitable promos for purchasing miles?
