Morning rant alert ... feel free to move to a different thread, but I had some thoughts on the state of airline loyalty programs in the United States ...

US airlines are the only ones in the world that actually even offer complimentary upgrades to elites on a regular basis and even go so far as to offer these upgrades as a published benefit. The airlines (I think AA was first) originally created such a perk (along with other elite perks) to differentiate themselves from competitors (of which there used to be more) and drive high-margin, repeat customer traffic to the airlines. Pretty soon all other airlines follows, and elites became accustomed to receiving such perks, essentially eroding potential revenue margins for the airlines who were giving more seats away for free than selling them.

Airlines then after the Great Recession started slowly reducing pricing for premium seats, undercutting competitors in certain markets. I recall pre-merger US Airways used to have some **relatively** inexpensive first class (domestic) and business class (international) offerings. This created a competitive cycle that unfolded over more than a decade, whereby competitors also started reducing prices and by doing so increasing the revenue they generated from selling premium products. At the same time, they densified planes (including domestic first class) and cut such products' quality by reducing meal service on short routes, not guaranteeing blanket/pillow availability, etc. Carriers thus reduced the break-even price they needed to charge in order to generate sufficient revenue to cover all premium-cabin costs. This, in turn, put downward pressure on market prices. The pandemic expedited this process greatly, especially with respect to quality reductions resulting from cost cutting, as many premium cabin services pre-pandemic (like meals on regional jets and cabin staffing on wide bodies, etc.) never returned.

Carriers thus put themselves in a position where they were offering a lower-quality product and selling it at lower unit-prices, while also managing to fill cabins with revenue-generating customers. This had the perverse effect of eroding a perk that drove loyal, high-spending customers to dedicate their business to one particular airline. Airlines then proactively realized they had to get more creative to drive spending from "loyal" customers, thereby encouraging their further "loyalty," especially if they were offering them less ...

This is where the credit card spending for status schemes come in. Airlines (AA especially, but DL and UA too) decided to encourage spending on their co-branded credit cards and reward spending with "status," wherein a spender is **told** they will receive perks like complementary upgrades, lounge access (**on select international itineraries**), free checked bags, etc. The airlines created these new revamped loyalty programs (though their seeds were planted back in 2015-16 or so with the introduction of EQDs etc.) at the same time that macroeconomic conditions featured consumers unwinding a large savings glut from the COVID excesses, which included everything from government stimulus to stock market gains to housing market gains to wage increases to even cryptocurrency runs. Many consumers, in spending more, decided to try to cash in on their spending, signing up for both transferrable premium travel credit cards (aggressively marketed by AMEX Platinum, Venture X, Chase Sapphire Reserve, etc.) and co-branded cards with the airlines they fly on "what they think" are a "frequent" basis (i.e., a consumer who flies once every 4-8 weeks but whose peers travel once a year "thinks" they are a "very" frequent flyer relative to their peers). Also, many FF's who were actual FF's prior to the pandemic signed up for these cards too to increase their points earnings and bump their status up one level (e.g., someone who was always a Platinum Pro by flying may be flying the same amount as before but is now an EXP because they top off the status they earn by flying with CC spend).

The allure of status, "free" upgrades, lounge access, sipping champagne at 30,000 feet in lie-flat business class en route to that long-awaited holiday in Rome after being locked away for over a year in COVID lockdowns surely played a role in motivating some of these new entrants to dive into the points/miles game. And the credit card companies and airlines took advantage of this rebound from the insularity of the COVID crisis.

Now, more than ever, the airlines (especially AA) need consumers to continue signing up for and spending on co-branded credit cards, because this is their largest source of revenue. But, they've created an untenable situation by tying increased credit card spending to elite status perks, which they were once able to provide in the past, but due to the sheer number of seats their revenue-generation teams are able to sell (and, to a lesser extent, the sheer number of new elites) they cannot fulfill at the same frequency as before. AA kind of (to their credit) offsets the erosion of elite perks in terms of upgrades and such by offering incredibly valuable points redemption rates on partner airlines, especially for flights that do not touch North America, but I imagine very very few elites are aware of this nor take advantage of it (hence, why AA can continue to offer 55k biz-class flights on QR from BCN-JNB, for example).

Something has to give ... AA is literally selling a bill of goods that promises certain perks for loyal spending while then turning around and selling those perks (e.g., selling CC spend as a way to get status and free upgrades, then selling unticketed premium seats to passengers already ticketed as paid upgrades). The risk is that if consumer spending softens and/or we enter a recession (which will happen again some day), AA (and other airlines) are positioning their credit cards to be some of the first ones which consumers will choose to cut up, foregoing expensive annual fees, and later spending which helps drive AA revenue. This is both because spending on airfare declines in recessions and AA has promised rewards through CC spend that they are unable (nor were ever able) to reasonable honor, making the marginal value of their CC products appear less than other available alternatives.

Of course, this could happen before a recession if perk-erosion continues, but consumers have a way of kind-of blindly continuing to repeat past behaviors until faced with serious choices ...