lizs

This is where the program loses me I guess...not only do I only get enough stickers to upgrade 20% of my flown miles, but when I try to redeem them I'm only successful appx. 60% of the time? I'd be interested for someone to do the math and determine based on mileage US Gold/Platinum's get upgraded (the 50k and 75k tiers). I only travel domestically in coach for work so it seems like it'd be a large benefits downgrade.

US CP's and AA EXP's have similar upgrade percentages so I think both groups will be fine with the changes.

plon

From what I heard from someone a few days ago, there will indeed be 3 tiers of elites, not 4 and that they will use the 'Admiral' moniker, a departure from both US & AA's current nomenclature:

-Admiral Elite
-Admiral Gold
-Admiral Platinum

Supposedly the US Silver elites will not have much of anything (not that they do now) so I assume it will be the rest of us DMP folks (Gold, Plat, CP) just slide up one level in theory, or maybe the Plat & Gold Go to Gold, and Silver becomes Elite. It keeps with the OW three tiers, and makes everyone get a 'newly named' status level. The 'Admiral Elite' sounds a bit odd, because it seems there would be much confusion about if someone was an 'elite' or an 'Elite'...

Granted this is a speculation thread, and the person who told me said none of it was fully decided yet, but this does tend to make sense a bit.

FWAAA

Lots of airline executives have instituted changes that they "felt" would improve the bottom line, but many of those changes might not have helped - some might have indeed hurt the bottom line. I have no idea whether UDU for ALL would bring in more money for AA.

The data we do have is dated, but it's what we have: In October, 2003 (before AA gave UDU to EXPs), Arpey said that the sticker system brought in about $120 million and that revenue was important and would have to be replaced somewhere if all elites got UDU like at some other airlines.

In early 2004, Arpey granted UDUs to EXPs, but no longer would EXPs earn stickers, meaning we'd have to buy more of them to upgrade companions (since we'd no longer earn any).

AA never told us how much revenue that change cost it, but my guess is that Platinums and Golds still buy a lot of stickers. And EXPs buy them to upgrade companions. They're slightly more costly than they were 10 years ago.

So if they still bring in $120 million (a reasonable WAG, in my opinion), then new AA should be able to generate $180 million or so from sticker sales, and that's not chump change.

In 2012 and thus far in 2013, AA caught up and passed UA in average mainline fare per mile (yield), so AA's policy of UDU for just top-tiers doesn't seem to be hurting average fares. AA's mainline yield has caught up to (and is just about exactly the same as) Delta's mainline yield. AA's mainline yield far surpasses US' mainline yield, so if the US UDU system is doing anything, it's merely lessening the delta between AA and US.

Yes, stickers cost money, and if you're a domestic-only flier, then you only earn enough to upgrade 20% of your flights; if you fly a mix of domestic and non-sticker eligible long-haul international, that percentage climbs dramatically. But dollars are important, and sitting in F for "free" is probably going to be less likely in the future. If a low-level or mid-tier elite is finding that they're buying a lot of stickers, they should count their blessings that their upgrades are clearing (or perhaps should examine whether they can afford to upgrade so many flights).

Another factor is that over the last 10-15 years, AA's domestic mainline planes have tended to have more F seats than the competition and those F seats have tended to have more seat pitch. Something helped pay for those larger F cabins and more legroom, and my guess is that the sticker revenue gets some of the credit.

I've been EXP since before the UDU, and I'd gladly pay for stickers again if it meant keeping the F cabins larger than the current trend. I argued in 2003 that UDU was a mistake, for a variety of reasons. Expecting something for nothing isn't rational these days, and I'd gladly pay for the something.

lizs

This speculation makes me more and more happy that I hit US Gold this year. So AA Gold and US Silver would be "Admiral Elite". I am confused why OW 3 tiers would matter since 50k and 75k flyers could just be OW's middle tier but fine with me to be lumped in with the 75k+ flyers since I barely hit 50k....

BoeingBoy

Call it my country boy that traded tractors for airplanes logic but I look at it from this angle - airlines aren't in business to give free transportation. Sure, some amount is necessary to keep the FFs happy enough not to jump ship but the idea of unlimited free upgrades runs counter to the reason airlines exist - in theory, at least, to make money. So I figure that if an airline is giving away most of it's FC seats it's time to reduce the size of FC. US went through that process once under Parker.

Jim

BoeingBoy

A hint of what's ahead?

DL and UA making changes to FF programs in 2014

Jim

dtremit

There's been a big time gap between adoption at the various existing airlines, though, and the executive suites at domestic carriers are like a game of musical chairs. I can guarantee you that by the time UA adopted UDUs in 2010, they had pretty good data on how it worked out for the other airlines that had rolled it out.

I don't think your assumptions are reasonable here. There's no way EXP companion revenue gained is equal to EXP sticker revenue lost -- and either way, elites at any level could be charged for companion upgrades under a UDU system.

Also, AA's RPMs flown are down 18% since 2006, as the network has contracted.

As such, I think it's more likely that the combination of EXP UDUs and network contraction has probably significantly reduced sticker revenue since 2006.

Even if we go with a figure like $80M -- which I think is probably too generous -- that number would represent 0.3% of pmAA's annual revenue for the last year (0.2% for the combined carrier). It's not irrelevant, but it's an amount that could easily be made up elsewhere.

As a comparison: AA trailed the other majors last year in baggage fee revenue per RPM. AA collected approximately 0.75 cents per RPM, versus 0.85 cents at UA, 0.9 cents at DL, and 1.1 cents per RPM at US. If AA can even move up to UA's level, it would bring in an additional $80M. At US' rate, it'd reel in $273M more revenue annually -- more than double the total revenue of the sticker program at its likely peak.

FWAAA

True, but UDU sure hasn't prevented AA from stealing away billions of dollars of revenue from UA in 2012 and 2013 - UA made some huge mistakes, and AA was able to capitalize on them. And AA did all that without UDU for Platinums or Golds. AA's average mainline fares are as high as DL (which has a superior network and has already integrated NW) and AA's average mainline fares are higher than US or UA.

Maybe you're right, but in the 10 years since I've earned a sticker, I've bought a lot of them. There aren't very many EXPs compared to Platinums and Golds. Sure, EXPs fly a lot, and are well-represented on most flights, but I have to believe that EXPs didn't represent the lion's share of sticker sales prior to 2004.

I don't understand the relevance of 2006 comparisons, since the sticker sales figure was revealed in October, 2003, and likely represented some average for annual sticker revenue for 2000-2003.

In 2001, 2002 and 2003, AA flew an average of just over 120 billion mainline RPMs each year. In 2011 and 2012, AA flew almost exactly 5% more mainline RPMs (about 126 billion each year). AA has more traffic now than in 2001-03, which is understandable given that those years were all impacted heavily by the September 11 fallout.

In case anyone wonders why I chose mainline RPMs and not consolidated - it's because back then, there were no upgrades on any regionals and ignoring them today makes my argument more conservative (since presumably AA is selling stickers to EXPs for companions and to Platinums and Golds for CRJ700 and E175 flights now).

The AA network is 5% larger than it was when Arpey told us that sticker revenue was $120 million annually. And stickers are slightly more expensive now than then.

I believe that $80 million is far too stingy, but presumably new AA would sell about 50% more if the US UDU scheme is abandoned, so we're back to maybe $120 million a year for new AA.

I'm having trouble duplicating those numbers. We may be using different sources of data, but according to the DOT's bag fee reports, AA is getting more bag fees per RPM than UA:

http://www.rita.dot.gov/bts/sites/ri...html/2012.html

In 2012, AA collected $557 million in bag fees on 136.6 billion consolidated RPMs (consolidated now because bag fees are collected on regional and mainline flights) for a bag fee ratio of .41 cents per RPM.

UA, on the other hand, collected $706 million in bag fees on 205.5 billion consolidated RPMs, for a bag fee ratio of .34 cents per RPM.

Both of those numbers are far lower than your numbers, and I apologize in advance if I've screwed up.

There is no denying that US is collecting far more in bag fees, however, with almost as much bag revenue as AA on far fewer RPMs.

Still, if new AA can be brought up to the US ratio of bag fee revenue, that should be possible regardless of whether everyone is granted UDU, so new US would still be throwing away $120 million in sticker revenue (or whatever the real sticker revenue might be) unless UDU for ALL somehow results in higher fares sufficient to make up that shortfall. I'm not convinced that it would, and AA management wasn't convinced either given the near-decade of resistance to expanding UDU to ALL.

I agree with you - if all you're doing with big domestic first class cabins is arranging a scheme by which your various elites claim them in the days, hours or minutes prior to departure, either for free or for a token fee of $30 for each 500 miles flown (or any part thereof), then it's probably time to reduce the size of those big F cabins.

And little wonder that US was faced with this customer-unfriendly decision. Not only did it have hubs in smaller markets with fewer self-important bigshots (for those of you who are education-challenged, that's self-deprecating humour) spending other people's money on expensive tickets than AA or UA or DL, but it also had no upgrade sticker revenue, having gone along with the crowd to give away upgrades "for free" in hopes of attracting more low and mid-tier elites (or retaining the ones it had).

Doesn't take a financial wizard to imagine the conversation at HDQ between some newly-minted MBA and their boss when they discuss why the F cabins are so large yet they're filled with upgraders and the airline has nothing to show for it (ie, yields aren't any higher than competitors).

For some AA history, back in the late 1990s, Mike Gunn sent emails to AA elites that went something like this (I'm paraphrasing from memory since the email has been lost): "We at American realize how important upgrades are to our elite frequent fliers, and so we're adding six additional F seats to over 100 MD-80s that will be focused on business-heavy routes from NYC, CHI and DFW."

That change increased the MD-80 F configuration from 14F to 20F, and was appreciated. A couple years later, AA began deliveries of its first new 737s in its history, the 737-800s that were configured 20F/126Y for a total of 146 seats. The following year, AA announced MRTC and they were configured 20F/114Y for a luxurious 134 total seats. A couple years later, the MD-80s went back to 14F since AA had about 75 738s with 20F. Then, of course, the fallout from September 11 saw the 738s lose four F seats (and the MD-80s gained two) so they all had 16F. And the race was on to squeeze as many Y seats in as physically possible, culminating in AA's 738s configured with 16F/144Y (five more rows of economy as during MRTC) for a knee-busting 160 total seats.

The bright spot in all of that was that the 757s didn't lose F seats. The dark news now is that all planes are losing F seats, even though AA is selling plenty of YUPs and KUPs and LUPs and QUPs plus an unknown quantity of stickers (good on any published fare).

Revenue finally recovered in 2006 and 2007, just in time for the global economic meltdown, triggering multi-billion dollar losses at all airlines, including US, DL and UA. With its higher labor costs, and stagnating revenue, AA's finances didn't recover the way they did at US, DL and UA. Finally, Ch 11 to force down the labor costs.

Almost immediately, AA began luring UA 1Ks with promises of more humane treatment than was being meted out over at UA. And it worked, as AA's 2012 revenues were more than $3.4 billion higher than the Wall St analysts had predicted in December, 2011. AA's 2012 revenues were up by $876 million compared to 2011. Revenues were growing at the airline that had just filed for Ch 11 protection. UA's total 2012 revenue? Exactly $42 million higher than in 2011. UA's 2013 revenues are showing some improvement, but so are AA's. UA has been unable to recapture that revenue that it lost to US, AA or DL.

For years, the mantra has been that AA has first class cabins that people are willing to buy, either with F fares, with -UP discounted first class fares or with upgrade stickers. AA didn't have to give it away. If anything, I'd vote to eliminate all UDU (even for EXPs) and to charge $40 per sticker.

Against that backdrop, I can't believe that new AA management is looking to rock the frequent flier boat just yet, but anything is possible. AA is getting higher yields (and is showing huge 2013 profits for an airline that was in bankruptcy most of the year) than UA - why throw a spanner in what's currently working?

flyingmusicianlax

Conjecture here, but is it possible that since US caters more to a leisure market (and leisure travelers are more likely to pack more thing and have to check a bag), they get more revenue from bags than any of the other legacies?

FWAAA

Good question; perhaps fewer elites who are exempt from bag fees?

AFAIK, the AA and US bag fee schedules are the same, but I may be mistaken.

BoeingBoy

Multiple factors affect the collection of bag fees - ratio on international to domestic flying, oversize/overweight charges, ratio of express to mainline, etc. So a direct comparison of bag fee collections doesn't paint a very clear picture except for it's effect on the bottom line. Something as simple as who raised the checked bag fee first can make a difference.

Jim

mgarrett96

Since US and AA use different upgrade protocols, which do you think will remain for pmAA? I sincerely hope that AA keeps the 500 mile system... Not looking forward to a 50 elite long upgrade list a-la-United...

rasheed

My latest thinking is still that the combined airline would stick with 3 levels (with 75k US DM folks getting a one-time bump until they get a full year to aim for 100k). I think there will continue to be special gifts or incentives (the ELTA items) to help support 125k too.

I still disagree on the EQD concept unless AA needs to somehow reduce those who get elite status too cheaply. I don't see evidence of that happening very often, and I think AA likes Gold. I think it is a solid low-end tier with a decent rate of upgrades (due to the e500 stickers). I think cheap EXPs and Plats are not a big deal because you still have to fly more to use the benefits. And buying tickets or using award miles (probably from partners as well) are revenue in itself.

On the flip-side, I do not agree that AA has to do more to award elite status to expensive ticket but low EQM flyers. They have proven very well to give status to those folks on either a special promotion or just directly. Aside from the LinkedIn promotion, I have not heard that expensive ticket flyers are not getting status or an easy opportunity to have status if desired. I am thinking that these side direct invite programs are better than changing the program publically.

Having status on a variety of airlines with different upgrade policies, I really think the stickers lead to a more successful upgrade experience. I think there are many flyers who would not pay for an upgrade if it wasn't UDU. My AA Gold upgrade rate was higher than my UA Silver upgrade rate. On VX, I have the best free upgrade rate, and I would consider the MCS to FC on VX to be very similar to a sticker payment program.

Really, the only ones who should like UDU are the higher or top tiers of a program, everyone else is not benefiting very much. The AA and VX systems tell me that higher tier flyers are not so interested in paying for cheap FC. The UA system tells me there are just a lot of flyers above and below me on the waiting list who didn't get upgraded either.

Rasheed

relangford

This year, I am EXP on AA, but, next year, I'll only be Platinum (around 60k miles) due to travel restrictions at work. There is no incentive for me to do any more travel on AA after 50k since 100k is out of reach, and the bonus at 75k doesn't relate to a "real level". I do agree with an earlier post that this might be a good time for AA to become creative among the airlines by having a four-tier program at 30k, 60k, 90k, and 120k. For all except for VERY FFers, these would be a natural progression and in line with modern travel. I don't know if oneworld would have a problem with those level since they differ from many of the partner airlines. Also, recall that AA had set Gold at 25k and Platinum at 50k in the early years because they didn't think many people would fly more than that.

JMN57

Relative to upgrade model, the name of the game is to sell F, not give it away.

AA's e500 approach puts a cost to lower tiers and creates incentives for them to just buy a Y/K UP fare. When you are Plat and e500's are going to cost you $180 for a six segment connector through DFW and the UP fare is $210 more, just pull the trigger and take the "will I get upgraded game" off the table. The entire membership is not equally price elastic so many will just pay to jump the upgrade queue. AA has figured that out and realizes that many will pay more (UP fares/buy e500's) and generate more revenue than pure UDU. I know when I was Plat, I spent $3K per year on e500s. US might not have been able to do this with their passenger demographics.

Relative to the program design, it's already been stated that the new AA will be going with the old AA's systems. If so, my opinion is that the new program, at least initially, will mirror the old (including tiers, e500, etc). Supporting that is the relative size ($ and community) and profitability of Advantage vs DM.

For the US fliers who say that AA's program is hard to figure, I'd say the same for DM. While the notion of UDU is clear, there seems to be a whole game of selling spot upgrades, etc which, unless you are familiar with it is just as confusing.