js1993

AA only makes money because of the breakage. Otherwise, the numbers just don't work. FTD isn't paying 3 cents a mile, and Citi certainly isn't. The old rumor was less than a penny each.

It's not a coincidence that "selling miles" suddenly became AA's priority at a time when mile usage dropped off substantially.

Alex_I

The rumor is that AA is selling miles at about $0.01/mile or less. At that price 30K miles will yield < $300 revenue for AA. The real danger for AA is that some of the folks who were acquiring miles by chasing status will give up and simply use the accumulated miles. I just flew with a couple in F who were certain that AA will devalue the program even further and this is why they are trying to drain their FF accounts to zero.

js1993

Exactly right. The move to LP is clearly a short-term money grab by AA because business and other higher-margin travel hasn't recovered, and there's no doubt that a major devaluation will occur sometime this year. Otherwise, AA will be giving EXP plus four SWUs plus over 200,000 RDM to people after receiving as little as $2,000 in miles-related revenue and as little as ~$2,000 for the required 30 segments. No way in the world those numbers work.

VegasGambler

The problem is that you don't know what AA pays JL for a first class award ticket

js1993

Neither do you. But we have a very good idea of what AA gets paid for AA miles, and the numbers don't work without massive breakage.

ExpatExp

Since I was wondering…

VegasGambler

You have no idea if the numbers work if you don't know what mileage redemption costs them. You keep saying "the numbers don't work" without any evidence of it. You are just making stuff up and pretending it's fact.

js1993

If you don't have the numbers, either, then you're doing exactly that which you're accusing me of doing.

But we don't need exact numbers for this discussion. There's simply no way AA could make money by granting EXP plus four SWUs plus over 200,000 RDM to people after receiving as little as $2,000 in miles-related revenue and as little as ~$2,000 for the required 30 segments. The numbers could only work if AA sells a massive amount of miles that are thereafter massively devalued or are never redeemed.

mvoight

I don't even think they know.
It seems a bit difficult to calculate the cost. For example, how many award trips would have been taken as paid trips if there were no awards for trips?
The cost for award trips, outside of possible lost paid business, is the incremental cost of providing that free trip, which would be like how much fuel, food, etc, is used by the incremental passenger.

VegasGambler

Why couldn't they work? What does EXP cost them? Was there a check in the mail that I missed? If they upgrade me instead of a Plat Pro does that cost them extra money? The only way to use any of my benefits is to spend money with them.

Status drives business. The only issue is that if everyone has status it becomes worthless and stops driving loyalty, so they only want a certain number of people to have it. Just because status is value to me, it does not mean that it costs them money to give it to me. It's not a zero sum game.

js1993

You seem to subtly or not so subtly change your position with every new comment. Does AA make more money by selling miles or by flying people? If they don't make nearly as much money from the latter, then how does AA magically make money from miles redemptions when we know, with a fairly decent degree of certainty, that AA can't be getting more than a penny per mile? How, exactly, is a person who earned 50,000 miles last month and redeems them this month more profitable for AA than a person who paid $500 for a ticket last month and flies this month?

The breakage is the entire point. The entire model revolves around breakage, just like CC rewards revolve around having customers who pay 20% interest. I can't believe we're even having this discussion. If everyone redeemed all of their miles, the whole system would collapse, just as CC rewards would disappear if everyone started paying in full every month.

FlyerBeek

There have always been highly discounted shortcuts to EXP, along the same amounts some of these speculative LP promotions are pricing out at. This is nothing new and AA knows there will always been a small handful of people qualifying for status with spend/flying far below the average. They don't represent the typical EXP. If anything, this works out better for AA considering they seem to make st as much money selling miles as they do flying planes these days. YMMV.

-FlyerBeek

js1993

haha. Here we go again ...

VegasGambler

Ok let's take a different approach.

AA just changed their loyalty program to reward people to take actions which cause partners to give them miles which were bought from AA. Why would they encourage people to do this if it were not profitable for them?

AA has very smart people who have done all the analysis that you can do, and more (since they have access to critical data that you just don't have, like how much mileage redemptions actually cost them). They are fully capable of analyzing 2nd order effects, like the effect that this would have on breakage, which changes the cost of them issuing miles. After seeing all the numbers and all the analysis, they decided to make this change. Why do you think that is?

You act like one guy just drunkenly decided to revamp the loyalty program one night, with no consideration of the consequences. I assure you that that was not the case.

js1993

lol

Why do I think AA made the change? I've already said it 10 times: The move to LP is clearly a short-term money grab by AA because business and other higher-margin travel hasn't recovered. Miles are not only an interest-free loan whose principal AA can unilaterally reduce at any time, but some of the lenders will never demand repayment. Next will be a major devaluation of the miles AA is now encouraging people to buy, which will actually be a double-deval because we're in massively inflationary times.

You, on the other hand, steadfastly refuse to answer how, exactly, a person who earned 50,000 miles last month and redeems them this month is more profitable for AA than a person who paid $500 for a ticket last month and flies this month. For the purposes of this thread, that's the important question.