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 ...

That explains a few things regarding Alaska's MP. 2 years ago we ramped up the TATL to 3-4 trips a year - linked to AS but usually on AA metal. Back then a J reward flight were decent - LIS-PHL-DFW-ABQ was 55k and the same flights as revenue. Now all AS offers is Aer Lingus trash skeds for 255k or more in J - and not all legs are premium either.

It will be interesting to see how this gets solved, if at all.

To be clear, I think that relatively speaking AA still offers good value on J redemptions on wide bodies even on own metal. However, so many people have been lured into the game and now **expect** to be able to redeem their points for biz class seats that inventory is constrained due to increased demand. Those same people then get sticker shock when the exact routing they want on the exact dates they want is exorbitant. In the past under a published award chart this inventory just would�ve not have been available all else equal.

A correction is likely coming for the industry, unless they can rethink their revenue generation strategies completely. The industry is still being buoyed by strong demand which manifests BOTH in strong bookings generating traditional revenue AND daily credit card spend.

Airlines are better matching loyalty to profitability. The big difference has been the investments in technology that allow them to do this. We will see more of this. The days of booking a $99 transcon and getting upgraded at T-100 are well over.

AA needs to re-word their FFP now to reflect reality. Their current EXP rendition, in reality, is no where near where it was even 5 years ago.

False advertising.

This is the problem right there.

Upgrades have always been space available. That upgrade or low miles award seat was/is one that was going out empty.

Now, they're not going out empty.

Another perspective: Maybe there a lot more wealth now, and people are just purchasing a better product outright, diminishing free upgrades��if you look at the luxury forum, hotel room rates are skyrocketing in the luxury sector, 2k+ plus per night, demand is still high with lots of capital out there willing to spend on travel�.

People are just willing to spend more, and free upgrades aren�t that important anymore�..

Nothing has to give. Credit card spend on AA, DL, and UA cobrands are up YOY regardless of the benefits being stripped away.

I will speak as someone who has benefitted massively from the evolution of the AAdvantage program over the last few years (read: AAHotels), but also does not spend very much on AA Co-Brand cards. In no world before LPs would I have gotten close to EXP. Therefore, I try to not complain too much about the watering down of the benefits and look for ways to make them work for me. I do feel for the 100-segment road warrior, as they have certainly been left in the dust, and I am absolutely one of those "new" EXPs taking their upgrades and clogging up the phone lines during IROPS (well, mostly the X team). The game has changed, and I learned to play it to benefit my specific needs.

As someone who is generally flexible with my work and leisure travel schedule, I find AA miles to be exceptionally valuable on the domestic routes I travel, even while being Ex-DFW.

My personal opinion is that we are at or close to PEAK leisure travel spend. What will be interesting to see is what will happen to elite benefits/qualification thresholds/saver availability in the next five years. Will any airline have the cojones to ever LOWER thresholds in the future? Or is the cat out of the bag. For a company that loses money flying planes, they are sure making a giant bet on consumerism to keep the company afloat.

Which baffles me, but I'm not one to tell anyone else which card is right for them.

I think that subsidizing your operations which lose money by profiting off of consumers who use your credit card with the promise of being able to 1) receive loyalty benefits; 2) use miles for various travel is not a sustainable long run profitability strategy. As loyalty benefits from spend become more difficult to use and (heaven forbid) AA ever massively devalues awards a la UA and DL, the value proposition of using the card to consumers on the margin also declines until the opportunity cost of switching to non-airline CCs is low enough that they forego airline CC utilization.

I mean, who else are you going to buy from for US domestic flights other than our current US carriers��

There is just not that much competition/choices out there than what we see with the US airline loyalty model/choice..

Majority of people aren�t flying for the loyalty perks, rather to just get from point A
to B; the loyalty program is a just a rebate program on your spend�.icing on the cake if you will. FT is not the norm, in that people put so much value on the icing, they forget about the cake�.

This is the crux of the problem with the entire current situation with FFP's.

Agreed. But a much higher percentage of profit per flight is made from road warriors vs. the once every other year gang. My father used NW for years till he retired in 1999. They had a nice rewards program including lounges, upgrade certs, etc. Much simpler times.

But those passengers now are what the credit card pitches are aimed at. The thought of free bags, priority boarding (which isn't really much of a "priority") and all the other drivel hawked by flight attendants is appealing to Joe and Mary Six Pack taking the kids to Disney. The road warrior likely has the airline card, or a comparable affinity card, and books flights through corporate travel/corporate portal. Also, are much upscale customers that rarely travel (a doctor for example) that when they do will take a cash upgrade to get out of coach. It's no longer just about getting passengers that fly your airline week in and week out for work.