Where Can Travelers Turn Next?

As a frequent flyer for both business and leisure, I like to maximize the number of miles I earn for a flight. My friends will say it’s obsessive and look at me strangely when I mention I’m going to add a stop in my itinerary just to capitalize on the 500 mile minimum. But all of this has a purpose. I enjoy being able to use my miles on trips that I would otherwise be unable to afford due to the fact that business class fares can be several thousand dollars.

In the last decade, the airlines industry in the United States has seen several very large consolidations: Delta merged with Northwest, Continental and United joined forces, and more recently US Airways believes it can lead American Airlines out of financial trouble. This period of consolidation has brought about an era of lean airlines where waste is not tolerated by management. Travelers have seen scaled back schedules, smaller and more efficient planes, thinner and more uncomfortable slim line seats, and cuts to once robust and generous frequent flyer programs.

American Airlines’ decision last week, albeit on short notice, to alter the terms of their award redemption came as no surprise to frequent flyers. After all, on the heels of a merger with US Airways that will make it the world’s largest airline and an exit from bankruptcy, the airline is laying the ground work for a major comeback and needs to mirror the reward programs of the other two legacy carriers and its main competitors, United Airlines and Delta Air Lines, in order to stay competitive.

The major change to American’s AAdvantage came in the form of increases in the number of miles needed to redeem for an award, which is effectively a devaluation in the purchasing power of each mile. Both United and Delta have announced similar alterations to their programs; Mileage Plus and SkyMiles, respectively.  Understandably, the change has angered many flyers with caches of miles.

For example: Previously, a one-way AAnytime award between the US and Europe was 60,000 miles. Now, it will cost travelers 65,000. Awards sought at the last minute will cost travelers 110,000 miles.

The “Big 3” legacy airlines have all undertaken this action in order to protect their bottom lines. In an era of heightened scrutiny on revenue management – all 3 have filed for bankruptcy in the last 10 years –  the airlines need to protect their main source of income: selling seats.

At its simplest form, the opportunity cost of an airline seat can be calculated from the price to purchase that seat. For every award seat American allows to be redeemed, it will need to forego that revenue. Too many award seats can quickly push a profitable flight into the red. So, to counteract the number of award redemption on its flights, without having to shrink the number of aware seats available, American has made it cost prohibitive, or impossible, to redeem miles for most flyers.

The majority of flyers do not have an extra 5,000 miles at hand to redeem at the new prices, let alone the 90% increase in miles needed for last minute point redemptions. While they may not be happy about the changes, top-tier elites within AAdvantage are in a much better position to absorb the decrease in purchasing power. During this time period, American will need to ensure they carefully court their loyal flyers to guarantee they do not leave for a competitor, who will no doubt be on the prowl to acquire new travelers with lucrative status matches, bonus miles, and other perks.

The changes the Big 3 have made to their frequent flyer programs does not signal the end of the frequent flyer as many of us have come to know it. Aggressively growing airlines (both in terms of revenue and passengers) like Alaska Airlines and Jet Blue both still offer reasonable redemption rates to travelers and are annually recognized for their on the ground and inflight service. Alaska Airlines is particularly strong in this area, having won the JD Power award for Traditional Carriers 6 years in a row. Additionally, the airline is not part a of global alliance and because of its strong regional position on the west coast has instead contracted with 14, for now, global and domestic airlines (notably American and Delta), where flyers can redeem and earn miles. This combination of earning potential and redemption options are rare in and industry where partners are pulling award inventory and raising redemption rates.

There’s nothing more I like to do then than earn and redeem miles, but recent trends in the industry and announcements regarding shifting redemption thresholds and policies have made me rethink where I’ll chose to spend my money.  If the amount of miles I earn is determined on the value of my fare, then I certainly will not chose to fly any of the legacies and I’ll instead search out the effortless experience of growing airlines like Alaska. Luckily for me, they still give one point for each mile flown. For now.

Phone: 312-602-4000
Email: marketing@westmonroepartners.com
222 W. Adams
Chicago, IL 60606
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