American Airlines is on the verge of a major devaluation, which has been in the works for months. This devaluation will make AAdvantage miles worth less than they were before, but it could also be a sign of good things to come for the airline industry.
The american airlines 1st quarter 2021 is a blog post from American Airlines that discusses the top 5 reasons to expect an American AAdvantage devaluation.
The Top 5 Reasons To Expect A Devaluation Of The American AAdvantage
on October 4, 2021 by Gary Leff
There have been many clues dropped in recent months, and the overwhelming evidence suggests that American Airlines may devalue the AAdvantage program. We’re nearing the start of a new program year, so any changes to how elite status is achieved or what elite perks look like are likely to be announced shortly. Of course, the airline has the right to reduce the value of redemptions at any moment. On April 8, 2014 (the “April 8 mAAsacre”), they did so without warning, months after current US Airways management took control.
The following are the top five reasons to think a devaluation is imminent:
- During the epidemic, the other major US airlines had already done so. In the monkey saw, monkey do world of airlines, United, Delta, and Southwest all depreciated their points during the epidemic; now it’s American’s time.
- The previous President of AAdvantage said that reward charts will be phased out. When he assumed the position last year, he said award charts were here to stay, but over the summer, he revealed that American is trying to do rid of them. After removing reward charts, no frequent flier program has ever been more useful. The only reason they’re being phased out is to decrease transparency and commitment to providing value to members. All of the revenue-generating activities that airlines want are still feasible provided award charts are maintained.
- AAdvantage reports to Chief Revenue Officer Vasu Raja, who claims they’ll become even more revenue-based. We should trust him.
- Expect it, according to JonNYC. And Jon has a wealth of information.
These AAdvantage improvements, I believe, will arrive quickly and with a vengeance.
They’re probably less than three weeks away, and I anticipate them to be very difficult. https://t.co/sIl3NkYQPN
September 29, 2021 — ”*° JonNYC °*” (@xJonNYC)
- It’s been 5 years since they last did it. That’s a long time between devaluations; the most recent award chart price adjustments were announced in November 2015, and they took effect in March 2016.
Aside from the consumer, there are three groups who are harmed by an AAdvantage devaluation.
- Shareholders of AAL Because of the AAdvantage program, American Airlines typically only earned money in a given quarter prior to the pandemic. Passenger and cargo income were insufficient to cover the airline’s expenses. Even when it made a modest profit from flying, the profit from transferring passengers from one location to another was swamped by AAdvantage.
When airlines depreciate their currency, they lose credit card charge volume and passenger interest in the program. To be sure, Delta seems to be an exception to this rule. Delta had a strong brand and a track of of operational excellence, and it dominated its hubs. Even if a client in Salt Lake City wants Delta points, they should definitely obtain an Amex Membership Rewards card, but most people don’t. Delta had a monopoly on the thoughts of its customers.
Prior to the pandemic, United’s MileagePlus income grew almost entirely as a result of transfers from Chase Ultimate Rewards, rather than due to increased interest in the program.
Cutting costs in the program, the airline’s most successful asset, isn’t the best approach to optimize long-term shareholder value.
- Holders of AAdvantage debts Reduced member and cardholder interest in the program isn’t ideal for holders of $10 billion in AAdvantage-backed debt, the value of which is linked to the program’s long-term worth, but they are in the best position to recover money. On the one hand, this is a safety measure for bondholders; on the other hand, it may be the cause of a negative cycle (especially if debtholders come first, ahead of members’ capacity to redeem miles).
- The co-brand card issuers are Citibank and Barclays. What happens when member interest in earning the currency declines as well? Already, the Bilt Mastercard is a better method to earn AAdvantage miles than American’s own co-brands.
For years, the AAdvantage program has been the source of free cash at the airline. They’d be smart not to kill the goose, and the chances of them extracting even more value from it without killing it appear to be less than 20%, so they shouldn’t attempt.
More From the Wing’s Perspective
The American Airlines Business Strategy 2021 is a document released by the company that outlines their plans for the future. The Top 5 Reasons To Expect An American AAdvantage Devaluation are listed in this document. Reference: american airlines business strategy 2021.
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