Randy Petersen's Opening Remarks – May, 18 2009

Randy Petersen's Opening Remarks – May, 18 2009

Award Changes to our AAdvantage

About a month ago when I first had the information about the new award changes to the American AAdvantage program, I had to bite my tongue to hold the news until AAdvantage had the opportunity to release the information to the public–the overall news is that good. While there will be pockets of subtraction by addition, let me walk you through some of the more logical implications these changes will have for AAdvantage members and hopefully members of other programs as well if other FFPs follow American’s lead.

First of all, I should say that this is actually something that AAdvantage wasn’t “forced” to do. For the longest time, they have had the best overall redemption policy in the industry, often leading in the percentage of passengers flying on some sort of award from a frequent flyer program. On American Airlines, almost 10 percent of passengers flying represent an AAdvantage redemption success story.

Given that lofty position in the industry, the idea to make their awards even easier to manage for redemption seems to not make sense. After all, it costs money to make these improvements to their systems and making award redemption easier likely means fewer revenue tickets being purchased. In the long run, which I think is relevant to this, this makes miles an attractive offer once again to the partners of AAdvantage. It’s no secret, well, it’s a little secret, that some partners such as behemoth Citibank have heard from their customers that even AAdvantage miles were difficult to use—and if there is one thing we know, all customers want to be made happy.

The timing of these changes could not be better for American Airlines. With the adoption of IFRIC 13 accounting principles, it makes good business now, and into the future, to have more redemption from any frequent flyer program. As I have noted elsewhere, new accounting standards have made it much more expensive to have unredeemed miles (at least within the new expiration periods) sitting with the AAdvantage program. Also, if you want to have members use their miles, entice them to use them when the industry is in a period of funk–like now, with low fares and somewhat empty aircraft. As well, it has been proven in the halls of loyalty leadership that those members redeeming their miles often quickly get back to earning more of them–replenishing that award wallet.

Here’s what is really great about the new Flex awards from AAdvantage (and it may not be what you are thinking). 1) True one-way awards if copied by the industry will be a huge boon for those members–and there are millions of you–who would like to merge miles from various programs. In this scenario, you would for example, be able to redeem a one-way award from American AAdvantage and a one-way award using your Continental OnePass miles if you are a Texas resident that has been unable to consolidate all your miles into a single program. From what we learned with AwardPlanner, I can certainly tell you that acquiring a one-way award is far easier than a roundtrip. The reason is simple, while Alfred Kahn is often called the father of airline deregulation here in the U.S., that movement also fathered the current hub and spoke system which is now the crux of the current frequent flyer award redemption bottle neck. In a large majority of cases, the “no” answer you get from trying to redeem your miles online comes from a single segment being unavailable for redemption within the framework of connections necessary as part of an award. Direct flights are great, but they only account for a very small number of redemptions. One-way awards help this tremendously, but understand it does not completely cure it. 2) Another important facet of the AAdvantage Flex program is the ability to combine first class, business and coach one-way awards when traveling on other airlines participating in the AAdvantage program. While this does not allow you to combine with oneworld awards including all partner airlines of AAdvantage into this program, it is monumental, and of course very difficult, which is why no other program in the world has accomplished this. The only caveat of this is that it does not include AAnytime Flex awards with partners. But, I’ll take the Flex option with partners any day. The other caveat is that not all partner inventory is available with the online booking tool so members need to learn your options and call the partner desk for award redemption if you are unable to find what you are looking for online.

There are other reasons to love this: It opens up a huge new opportunity for open jaw travel both domestically and internationally. The new multi-city option allows for custom award planning at a price unavailable before. Circle trips anyone? Multi-city options will give rise to a new term: award runs (similar to mileage runs).

Bottom line: In 1981, AAdvantage invented the modern day mileage-based frequent flyer program. In 2009, AAdvantage has invented the modern day model of award redemption flexibility.

AAdvantage, now that you’ve had some time to rest, how are we doing with a “pay with miles and/or cash” program?

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