Let’s face it: Airlines don’t want your loyalty anymore

No you’re actually not welcomed …

Today it was announced that American Airlines is going to raise the revenue requirements for Executive Platinum. At American, it used to be the case that you need to spend $12,000 Elite Qualifying Dollars (EQD) to earn the Executive Platinum status. Now the EQD threshold has increased to $15,000, representing a 25% hike.

This move actually mirrored what United has done in September: raising the Premier Qualifying Dollar (PQD; United’s equivalent of EQD) requirement for 1K member from $12,000 to $15,000. So now United and American are fully aligned with Delta, whose spending requirement for their Diamond Status is, not surprisingly, $15,000.

Many people vented their rage against AA (as well as UA) on the blogosphere. However, does it really matter? Does the airlines even care about how most of the readers of travel blogs feel? This is not only concerning American or United, but the aviation industry as a whole.

My theory (sadly) argues they don’t care. In fact, they don’t want your loyalty, unless you are corporate flyers and/or you are super rich. Here is why.

Airlines’ business is booming

Thanks to the booming economy and low oil price, airline industry has been enjoying a good windfall for the past few years. This is in dire contrast to the market landscape after the 2008 financial crisis. Back then, airlines were offering incredibly generous programs like doubling elite qualifying miles on ALL flights and fare classes (excluding awards, of course). This is in addition to any class-of-service and elite bonuses. Clearly air travel was over-supplied, and market forces would dictate more incentives for people to fly.

Then, as the economy started to recover, we saw fewer and fewer promotions like that. As demands for air travel continued to rise, airlines have correspondingly begun to make elite status increasingly harder to obtain; otherwise, everybody would be elites, which defeats the purpose of elite status (exclusiveness). About a decade ago, flying was potentially so lucrative that mileage run was such a popular thing. Yet, the introduction of revenue-based mileage accrual rates and the elite qualifying dollar largely killed mileage runs and status runs, respectively.

It is interesting to note Douglas Parker’s (AA’s CEO) bold statement back in 2017 that American “will never lose money again”. Regardless of how reality suggested otherwise (e.g. American’s stock price over the past year), his over-confidence tells you something about how American’s management perceives the market.

Aviation market is less competitive

While the demand for air travel has been up, the number of airlines in the market has gone down following a series of major mergers between airlines: Delta and Northwest, United and Continental, American and US Airways, and most recently, Alaska and Virgin America. Customers now have fewer choices than they did a couple years ago. While the whole market isn’t a monopoly yet, it is effectively an oligarchy.

However locally speaking you may well see monopoly going on. Each airline now has a number of fortress hubs that make you “hub captives”. The specific airline basically dominates that airport and enjoy advantages such as better schedules and more gates (hence more routes). If you live in Atlanta for example, it is hard not to fly Delta. Same goes for American in Dallas and United in Houston. New York and Los Angeles are better, but again the number of airlines in general has been in decline. Therefore both on the national and local level, competition has perhaps gone down to a historic low.

A shift in airline philosophy

Because more people want to fly and fewer airlines are competing, the net result is that airlines don’t real care your business unless you fly a lot (corporate flyers) or fly the most expensive tickets. This is understandable. Back in the days airlines want people to fly them, but now you have to fly one of them anyway. So why bother those perks to attract people?

So we have seen elite status requiring spending requirements. We have also seen the decline of elite benefits (American used to issue eight Systemwide Upgrade to Executive Platinum members). It really boils down to the simple math that once the demand surpasses the supply, price will go up. Airlines are for-profit companies and it is their prerogative to do what they deem the best for their stakeholders. Of course it sometimes hurts customers’ feeling but they just don’t care.

What you can do

If you fly for work, sorry I do not have much to offer here, as the decision on preferred airlines is likely made at the top. However, if you do have some flexibility or you are a leisure flyer, here is how I feel:

Be a free agent. Forget about elite status. Get credit cards instead.

Unless you can organically achieve elite status, do not pursue elite status via mileage runs. Instead save the cash and pay for first class in the future if needed. This is far better than getting a status and hoping for an upgrade. Other perks of low-level elite status, such as early boarding and free bags, can also be granted by holding airline co-branded credit cards, and the annual fee only is going to cost extra $95.

For domestic travel, I increasingly find first class to be reasonably priced. What’s more, being a free agent now makes perfect sense as I am a holder of Chase Sapphire Reserve. That means I could redeem my Ultimate Rewards points for 1.5 cents each. If a one-way first class ticket is sold at $400 (which is not uncommon these days if you know where to find them), it would only cost less than 27000 UR points and earn you certain number miles back. Remember at the same time a saver level award in domestic first class would cost you 25000 airlines miles. So Chase Sapphire Reserve is definitely a go-to card for frequent leisure travelers.

Then for international travels use miles. These days I almost exclusively use miles to fly in premium cabin, thanks to credit card offers. Admittedly more often than not, this strategy requires lots of patience and some skills in finding award space, but I have been fortunate enough to be in that position. I trust you can, too.

To sum up

The dynamics in the aviation market have changed. Airlines are making more money than ever, so whether or not you are loyal to them doesn’t really matter. This of course doesn’t apply if your work dictates tons of flying or if you are rich enough to purchase expensive fares. But for most of the readers of our blog, our loyalty is sadly no longer needed.

So until the next recession hits, there will be a race to the bottom. Usually Delta takes the lead, followed by United, and perfected by American. This time it was the raise in EQD, and I don’t know what’s next.

As an anecdote, I was chatting with a ex-FA working for Japan Airlines. She told me back in 2010 when Japan Airlines was struggling before ultimately filing bankruptcy, many Japanese flyers would voluntarily purchase more expensive fares to save the airlines because they respect JAL as a company. Now in the United States, since airlines don’t appreciate your loyalty or are committed to service (“we are here primarily for your safety” remember?), I guess nobody would sacrifice themselves for AA, DL, or UA in the next economic downturn – that is totally deserving.

 


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