American Alters Its Frequent-Flier Plan to Cut Costs
American Airlines on Tuesday became the second major carrier to overhaul its frequent-flier bonus program, a marketing tool that some industry analysts say may be costing U.S. airlines too much.
American Airlines said the changes in its “AAdvantage” program would generally raise the mileage needed for free travel or other rewards and lower it for those willing to accept limits on travel, such as holiday bans.
The overhaul also, for the first time in the program, imposes deadlines on when rewards must be collected. Rewards could be indefinitely postponed.
United Airlines last month reformed its frequent-flier program, introduced like many others during the early 1980s as a way to attract highly profitable business travelers. The programs give free trips, lodging and rental car discounts, and upgrades in service in exchange for points accumulated for paid travel.
American’s new mileage levels for rewards are similar to those announced by United.
For instance, customers willing to accept restrictions can get a free coach ticket to anywhere in North America for 20,000 miles. However, those unwilling to accept restrictions must bank 40,000 miles before getting the same free trip. Under the old AAdvantage schedule, 35,000 miles were needed for a North American trip without any restrictions.
Some industry analysts have said the frequent-flier programs have grown too costly for airlines, especially with large backlogs of unused credits building up in 1988, when a round of accelerated incentives came into play with so-called triple-mileage bonuses. American, Continental, Eastern and Delta are among those offering some customers credit for three times as many miles as they actually fly.
Bottom Line Questions
In addition, changes in accounting rules are being weighed which would force airlines to penalize their earnings for every mile racked up by their frequent-flier customers.
An American spokesman declined to say how many frequent-flier miles his airline has backlogged or estimate the cost of its liability. But an estimated $1.2 billion of reward travel is expected to be taken by frequent-fliers on all U.S. carriers this year.
“With the tremendous growth in air travel over the past few years and the advent of this year’s triple-mileage promotions, we had to sit back and take another look at the economics of the program--accounting practices, future liability, continued profitability,” Mike Gunn, American’s senior vice president, said in a statement.
Dallas-based American said present members of AAdvantage and those who join this year will continue to accumulate miles through June 30, 1989, that can be banked forever. However, miles accumulated after that date will have a limited life of only three years. People who join AAdvantage between Jan. 1 and June 30, 1989, will collect only limited-life miles.
“Miles are not forever anymore,” an American official said.
