American Airlines Frequent Flier Changes Are Just the Start, Experts Say

CHARLOTTE, N.C. (TheStreet) -- Recent changes to American's (AAL)  frequent flier program are as notable for what the carrier didn't do as they are for what it did do, because American didn't move to price-based frequent flier awards.

In announcing alterations to its frequent flier program on Tuesday, "American made some changes more around the edges," said Henry Harteveldt, founder of travel advisory firm Atmosphere Research. "But the big news is what American didn't announce, what they didn't do."

In February, Delta (DAL) announced that starting next year it will link frequent flier miles to ticket prices rather than distance. With Delta now widely recognized as the pacesetter in the U.S. airline industry, its practice might have been expected to prevail. But that is not what happened.

Rather, Harteveldt said American stayed away from price-linked awards because it is focused today on completing its merger with US Airways. "They have to get through the integration," he said. "They have to deal with complexities like aligning computer reservations systems and moving gates and integrating (work forces). I think their strategy now is to make some minor changes. They will save the major changes until the integration is further along."

It's not clear whether American will eventually follow not only Delta but Southwest (LUV), JetBlue (JBLU) and Virgin America in offering price-based frequent flier awards, but Harteveldt is not the only one who expects more changes.

In a note issued Tuesday, JPMorgan analyst Jamie Baker wrote that "while American stopped well short of converting its program to a revenue-based model similar to Delta's, we believe such a change likely lies ahead -- possibly by year-end.

"We conservatively estimate that Delta's changes could increase earnings by $150 million per year, a figure that American would likely eclipse given the larger breadth of its program," as well as the existing product deficiencies, Baker wrote. He noted that Delta has "once again (established) an industry lead in this regard, not to mention in more salient areas such as capital deployment."

American's changes appear to serve two purposes: They generally standardize practices between American and US Airways, and most provide new revenue. Still, "many of the changes, while inconvenient, are minor in scope," Harteveldt said. The changes come in three areas:

  • For mileage redemption, starting June 1, participants in the US Airways frequent flier program will not have blackout dates. Participants in American's award program will have a lower minimum redemption of 20,000 miles, down from 25,000 miles, for one-way travel during slow travel periods and higher "super peak" rates, starting at 50,000 miles, on the busiest travel days. The changes will standardize the two programs.
  • For checked bags, American made several changes. AAdvangate gold members and US Airways Dividend Miles platinum and gold members will receive one fewer free bag than they have today. Also, customers buying American's full-fare economy ticket will no longer receive a free bag. Also, starting April 30, most holders of the US Airways credit card will get a free checked bag.
  •  Inflight enhancements include an updated selection of meals for first class US Airways flights longer than 1,000 nautical miles, as well as access to headphones and more entertainment for US Airways business class passengers.


Travel columnist Joe Brancatelli cited two major problems with the changes. First, Brancatelli said, "They ram this stuff down with virtually no notice. They just dump it out there. That's offensive to customers." He said American would not have acted in that way before US Airways management took it over.

Secondly, Brancatelli said it seems counter-intuitive to sell a full-fare economy ticket with no free bag. "I don't know anyone who thinks telling full-fare customers they have to pay for bags makes any sense," he said. A full-fare economy ticket comes with a possibility to be upgraded to first class, which means a bag can be checked free, which makes the policy even more illogical, he said.

Harteveldt said the full-fare economy ticket need not include a free bag because "very few people buy these tickets, and most who do are high-level AAdvantage or Dividend Miles members and already get free checked bags.

Also, he said, the "super peak" redemptions start at 50,000 miles, but may vary by market and direction. "Mileage redemption levels will vary based on paid demand. American is still working on the mechanics of this. For travelers who are flexible, this may help them save money by not having to buy a ticket with cash."

Long-term, Harteveldt noted, airlines are generally re-examining their frequent flier programs. In 1981, when American launched the first frequent flier program, 28 mainline carriers operated in the U.S., he said. Today, the number is 11, including the three ultra-low-fare carriers. At the time, airlines filled about two-thirds of their seats; today the number is around 85%.

"Some of the moves by United and Delta have been made to reduce the number of elite program members they have," Harteveldt said, adding, "I don't think game has played out yet."

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here

.
Follow @tedreednc

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Stocks

Jim Cramer on Earnings: All Stories Aren't Equal

Jim Cramer on Earnings: All Stories Aren't Equal

Stocks Seek Direction Amid a Rise in Bond Yields, Strong Earnings

Stocks Seek Direction Amid a Rise in Bond Yields, Strong Earnings

Facebook First-Quarter Earnings: 3 Key Things To Watch For

Facebook First-Quarter Earnings: 3 Key Things To Watch For

Twitter Tops Wall Street's Estimates - Here Are the Key Numbers You Need to Know

Twitter Tops Wall Street's Estimates - Here Are the Key Numbers You Need to Know

Street Stats: 3 Numbers That Will Make Any Stock Market Bear Instantly Bullish

Street Stats: 3 Numbers That Will Make Any Stock Market Bear Instantly Bullish