American Airlines announced that it will no longer allow travelers to earn Loyalty Points or Aadvantage Miles outside of direct booking. OTAs could respond simply, and profoundly.
If you are considering booking travel or signing up for a new credit card please click here. Both support LiveAndLetsFly.com.
If you haven’t followed us on Facebook or Instagram, add us today.
American Airlines Earning Change
Starting in May 2024, only clients who book through select American Airlines travel agents (on fares above Basic Economy) and directly on American Airlines website will earn miles and Loyalty Points toward status accrual. The announcement is the first of its kind and lacked key details, principally, which American Airlines approved travel agencies will be permitted to continue to earn Aadvantage miles. The disclosure of those agencies is to come in April.
This move is to push travelers to book directly with the carrier in order to improve opportunities to upsell travelers into ancillary products and higher classes of service but also to reduce the costs associated with booking through third-party sellers.
Impact On Online Travel Agencies (OTAs)
In a call with investors, American Airlines management disclosed that 83% of all its customers are simply one-time per year customers. Most of those clients are presumed to come through third-party online travel agencies like Expedia. American Airlines has made its ancillary revenue business the most important aspect of its product and has asked all sellers of American Airlines tickets to adopt NDC (New Distribution Capability) to sell buy-ups and add-ons.
There is a chance that OTAs like Expedia who have adopted the tech (which is not yet standardized because of reliability issues) will be one of the chosen few favored travel agencies, but I don’t think that really achieves the airline’s goals. If the intent is to move would-be flyers to book direct, thus improving American’s ability to upsell, reduce competition, and cut costs paid to travel agencies then excluding such a large flow of customers wouldn’t really achieve that goal. If they are aiming for the kind of enclosed system that Southwest has established from the very start of selling tickets online, they’d have to migrate the largest sources to see any demonstrable upside.
A Simple (Impactful) Response
If American wants to disincentivize customers to buy from third parties, OTAs already have a built-in remedy for this. They simply demonstrate that miles won’t be earned for fares on American Airlines. If it so chooses, it might highlight that others do. It might even provide a pop-up that says, “on this fare, you won’t earn miles or status; earn 1,879 miles by choosing Delta for the same price.”
It can also shuffle results when prices are the same as peers to elevate those peers above American. Google already has an icon that shows carry-ons aren’t included for some fares, it would be easy to add the same. I think any affected OTA could argue that they have a duty to show that the fare excludes something standard on other airlines. And I don’t think that those OTAs have any reason to state that booking directly would include miles and status accrual.
Do average customers care about miles and points? Not as much as our readership does, however, they also care less about a brand in general. That said, they certainly don’t want to get less for the same price. American might have to drop its fares a few dollars in order to stand out from the pack. This doesn’t help its quest to save money as US airlines pay on average $0-3/roundtrip on most coach itineraries which it would then sacrifice to maintain a price advantage and appear first on results.
For those keeping score at home, even Spirit Airlines awards Free Spirit miles on its fares sold on OTAs.
Conclusion
American continues to innovate but in this particular instance, the goal of reducing its cost of sale may come at some significant loss of revenue. The most beguiling part of this model is that the only significantly profitable aspect of the carrier’s operation is the loyalty program and it’s not close. One would wisely presume that getting as many new members engaged in the program as possible would encourage at least some of them to continue to build their balances and fly American again. This is more short-sighted cost cutting that American management might think leads to a golden row of profitability like reducing business class amenity kits to cardboard boxes. But as Delta Air Lines has demonstrated quarter after quarter, the adage “you can’t cut your way to profitability” is true in the airline business as well.
I hope OTAs and others respond by simply selling less American Airlines fares and demonstrating the value they bring to 83% of American’s customer base by recommending a carrier that doesn’t penny-pinch.
What do you think? Should OTAs disclose that American Airlines won’t award the miles? If OTAs are exempt, is American solely squeezing small travel agencies?
