American Airlines Doubles Down on AAdvantage Value While Rivals Pare Back Loyalty Benefits

American Airlines is entering into an open declaration of its belief in the value of rewards by moving in a different direction from the rest of the industry in recent months.

At the JPMorgan Industrials Conference, American Airlines CEO Robert Isom said, “I think we believe that the value of our AAdvantage miles is greater than what you get from other carriers.”

This comes at a time when several carriers and card issuers have changed their benefit structures for travelers by tightening access to benefits and reducing redemptions within the travel rewards ecosystem. 

Travel rewards aren’t going away — but the way they’re being provided will be different. Access to them will be more limited, rewards will have less redemption power, and card issuers will be much more cautious with the amount of value they’ll allow to pass through to their customers.

American Airlines is sending a message that it intends to compete head-to-head on this dimension of the business with the others who are pulling back.

A clear trend is emerging in the travel industry. Loyalty programs at airlines are changing to fit their financial objectives. Credit card companies are cutting back on rewards associated with high-end travel cards. United Airlines has altered how miles are earned and redeemed under its MileagePlus loyalty program. 

These changes are financially motivated and based on customer segments. This means no two customers will get the same “bang for their buck” like they did previously. Additionally, lounge access is tightening up.

Premium cards from major issuers are beginning to cap lounge visits, place restrictions on guest passes, and raise minimum spending requirements for access. 

While cardholders used to expect unlimited or near-unlimited lounge access, today there is less of an expectation to have that type of access. Those assumptions are being replaced by access that is directly related to the frequency of use and amount spent. 

Outside of airlines, issuers have been reducing transfer values as well. Citi has already cut hotel transfer ratios for its ThankYou Program, and “one of the partner transfer rates was decreased by 50%,” according to reports. This adjustment further supports that the pressure on travel rewards continues to be applied across much of the credit card industry.

American Airlines’ position is especially unique to today’s loyalty landscape. American is emphasizing how valuable AAdvantage miles are, thus making it a major point of differentiation for the program. This is important because the loyalty program has an impact on co-branded airline credit card partnerships.

Perceived rewards value is a large factor when it comes to attracting and retaining customers in co-branded airline credit card products. The higher the value that cardholders perceive their miles offer, the more they are going to use the card to spend money on a daily basis. 

Having a good rewards proposition could also help support the premium tier of a card product. When consumers pay an annual fee for a card, they expect to receive some type of value from it.

Consumers expect to receive some type of value when they pay an annual fee for a card.

If another loyalty program reduces the benefits associated with its points, American Airlines may have an opportunity to pick up some share of the high-spending customers.

This is a risky strategy. American Airlines is committing to maintaining a higher rewards value and would need some way to offset the cost associated with these increased rewards. American Airlines can accomplish this include through additional fees charged to the cardholder, and/or additional partnership agreements that benefit the program.

If American Airlines doesn’t offset higher reward values through partnerships, reward values could increase their loyalty program costs. So American Airlines will have to weigh its reward value promise against the economic feasibility of offering these rewards.