In An Industry Of Shrinking Loyalty Programs, American Airlines Chooses To Expand

Loyalty programs have been evolving rapidly among air carriers over the last few years. Gone are the days of lucrative mileage programs where upgrades are plenty and elite status is easy to attain. On many airlines, today’s elite program has stricter requirements for earning elite perks and fewer rewards for frequent flyers. It’s all part of the cost-cutting measures that have swept through the industry through the recession, moving revenue streams away from inflation-dictated growth to à la carte, ultra-efficient fares

Leading this charge was Delta Air Lines DAL +0.87%, which through a series of changes successfully minimized the role of frequent flyers on the company’s operation. Next year’s frequent flyer, for example, needs to spend a minimum amount of cash on the airline to be acknowledged as an elite member, and they can no longer earn status on several key partners. United has followed suit.

The reality of today’s airline industry is that competition is too high to spend lavishly on frequent flyers, so the trend towards shrinking loyalty programs is probably here to stay. But not all carriers are on board. American Airlines, the bankrupt airline in the midst of a rocky merger with US Airways has been actively soliciting elite flyers this year. In addition to rewarding its current elite passengers with generous rewards, the airline has also extended status-match offers to competing carrier passengers and has even given an incentive to new passengers to earn status.

American has taken none of the steps that competing airlines have to reduce their programs, leaving the requirements for elite status in place for the 2014-2015 year and even expanding their overseas network with the addition of Qatar Airways to the OneWorld network.

Apparently American doesn’t see elite passengers as such a liability. “We strive to win and retain the business of high yielding customers every day,” Bridget Blaise-Shamai, the Managing Director for Customer Loyalty and Insights tells me. “We accomplish this by leveraging data centered methods to ensure our offering of Elite Rewards or fast track elite status is relevant, yet non-dilutive. Our results have proven these initiatives to be revenue accretive.”

And the industry seems to be welcoming the changes with open arms. Brett Snyder, who runs the popular aviation blog Crankyflier suggests “After years of under-investment in the airline, American has come out guns-blazing with a range of new improvements. While many of them are still in the pipeline, American has been giddy over showing them off.  It thinks that now is the time to start trying to lock in newly loyal travelers.”

But it also may be a business decision based on American’s rocky trajectory through a bankruptcy and a potential merger. Those processes, which are expected to resolve in the coming months, are concerning passengers worried about their mileage balances and potentially shaking the foundation of their loyalty. An incentive to keep them with American, though less profitable for the company, could help guarantee future business. Perhaps only after the business milestones have passed will the airline consider making changes similar to other carriers. Or maybe they’ll call the competition’s bluff and keep a strong loyalty program, soaking up elites from around the community and reaping the revenue. For the sake of the passengers, let’s hope it’s the latter.