American Airlines Devaluation
Reports started rolling in that people’s American Airlines miles were posting from their Simply Miles promo yesterday. It was touch and go there for a minute with miles showing up in the account and then disappearing a few hours later. It looks like there will be quite a few new American Airlines millionaires out there in the coming days. I think one saying may ring true, old money will not like the new money. At least when it comes to American Airlines millionaires. This has to lead to an American Airlines devaluation doesn’t it? You can’t have a promo giving miles at 75% off and then just keep things as normal, can you?
What Does The Future Bring?
If I could tell you that I wouldn’t be here, I would be a real millionaire, not an AA millionaire, sitting on a beach somewhere. But logic dictates when something is too good to be true that a hammer must drop somewhere. On the other hand this is American Airlines so logic doesn’t always play a part.
Years ago people were signing up for Citi AAdvantage Executive World Elite cards like they were going out of style at 100K a pop. Some were even canceling them immediately after the 100K posted to avoid the $450 annual fee. That went on for some time, minting many millionaires, and nothing really happen. Maybe because Citi was eating some (or all) of that cost purchasing the miles from American for the promotion.
A few years later something similar happened with credit card mailers. This time American did not sit idly by and let the millionaire mint get off the ground. They shut down accounts right and left and confiscated back their nest eggs.
Both of those instances were coloring outside the lines where this was a posted offer. Because of that I don’t think they can bring the claws out like they did last year, I think they have to be more nuanced this time around.
So What Will Happen This Time Around?
American Airlines is deep in the red, $30B+ in debt. Is this a money grab and then they slash the value of their program? The AAdvantage program is their most valuable asset but they can devalue with program without really devaluing the asset. Crazy how that works isn’t it?
Think of the people that likely bought the most miles during this program. You know mileage brokers jumped in neck deep. They will be able to make a 75% or more profit off those miles. Will American sit by and let others make a mint of their back?
American Airlines has never been afraid of the devaluation. They were once thought of, all of 5-10 years ago, as probably the best airline loyalty program out there. Now they seem to be in a hurry to ride shotgun next to Delta’s Skymiles program.
Potential American Airlines Devaluation – Final Thoughts
If I were a betting man I would imagine American will tweak something to offset this new liability they have taken on. The fact that they honored this amazingly lucrative deal may be simply because they legally had to, not because they wanted to. There is nothing to say, or laws prohibiting them, from getting even after the fact. Does that come in the form of a loyalty program devaluation or in a deep dive of the accounts involved? We all know someone has to pay for those miles. There is no Citibank to help carry the water this time around and we know the charity isn’t going to be doing it. Do you think American Airlines is willing to take it on the chin all alone? I know I don’t.
What do you think the future holds with the AAdvantage program? Is a devaluation coming or do they take this loss on the chin? Let me know in the comments below.
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Between dynamic pricing for rewards and inventory management of award seats, AA can easily limit the financial impact. Will be interesting to see if sufficient negative feedback on future award seat availability arises to impact the price MasterCard pays or the bonuses AA has to offer to maintain their share of the s airline credit card business which is the dominant profit center AA’s overall profit/(loss) financially.
Just did AA booking (get it?) – US West Coast to Japan. Cash cost in economy was $3,500 RT. Web special was available for 70K RT (w/one stop). PY, J and F were 2 to 5X higher.
This is a drop in the ocean, and as monetary economists know, the “velocity” of this new mileage is an important in devaluation and we simply don’t know how quickly these miles will be spent. More importantly, any devaluation would lead AA’s credit card partners to revalue what they pay AA for miles, and given the importance of this asset to AA’s financial health and flexibility, AA won’t devalue these miles lightly.
Interesting perspective. Didn’t think of it from that point of view.
I don’t know that I agree with that last part. Skymiles has driven their value to a penny, Hilton has gone from over 1 cent to 4/10 a cent and those card portfolios have not taken a hit. The Delta cards have been the most popular Amex has and continue to grow as Delta rips away award charts and drives the value down year after year. United and AA ditched award charts for domestic travel and people are still grabbing them by the handful.
I think you give the public too much credit. Most have no idea what the value is of the points they are earning. Why else would they earn 1 Skymile when they could double their value and earn 2% cash back? They don’t notice when a devaluation hits or if their miles are worth less. They like that their bags are free and that they get a free flight every year or two. The value of the program, when it comes to the banks, only matters if, and when, the sign ups start to go down. We are long ways away from reaching the point where the value is so little that people would notice. Hell I mean there are IHG cardholders out there after all haha.
I wonder how much the charity earned?
[…] people are worried that all the miles printed with the SimplyMiles promotion will lead to an AAdvantage devalua…. That merely misses the dimensions of the AAdvantage program. To make certain you have to be […]
[…] folks are worried that all the miles printed with the SimplyMiles promotion will lead to an AAdvantage devalua…. That simply misses the scale of the AAdvantage program. To be sure you should be betting on a […]
Without knowing how many miles they sold it’s difficult to get an idea of scale. If American sold 20% or more of all outstanding miles in this, they’ll have to look at options pretty quickly. If it’s single digits, they might just watch out for potential mileage brokers.
When it already cost you 77k AA miles to fly domestic first class from CLT to DFW on a Tuesday in February, the program is already devalued.
Don’t get me wrong, a million miles is a lot. But when you’re having to drop 60-80k for domestic flights during non-peak days and season, it doesn’t take a lot of time to dwindle down said miles.
Full transparency, I got in on the deal netting 240k miles and that barely gets me and my wife to Southeast Asia (in business, not first) and certainly not enough to come back in business or first…I’d need to add an additional 60k miles to pull off a round trip during non peak and off season times.
So yea, it’s exciting to have the miles for so cheap, won’t lie about that…but seeing how little I can do, even if I scored a million miles, is quite deflating.
They have already devalued by moving to dynamic pricing. Good premium awards on AA are going to be like hen’s teeth in 2022 because of all the new AA-millionaires.
That is true – we will likely see less and less “standard” award prices in 2022
Unless they devalue to something under .4 cpm, anyone who got in on the SimplyMiles is still a net winner.
True. It is still a worthwhile deal for anyone that took it for sure.
Not really because if it devalued that much, then people would be prepaying full price for flights many years in advance, no one would choose to do that. Maybe if it fell to 0.7 or 0.8 it would still make sense. Not a bad idea to book some flights now as a hedge but always hard to book well into the future. I think if there is a devaluation it is most likely to come in business class and/or with partners.
That’s assuming people went and bought seven, eight digits of miles. I surely didn’t.
“Oh noes, the $500 I spent on SimplyMiles is only going to get me $800 in airfare instead of Cathay F, what will I do?”
They could restrict who can use the miles in the account. That would kill off the mileage brokers.
Could do a family only thing like some foreign carriers have for sure.
But didn’t Mastercard pay American for the points?
Even if AA . . . or any other loyalty program . . . devalues its points, what would anyone do differently? Move to United or Delta? It’s just part of the game.
You should be betting on a devaluation (after 2022) *anyway*
SimplyMiles is immaterial to this calculation, there are around a *trillion* AAdvantage miles outstanding. This deal didn’t move the needle on that, and American is getting compensated for the miles above cost by Mastercard.
Do you think they take a deeper look at the accounts involved though? That wouldn’t surprise me.
If I were a betting man, I would say yes. I could see them limiting who you can book award tickets for. Perhaps on family members who live under the same household or even take a page from Asian airlines and clearly define who is a family and ask for proof (marriage certificate, passport info, etc).
1% of a trillion is 10 billion miles.
10,000 people earning say an average 3 million miles each gets you to 30 billion. A sudden 3% increase in miles outstanding in a month is manageable but seems out of the ordinary.
Are you thinking far fewer than 10,000 people bought miles in the millions?
More like 1,000?