It's the End of the Elite-Status
Flying World As We Know It
THURSDAY, OCTOBER 28, 2021 -- Hey, there, you with the stars in your eyes. You on that high-flyin' cloud. Take this advice I hand you like a brother: It's the end of the world as we know it--and you might as well feel fine about it because there ain't much we can do about it.

Sorry for starting this important column in a way that fulfills one of my most minor journalistic goals: merging a Broadway show tune--in this case, Hey, There from 1954's The Pajama Game--with 1987's The End of the World As We Know It from the alt-rock group R.E.M. But it fits the tenor of this week's discussion about frequent flyer programs.

It's also slightly less rude than my original lede: Hey, frequent flyers, the airlines consider us skin sacks with plastic and don't care how much we fly anymore!

If you missed this week's surprisingly muted announcement from American Airlines, the carrier is changing the way elite status is calculated and earned. If you want a deep dive on the granular details, check Gary Leff's dissection. The executive summary: Flying American is no longer a key component of how AA decides if you're AAdvantage Elite and what level of status you've earned. Now it is other activity--and especially credit card spending on your AA-aligned credit cards issued by Barclays and Citibank.

The whole thing is wrapped into AA's new scheme called Loyalty Points. The more Loyalty Points you earn, via credit cards or, you know, flying, the higher your status for the following year. Ostensibly, you could never fly American and still earn Executive Platinum, AA's highest public level of status.

Before we get into more specifics of what's to come from Loyalty Points, let's look back a little to see how revolutionary this AA move is.

When frequent flyer programs launched 40 years ago, the schemes were straightforward affairs: Fly frequently and you'd earn upgrades and free tickets. And frequent flying was the key. You had to earn your awards in a calendar year because miles didn't roll over to the next year.

That changed soon enough as airlines realized dangling free trips in front of occasional leisure flyers was great marketing. So they made miles "bankable." As long as you kept modestly active, your miles stayed in your faux frequency account. Frequent flying as originally conceived--do it in just one year--took its first hit.

Then came the partners. At first it was closely aligned travel operations: lodgings, car rental firms and non-competitive airlines. If you were a frequent United Airlines flyer, you suddenly became a frequent Westin hotel stayer and Hertz car renter, too. (At one time, United's parent literally owned those firms, too.) That further diluted flying loyalty.

Then came the mega-partners. Originally, it was long-distance phone companies, which were massive contributors to our pool of points. Then came credit cards and the game really changed. Even though acquisition bonuses were modest at first, a heavy spender could earn his or her way to free first class tickets to Hawaii or Hong Kong without ever stepping on a plane.

This bizarre situation--never fly, earn free seats--irked frequent flyers who were loyal to their chosen carriers. Rather than abandon the quickly fading concept of "frequent flyer programs" and renaming the plans, however, the airlines created elite levels. The elite levels were essentially genuine frequent flying schemes within the ballooning framework of the general marketing plans still erroneously called frequent flyer programs.

For decades--if I recall, United introduced the first elite level while the term "elite status" was invented at Continental--the concept of elite flying programs within the general frequent flyer marketing plans held up. Airlines tweaked the formula as decades went on, but they held true to the foundational idea: Customers who actually flew frequently deserved the best treatment.

The problem with that logic now? We flyers aren't an airline's best customers anymore. Haven't been for years. We're just sacks of skins who sit in seats. An airline's real best customers are the card-issuing banks. They buy billions of dollars worth of miles from the airlines each year and, in turn, award those miles (or points) to us when we use a credit card. If we get steamed and quit a carrier--even if many of us do--airlines couldn't give a rat's patootie. Their best customers, the banks, keep buying miles.

(By the way, tilt an airline's balance sheet just a bit and look at it in the right light and you'll see that the banks underwrite the airlines. Balance-sheet absolutists see the obvious: Airline profits in recent pre-pandemic years have been roughly the same as the amount that banks paid to carriers for miles.)

Look at it this way: If you spend $15,000 on airfares with American in a normal (read: non-pandemic) year, you're worth $15,000 to American. But if you spend $50,000 on a Barclaycard or Citicard tied to AAdvantage, those banks have to go out and buy those points from American to award to you. They have millions of cardholders spending billions on AAdvantage cards. Your piffling 15 grand is chump change in the scheme of things.

Bottom line: American Airlines values Citi and Barclay more than it values you, the skin sacks sitting in its seats. Citi and Barclay spend way more with American than any frequent flyer.

Now you understand why American is scrapping AAdvantage's traditional elite levels and replacing them with Loyalty Points. Flying with American isn't nearly as important as the amount of dollars you pour into the coffers of its card and other partners.

Fly or don't fly, American genuinely does not care anymore. Just keep spending on something and using its credit cards.

Will other carriers match American AAdvantage? Eventually, sure. It's inevitable. In the case of Delta and American Express, the companies are so intertwined that a switch would be easily accomplished. United Airlines, saved after 9/11 by Chase's extraordinary intervention, has a less cozy arrangement with the bank these days, but that's only because United boss Scott Kirby thinks there's more cash to be wrung from Chase. Other carriers will scrap flying loyalty for spending loyalty as the opportunity arises. It won't be tomorrow, but it'll be soon.

And let's be clear-eyed about this. You may decry an influx of high-charging, infrequent flyers getting your upgrade, but, really, how many upgrades have you been getting these days? And when even the most frequent flyers have to wait hours on hold to reach a human at an airline call center, does your flying status really matter much?

A few years ago, I dubbed this the Brutalist Era of frequency programs. The airlines are doing what's good for them and their best customers, who aren't you.

In response, you skin sacks in seats should do what's good for you. Abandon airline cards for cashback vehicles. Or act like locusts: Devour a bank's acquisition bonus, then move on the next card. And stop being loyal to one carrier in the vain hope that your frequent flying will earn you any thanks from the airline.

To end where we started: Get the stars out of your eyes. Get off that high-flyin' cloud. It's the end of the world as we've known it. Fly and buy accordingly.