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Are Amazon and Frequent Flyer Program changes similar?

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With the latest news out of Amazon and Frequent Flyer Program both changes and programs in general, I can’t help but see the similarities, and I don’t mean that in a positive way.

Background

This past week, reports started of Amazon requiring sellers to provide receipts and in some cases, pay as much as $1,500 as a one time, nonrefundable fee, to get ungated in certain brands. This has been done, essentially with no notice, no communication from Amazon, and has created more and more fear-mongering among Amazon Sellers, or at least a subset of folks who offer services to Amazon Sellers.
Airlines, on the other hand, have made numerous changes their Frequent Flyer Programs, such as American’s first devaluation last year, and their changes to AAdvantage elite status more recently.

The Key Similarity between Amazon and Frequent Flyer Program Changes

What jumps out at me the most, is the fact that both Amazon and Frequent Flyer Programs can change the rules whenever they want. Worse yet, they can change the rules, and you pretty much have two options: Take it in the chin, or walk away. There’s often no negotiating, because they own the game.
That awesome iPad deal that you got over the weekend, is now gated when you try to send it in. You may have found a great product, but now your only option is to sell it on Ebay. That first class award flight to Bali that you’ve been saving up for just went from 67.5k to 110k miles. If you made Executive Platinum this year on miles, don’t forget, next year you’ll also need to spend $12k with American, in order to requalify. Or, you could look a the fuel surcharges that are slowly going away, many of which stuck around months, if not years after fuel prices dropped off of their highs.
As I write that, the idea that Amazon requires a nonrefundable payment of $1,000 for a brand ungating, and Airlines are now requiring upwards of $12,000 spending in their math, to get top tier status, seems really similar.

Is there a solution?

The answer I think most folks go to first is regulation. I’m convinced that every time there’s a no-notice devaluation on the Frequent Flyer Program side, that the idea of regulating the Frequent Flyer Programs will gain traction. I’m not sure that is so good for those of us who maximize the program, I’m not so sure the programs would even continue to make sense for airlines, if they were heavily regulated.
For Amazon though, I think the answer is different. The brand restrictions are due to a rise in counterfeit products passing through Amazon’s warehouses. But rather than restrict many popular brands, Amazon could instead amend their receiving processes, whether its comparing the received product to the Amazon listing photographs, or something. Should Amazon’s actions be regulated? I’m not even sure how that could happen, but, I don’t know that it would help.

Lagging Indicators

The one thing that I think both Amazon and Frequent Flyer Program changes result in, are lagging indicators. Its not ideal. You see, they make the changes, and then it takes months, if not years, to see the impact of those changes. By the time you do see the impact, people’s habits have changed. For example, American may not see the impact of their elite status changes, until December 2017, more than a year away. Amazon, on the other hand, could see a bad Holiday Season in 2016 (Sellers call this Q4), but those numbers won’t really be reported out until January or so.
Whether it is December, 2017 or January, 2017, it will be too late to recover. Sure, Amazon can reduce some of their brand restrictions, but, the 4th quarter is what makes most retailers and resellers’ years. That’s why the Friday after Thanksgiving is called Black Friday, because retailers finally make it into the black ink, vice red ink, in the ledger. Amazon reacting in January, might save 2017, but 2016 would hurt a great many.
American, on the other hand, will likely see a decline in flights from their high level elites in 2017, as we make our decisions of where to spend our travel dollars early. Many of us have no intention to requalify for 2018, and our spend will reflect that. The question is, whether American can react in time, or make meaningful change.

Conclusion

Ultimately, we must play by others’ rules in many, many aspects of our lives. It is an unfortunate reality. It is most striking though, to see two completely different industries, act so incredibly similarly. That said, I think it is important to understand the various Amazon and Frequent Flyer Program changes, and to understand the programs in general, so we can better adapt to those rules.
What do you think?

Brexit, Mileage Plus X App, USG Studies FFP’s, All about Costco, AirBNB

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The Weekly News Roundup is a collection of headlines from around the internet that caught the attention of the Tagging Miles team. Content on these blogs do not necessarily reflect the positions of Tagging Miles, and should not be considered endorsements. Have a great story we should read? Contact us now and let us know.

Travel:

  • Kathy, who writes Will Run for Miles learned something interesting. Secret Flying, whom I think we have all noticed as a new kid on the street, over the past year, seems to copy other fare deal sites. The positive of this is, that Kathy highlights other original sources of airfare deals – ones that I’ll be watching, and you should too.
  • Grant shares how you can update your Global Entry account online when you renew your passport.
  • Ed asks: Should AirBNB Be illegal? I’ve never stayed an an AirBNB, but I have friends that feel they are the best thing since sliced bread. The thing I hate most about this situation is the fact that most conflicts are resolved with a middle ground. Hopefully AirBNB and New York State can find that.
  • Its probably too soon to tell what the impact will be, but, I think this graphic says a lot:
Brexit Results

Brexit Results

Miles and Points:

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Is Mileage Running dead or just out of favor?

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I happened to see a tweet on a (for me) busy Friday afternoon that struck me.

 

George tweeted it, but its actually to a New York Times article by Josh Barro. The cliff notes for the article are this – Mileage Runs don’t make sense for many, Mileage Runners do so for status or redeemable mileage, Mileage Runners are not profitable for airlines, airlines have instituted revenue based programs specifically for that, and American is the last bastion for Mileage Runners. Ok, that probably over simplifies the article, but, let me expand.

Now I’ll be the first to admit, I don’t read the New York Times regularly, nor do I know who Josh Barro is, but, reading through the article, I question one core assertion (I could probably go further, but I feel strongest about this one).

But mileage running has never made much economic sense for the airlines.

I’m not sure this is true. Maybe I’m going too far back, but referencing Thomas Petzinger, Jr’s Hard Landing,  to paraphrase: the First Rule of Airline Economics: Once the flight is paid for, any additional payload is pure gravy. Now, granted, right now with load factors so high, those last fares are higher, which Barro correctly notes (referencing Gary Leff), that mileage run fares are not as low as they used to be. Accepting that, I would submit to you, that while this may be true, industries, like economies are cyclical, with highs and lows. 10+ years ago, airlines were really looking for that “pure gravy,” and logically, this could, and likely will happen again.

A word about Load Factors

Load factors, at the very basic level, are how full planes are. US Airlines have spent the past few years reducing capacity, working toward more efficient aircraft, and in general, attempting to “right-size” capacity to increase load factors. Now, I’m not an expert is load factors (or really anything, but that’s beside the point), but I did reach out to some experts, as well as pull some numbers from the US Department of Transportations’ Bureau of Transportation Statistics (BTS).

First, the experts – which I reached out to via Twitter. @AirlineFlyer and @WanderngAramean

and

Given that, plus some other datapoints, Seth went on to note that Jetblue was doing 88% last month, but its not clear if that is sustainable, especially incorporating irregular operations (IRROPS).

Now for the data from BTS:

Airline Load Factors 2002-2013, courtesy of the Department of Transportation, Bureau of Transportation Statistics.

Airline Load Factors 2002-2013, courtesy of the Department of Transportation, Bureau of Transportation Statistics.

I would submit to you, based on that blue line, that domestic airlines are encountering resistance at or about 83%.

What I’m getting at

Ok – so we see that Airlines are starting to meet a resistance point around 83%, and we see airlines are adding aircraft, in some cases, going for “right-sized” aircraft, Wandering Aramean calls this Airlines getting better at controlling capacity. I say “right-sized” because not a single US Airline has bought the A380, but many are buying the 787, the 777, and in the smaller arena, the newer 737s, and even regionals are getting a bit of an upgrade with CR700’s and CR900’s.

That said, I would argue that if we see another downturn (and I’m just trying to be pragmatic here), it is entirely possible that we will see promotions that will be oriented toward mileage runners. Yes, American is the last bastion of mileage running now, with Delta, United, and Southwest moving toward revenue-based frequent flier programs, with Delta being the worse with respect to revenue based redeemable mileage earning, but, things could change.

So my point is, mileage running has worked in the past, and for some it continues to work. I believe that mileage running will continue, albeit at slightly higher cost per mile (cpm).

What do you think? Is Mileage Running dead?

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