American Airlines CEO Doug Parker wants to turn AAdvantage miles “into Bitcoin”, revealing he has no idea how Bitcoin works

Airline executives have a nasty habit of talking trash about “travel hackers” and people who complain about their status benefits going away.  Last week, at a forum on the campus of Southern Methodist University in Dallas, Texas, American CEO Doug Parker was joined by previous CEO Bob Crandall and Hal Bierley, a consultant who was the architect of AAdvantage years ago.  The Dallas Morning News has a good recap of the event, but it followed a typical formula:

  • They talked about how loyalty programs are some of the most successful marketing inventions in history…and they’re correct
  • Crandall blamed airline passengers for buying the low fares airlines offered, causing all the other airlines to also offer low fares
  • Doug Parker called the practice of mileage running “perverse”.  Well guess what Doug, your current AAdvantage program with its nonsense elite-qualifying dollars scheme actually encourages mileage running…on your partner airlines, not yours

So basically loyalty programs are amazing but airline passengers are ruining them by…purchasing tickets and flying on airlines.

But it’s all ok I guess, because Doug Parker also famously said last month that American Airlines will never lose money again.

So all that is a bit ridiculous, but I want to focus on the very last thing that Doug Parker said, from the Dallas Morning News article above:

“We’d like to turn AAdvantage miles into Bitcoin so that everything that you buy is with AAdvantage miles,” he said.

Corporate buzzwords

Most of you know that Andy’s Travel Blog isn’t my full-time job.  My full-time job is in finance, where there are a few buzzwords that have taken over common parlance, as is typical in our headline-driven media.  Words like Bitcoin, blockchain, smart contracts, and DLT (distributed-ledger technology) are being thrown around all over the place, and Doug Parker decided to join in.

In my experience, most people talking about Bitcoin do not understand it, the same being true for “coin offerings” or companies like Ethereum.  But that doesn’t stop people from talking about it.  I cannot tell you how many meetings I’ve been in where people are talking about things like Bitcoin and get it exactly wrong, usually in the exact same way Doug Parker got it wrong above.

This is a bit tough, but let’s jump into it.

What is Bitcoin?

Bitcoin is a cryptocurrency.  I think everyone is probably familiar with the term “currency”, which honestly is where Doug Parker probably got confused.  Yes, cryptocurrencies can be used to purchase goods or services.  It’s the “crypto” part that confuses nearly everyone.  The crypto- prefix comes from the Greek word kryptos, meaning “hidden, concealed, secret” according to etymonline.com.  So basically cryptocurrencies are currencies that have no central authority governing them.  There is no government who can say what a cryptocurrency is worth nor affect the value of it by releasing more/less of that currency into the market.

You’ve probably heard how “Bitcoin will change everything for everyone for all history because technology” or something like that.  They’re actually referring to the technology that underpins Bitcoin.  That technology is called blockchain.  They’re actually not kidding about that part, blockchain will change everything.  Why it will change everything is too complex for a simple travel blog, but it will.

Here’s the point: if you understand stuff like Bitcoin, that’s fine.  Most don’t.  Most people talking about it don’t understand it and are just talking about the hot button topic of the day, no different than the gluten-free diet craze of a few years ago or that new friend of yours who started CrossFit and now they’re ALL ABOUT IT (I’ve done CrossFit for seven years, not hating 🙂 ).

If you want a great explanation about Bitcoin and cryptoassets that is written in regular-person English, read this article.

Doug Parker doesn’t want AAdvantage miles to be ANYTHING like Bitcoin

The American CEO was talking about AAdvantage miles in the context of them being a currency and having value and that he wanted them to use AAdvantage miles to purchase all sorts of things, not just free airline travel.  This is nothing like Bitcoin.

Currently, American Airlines determines the value of an AAdvantage mile through things like adjusting their redemption levels on their award chart.  They also control the supply of AAdvantage miles by doing things like changing the earning structure to how much a ticket costs instead of how long you fly.  They’re actually in an incredibly powerful position: they determine how much of their currency is in circulation and how much that currency is worth.  This, also, is nothing like Bitcoin.

Put as simply as I can: if AAdvantage miles were like Bitcoin, American Airlines would lose control of the value of the miles and they would lose the ability to track the current outstanding amount of miles.  They would also lose the ability to charge outrageous fees when people want to exchange miles.  There are elements of AAdvantage miles that are similar to the cryptocurrency market, but AAdvantage miles are much more liquid than Bitcoin.  Bitcoin uses a distributed ledger (and the recalculating of that ledger is what creates new Bitcoin).  AAdvantage is a private, centralized ledger.  And it works very well that way.

Here is probably what Doug Parker meant

What he probably meant is he wants American’s customers to look at AAdvantage miles as a currency (well duh, most of them already look at AAdvantage miles like a currency).  If American’s customers look at AAdvantage miles like a currency then they would immediately understand why American is rewarding the people who spend the most money with the most AAdvantage miles.

While I will concede that the logic above makes sense, I would probably venture a guess that most American customers have paid far more attention to the devaluing of AAdvantage miles than anything else.

At the end of the day…

In the span of a month the CEO of the world’s largest airline said his company will never lose money again and revealed a horrible misunderstanding of a hot-button financial topic like Bitcoin.  That’s either hubris or embarrassing, probably both.

 

1 Comment

  1. Or to make it simpler he wants to make AAdvantage miles just like SkyMiles so flyers spend them in the lounges? Well played Doug, well played.

    Reply

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