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Do airline loyalty programs have a future?
Do airline loyalty programs have a future?
 
 
2015-01-08 6 Comments Report abuse
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Categories: Lifestyle, Lifestyle - general, Travel, Travel - general, Frequent Fliers
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Proven entrepreneurial business and sales leader, marketer and co-founder of 3 awesome daughters. Public writer and speaker, primarily on topics relat...

Introduction


In a recent article on Fortune (How airline loyalty programs seduce and abandon you - http://fortune.com/2014/10/01/airline-loyalty-programs/), Jeffrey Pfeffer presents a reality-check of how airline loyalty programs are designed to create false identity for their members for the purpose of generating additional revenue.

"My advice: wean yourself from the idea that your airline mileage balance is like a bank account with actual value—it isn’t. Stop identifying with a company that probably is providing ever worse service at ever-higher prices. Cease showing loyalty to an entity that is not reciprocating your love. And stop trying to concentrate your trips on one carrier for the dubious privilege of learning that the many supposed advantages of elite status get reduced almost every year."

As someone who regularly flies 200,000 miles a year, I am passionate about the programs I belong to, but I have to agree with many of the points that Jeffrey makes. I have seen a reduction in my benefits over the years, and I have seen the overall service decrease as planes become more and more like cattle trucks. Yet in exchange for putting up with these experiences, I do get free upgrades and I do get to take international flights in luxury cabins, so there are still benefits. Will there be 10 years from now?

I asked Ben Schlappig (or Lucky) of "One Mile At a Time" fame, Brett Snyder from the great "Cranky Flier" and Gary Leff from 'View From The Wing' travel blog for their opinions.
Question: The benefits of being a loyal member of an airline can include lounge access, priority security access, priority boarding, miles for tickets and upgrade mechanisms. Can the airlines afford to maintain these?
Absolutely. At the end of the day loyal customers are paying a premium to fly with their preferred airlines. That's why time and again we see that loyal customers don't just bring more business to the airlines, but are also more profitable on a per transaction basis.

Furthermore, keep in mind that the marginal cost of providing many of these services (lounge access, priority boarding/security/seating) is next to nothing. Frequent flyer programs are a profit center, and not a cost center, for the airlines.
Sure the airlines can afford to maintain these, but the question is for whom? Entry-level elite members have seen their benefits eroded as the airlines have made it easier for them to get status in the first place. At this point, the benefits for being an entry level elite are primarily access to better seats on the airplane (not talking about upgrades here, which are a pipe dream for most at that level), priority lines, and free bags if they care. For higher level elites, the benefits improve, as should be the case. So if we do see certain benefits going away, it would likely be a tiered basis with the lower level people getting the shaft. An alternate way to handle this to allow fewer people into the elite programs. But that's not in any airline's best interest.
The pendulum is swinging in the direction of less generosity from frequent flyer programs in exchange for actually flying an airline. Airlines are doing well, planes have been flying full, and low even fuel prices are falling. In that environment there's little need to spend significant marketing dollars to fill incremental seats on aircraft.

There are few industries more cyclical than travel, and few businesses where success ephemeral as airlines. I'd bet that this direction will change.

At the same time, frequent flyer programs have become victims of their own success. Multi-billion dollar businesses in their own right, they're arguably the single most successful marketing vehicle ever devised -- first they took an essentially commodity product (airline seat between A and B) and turned it into a differentiated product that engenders loyalty, and then they took that vehicle and turned it into a generic all-purpose and very real currency.

But as the currency expanded, the redemption product (airline seats) did not. Planes filled up, capacity didn't expand, award seats became fewer while more and more miles were outstanding.

So less need to reward passengers, too many miles chasing too few seats, there was a perfect storm waiting for a correction.

And yet the programs themselves remain profitable, and the currencies valuable, change has happened along certain margins but you can still use miles and points to travel in a manner you couldn't otherwise afford. There's real value in the programs.

As for the specifics, airlines around the world and not just in the US provide miles for tickets and offer upgrades. The programs are profitable and can afford to maintain these, the question is along what margin will they cut back spending on certain customers, and how can we continue to benefit from the offerings?

Co-brand credit card holders receive priority security and boarding and with some cards even lounge access. Those cards are big business, Delta just re-upped its $2 billion a year deal with American Express. Miles remain a desirable currency that drives consumer behavior even as the value propositions of the programs shift.

And there will continue to be opportunities to generate outsized value from the programs, if only because many continue to get more - rather than less - complicated. Instead of two or four award tiers, Delta now has 10, and that's without even offering awards for premium economy or international first class. With both Delta and United a single flight earns qualifying miles, redeemable miles, and qualifying dollars in separate amounts -- which vary based on whether you travel with them or one of their partners and even based on who issues the ticket. Complexity means arbitrage opportunities. And with ancillary revenue as high as ever, we can earn miles in myriad ways. Right now non-flying opportunities are relatively more valuable.

Benefits will remain, opportunities will change.. and then they'll change again. When the economy turns we'll quickly see airlines turn to their marketing engines to fill empty seats, and promotions like 'double elite qualifying dollars' to fill the ranks of their ostensible most valuable customers.
Question: In the Fortune article, Jeffrey suggests being less reliant on one airline, and instead being 'smarter' by moving between several programs - do you recommend that as a strategy?
There's something to be said for being a "free agent" and not tying yourself down to one airline. As much as I'm all about loyalty programs, I'm not in favor of "blind" loyalty. You always have to evaluate your relationship with your primary airline and figure out whether you're getting more out of the "relationship" than you're putting in.

I find airline loyalty to be most valuable when you fly at least 100,000-125,000 miles per year with that airline, which is required for top tier status. This is the point at which you'll actually clear upgrades on domestic flights regularly, receive international upgrades, and get fee waivers.

If you fly less than that, you should really think twice before being too loyal to an airline.
I absolutely do, though it can depend on where you live. I live in the LA area which means every airline has significant service. I have real options, and I use them all. But if you live in Atlanta, the vast majority of the time Delta is going to be your best option if you value nonstop, frequent flights. If you live in a hub without competition, then you're somehow beholden anyway. But if you live in a spoke or in a hub with competition (Chicago, New York, LA), then I would never let my elite benefits dictate who I fly. That being said, there are some misguided people out there who suggest eschewing frequent flier programs altogether. That's just silly. Whichever airline you fly, you should always earn miles. It doesn't cost you anything extra and you might find them useful some day.
It depends. While prices are up and in many cases benefits down, the importance of elite status has never been greater for those who can achieve it because the alternative is worse. Top tier status, as well, continues to be valuable.

If you don't fly enough for status, definitely shop around. If you fly a good bit, but not quite enough for status, it can be worth getting a co-brand credit card that offers many of the benefits that are similar to what you'd get as a first tier elite. But if you can fly enough for top tier status unquestionably the upgrades can be worth it, the better treatment generally can be worth it, and the help during irregular operations remains a lifesaver.

If I'm ever in coach on American I get free buy on board and a cocktail. If I have a flight disruption I get priority assistance and am top of any wait list. They keep me moving. And the upgrades are a benefit on top.

It all depends how much you fly....
Question: Both of you make your audiences aware of various credit cards offers on your blogs that help fliers earn more miles. Can a credit card strategy replace a loyalty strategy?
Airline loyalty programs are so centered around their co-branded credit cards given what big money makers they are for the airlines. As a result, we're seeing co-branded credit cards offer more benefits than ever before, from priority boarding/check-in, to free checked bags, to status if you spend a certain amount on the card.

As far as the airlines are concerned, spending a lot of money on their co-branded credit card does make you a loyal customer, just in a different way than someone that's loyal through flying.
That is not true. I do not write about credit card offers and have no interest in doing so. That being said, credit cards can both deepen loyalty to an airline or free you from it, if used correctly. In many cases, people simply get credit cards from the airlines that they fly most. That does give benefits that previously required having elite status (like free checked bags) but people who have these cards and pay the annual fees are likely to want to stick with those airlines for the benefits anyway. It just deepens the relationship. But a card like the Amex Platinum can help free you. It gives you a $200 airline fee credit each year so that can fund some of the fees that you would have had waived if you had elite status. It also has a growing lounge program which makes it better than some of the elite programs in the US for that particular need. But just earning miles in various credit card programs won't replace elite status. Those are like comparing apples and oranges. It's the benefits that matter, not the miles.
A credit card strategy can augment a loyalty strategy, earning miles that couple with those from flying towards an award or helping to earn additional elite qualifying miles for status via spend (or buy out of the minimum revenue requirements for status in place at Delta and United).

A credit card strategy can replace a loyalty strategy in that simply being a co-brand credit card holder conveys in many cases several of the benefits of the first tier of status -- priority check-in, security, boarding plus free checked bags and even occasional lounge access.

A credit card strategy can replace a loyalty strategy in terms of diversifying ones' currency holdings and hedging against devaluations. Points that transfer to a variety of airlines (like Chase, American Express, Starwood, and Citi) are generally better to hold than a single carrier's miles. Although there's no guarantee a given program won't change -- Starwood's transfer ratios with individual airlines have shifted in the past, American Express has lost and added partners, Citi has upended the value proposition of the ThankYou program more than once -- so I prefer diversifying among the flexible currencies, rather than banking on a single flexible currency.

For me, as a very frequent flyer, I find that the cards augment rather than replace loyalty. But for the more occasional flyer, cards -- and indeed other non-flight means of accruing miles -- are certainly an area of focus.
Question: If you had to start again today with zero airline status and zero miles, how would you go about getting started?
First I'd evaluate how much I was planning on flying, where I was planning on traveling, and what benefits I value most. Based on that, my first decision would be whether it's even worth being loyal to an airline. If I weren't planning on flying 50,000+ miles per year, I'd probably decide against loyalty at all.

If I were planning on flying more I'd decide which airline to be loyal to based on where I need to fly and what benefits I value most. For example, personally I really value international upgrades, so I'd probably consider being loyal to American, since they offer their top tier Executive Platinum members eight systemwide upgrades per year just for achieving status. Those are invaluable to me.
I wouldn't. I always choose the airline that has the best schedule and the best product for my trip. Price should be taken into account too, of course. I earn miles every time I fly but I haven't had elite status on any airline in years. I find it far better for me. But for those people who put high value on the benefits of an airline elite program, then the answer would be different. I'm just not one of those people.
I wish I could start again, do it all over, turning back the clock to when I actually began. I never knew how great I had it when last seat availability on United to Australia was 150,000 miles in business class or for that matter when air awards included hotel and car.

With zero status and zero miles today, I think I'd follow the same approach I do now -- which is to say I don't think my advice or behavior is especially driven by lock-in.

Since I fly 200,000 miles a year, about two-thirds paid domestic, it makes sense to be a top tier elite member and I choose American for that because I'm not based in Atlanta or the Upper Midwest and because I don't work for a company with a contract with a specific carrier. I find that American's top tier status is currently the most rewarding. If they change the value proposition on me, I'll reconsider.

And then I try to accumulate as many points as I can in flexible programs. Ideally I'd burn at the same rate that I earn, but without even trying especially hard I continue to out earn my miles spend. I don't really recommend that but when you're paying attention, the accumulation side has become so easy that I really can't even complain too much about some of the devaluations...
Question: Including your own blogs, what resources do you recommend frequent travelers use to make the most of flying today?
In terms of keeping up with the latest credit card offers, promotions, and can't-miss offers I recommend BoardingArea.com (where I write the "One Mile at a Time" blog). For more of a community, I think FlyerTalk.com and MilePoint.com are great, as they have forums dedicated to many individual loyalty programs. Lastly, I really like TheFlightDeal.com for keeping up with the latest fare sales. Those are the sites I check most regularly.
My blog, crankyflier.com, is very much focused on the airline industry as a business and how it impacts travelers. For those who want to know about miles and points, they can scour boardingarea.com (where Ben's blog is along with many, many others).
Of course I recommend ViewFromTheWing.com, if I didn't think it was useful I don't think I'd write it and I consider myself genuinely fortunate that so many people have found it valuable enough as well to read day in and day out.

Ben's One Mile at a Time is my favorite blog, the one I read the greatest percentage of contents from. I recommend his writings all the time.

Other tools:
* EvReward.com to make sure you're getting the most return out of shopping portals for the purchases you'll make online anyway.
* AutoSlash.com to drive down the cost of your car rentals.
* ExpertFlyer.com for its real-time flight availability, fare rules, availability alerts, and seat alerts
* FlightAware.com to help predict delays and cancellations, it helps to know where your flight is coming from and where that flight is coming from and you can get a jump on other passengers on your flight to be re-accommodated.
* Milepoint.com (where I'm a co-founder) to discuss your travels and ask questions.

The great thing right now is that there's a whole world of connected frequent flyers out there that didn't exist when I first got started in travel and collecting miles 20 years ago. You can find seat maps and reviews of flights and hotels. You can get advice from people that have been there and done that.

Even though traditional brick and mortar travel agencies have been pushed aside for airline bookings and simple hotels, in favor of online sites, the future and to a certain extent the present are one where we can easily get customized advice (and where this will become even easier) to make our travel better.
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Recent Comments Total Comments: 6
These are great comments from seasoned and experienced travelers. I have a bare 75k per year so it sounds like I need to keep it all in one place in order to get any benefit at all--otherwise I'm sitting in the way back. Thanks for the info about sites to use. I think if I follow some of these I could "play the field" more and possibly travel happier.
2015-02-03 Report abuse
I've had credit cards with Delta, Southwest, Frontier, and United. Much like fireworks, they're incredible at first but fade rather quickly- so now i just use my bank card to accrue general travel benefits. Perhaps I'm jaded, but I assume all airlines are out to nickel and dime me to bankruptcy. If there was an airline with a loyalty program that I didn't have to pay for, that I felt was a true good will program, or had a positive impact on the other world, I would go out of my way to fly them every time. And I mean little gestures that make me feel like a valued customer. Maybe they wouldnt make money up front, but in the long term would see financial rewards. Great article btw!
2015-02-03 Report abuse
I am shocked by the revelation that delta makes $2bn from their branded credit card deal. Makes sense now why all the airlines and hotels push them so hard.
2015-02-03 Report abuse
I’d like to get your thoughts about specific programs that work especially well together -- hotels/airlines, airlines/car rentals or maybe even others that I don’t know about? Always love to learn from the experts! Thanks for the list of blogs and resources, too. I can’t wait to check out those sites.
2015-02-03 Report abuse
Great to hear your points of view -- very interesting conversation!
2015-02-03 Report abuse
Great to hear your points of view -- very interesting conversation!
2015-02-03 Report abuse
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