The Future of Airline Loyalty Programs

I’ve got a special guest post for you today from Jason Steele from AskMrCreditCard.com fame on the future of airline loyalty. Hit the comments below and let me know what you think.



As a frequent traveler, and the reward cards blogger over at AskMrCreditCard.com, I am excited to contribute to the Cranky Flier. I would like to share with you my perspective on the future of airline loyalty programs. These programs, once known as “frequent flier” programs, have morphed into “loyalty programs” over the last few years and are quickly headed towards becoming flat out barter systems.

Airline loyalty programs stopped being “frequent flier” programs years ago. Recently, I had my parents use their American Express Membership Rewards points, to get points on Al Nippon Airways, for an an award flight on their Star Alliance partner South African Airways. Note that they only joined ANA’s program for this award, and they have no plans to ever fly with them. So much for the idea of a “frequent flier” reward or even a loyalty program.

These days, the best way to earn miles is by doing anything but flying. Get a credit card, rent a car, get a hotel room, or go shopping, but whatever you do, don’t buy an airline ticket! That is the message the airlines are sending when they drop the 500 minimum mileage accrual. Yes, United Airlines will sell you a round trip flight tomorrow from Dulles to Richmond for $907.00. For that, they will reward you with 198 Mileage Plus Miles, worth almost a dollar! Buying flowers or a magazine subscription $20 will easily earn you more miles. Savvy travelers like Cranky and myself have already learned to disregard frequent flier miles when choosing an airline for a given trip.

I have often wondered why they use a mile to begin with. Why not a kilometers, or the aviation standard, nautical miles? Southwest wisely doles out “Rapid Rewards” points that are the equivalent of about 1500 miles in other airline programs.

Many airlines are selling off their loyalty programs, like Air Canada, or are positioning themselves to do so, like United. When this happens, the programs go from offering service based awards representing travel between various continents or zones, to awards that are simply based on current value of an airline ticket. I recently discussed service versus value based awards in greater detail here.

What is the natural extension of this trend? I can foresee the day where these point systems are detached from flight, and points merely represent a fixed value. With value based options, like Delta’s pay with miles program, you know exactly how much a point is worth. From the airline’s standpoint, this is a great way to account for all of their outstanding points and feel like they have alleviated consumer’s frustration with award unavailibility. This turns loyalty systems into simple barter arrangements and, like the example involving my parents, offers consumers no real incentive to actually purchase a ticket.

From my perspective as a customer, I have no interest in value based loyalty programs. In my experience, the value returned is rarely more than 1-2 cents per mile or point. While I realize that service based awards are often unregulated lotteries, myself and many others are able to maximize our rewards to return a value in the 4-6 cent range or more. For example, a First Class award seat on Singapore can be redeemed for a mere 140,000 Delta SkyMiles, yet can cost over $14,000 to purchase, making this award worth a phenomenal 10 cents per mile. Redeeming a international Business Class ticket or a premium hotel are both high value utilization, as well as luxuries I enjoy, yet would not have paid cash for.

If I were advising an airline, I would point them in a different direction. Airlines should realize that they are in the business of getting people to their destination, and should focus on rewarding their best customers. Reward customers with more miles for actually flying. Those who buy tickets with higher profit margins, such as full fare ticket tickets, should earn more miles, just as first class tickets do. They also need to make it easier and more transparent to redeem award flights. Myself and others have given up on airlines when our hard earned miles seemed only redeemable for travel to Buffalo in the winter. When the reward comes due, they should abolish the unregulated lottery of award redemptions and provide real value to their best customers. In a perfect world, airline programs would resemble the Starwood Preferred Guest program where awards could be redeemed, at a fixed rate, for any available room.

Until then, frequent travelers, consumer gurus, and airline dorks will play the free travel game, and I am not sure if the airlines are winning.



Jason Steele blogs about reward cards for AskMrCreditCard.com. He a commercially rated pilot, FAA Certified Flight Instructor, and a frequent traveler. He also blogs as the Denver Local Expert for PlanetEye, as well as hosting his personal blog, Steele Street about politics, consumer issues, travel, and aviation.

There are 23 comments. Comments

Comments

Your email address will not be published. Required fields are marked *