Earlier this month, British Airways introduced Avios, a new name for miles. Now if you’re a member of the BA Executive Club or Iberia Plus, you will earn Avios when you fly, use a credit card, etc. In other words, it’s a shared currency that can be used across airlines under the same ownership. There has been a lot of criticism about redemption levels, but on the bright side, a new elite tier was introduced. I spoke with Simon Talling-Smith, Executive Vice-President, The Americas at British Airways to talk about this and more, including the dreaded fuel surcharge.

Cranky: Let’s talk about some of the changes. It looks like on the elite side, it’s the new tier?

Simon Talling-Smith: Exactly right. We’ve launched a new Bronze tier. Really, a lot of the benefits customers accrued started at our Silver level. We knew there was a big segment of active customers who were not making that Silver level but we still wanted to have a more engaged relationship. So we’ve introduced this Bronze tier. It allows people to enter at half the points of the Silver tier. It gives them substantial benefits like First Class check-in, a better chance to do seat selection, and a 25 percent uplift on Avios when they fly.

Cranky: Can you explain how the tier points work? I see for Bronze, it’s 300 tier points to qualify.

Simon: We distinguish between qualifying points and earn and burn mileage. The qualifying points are our tier points and those are earned by flying, pretty much only by flying. And they accrue over a period of a year and that qualifies you for a level in the Executive Club. Then the following year you need to attain a certain amount of miles to retain that level, but it’s easier for retention than to initially earn it.

Cranky: If I’m new to BA, what kind of flying do I need to do to get 300 tier points?

Simon: A lot of ways to do that.

Cranky: Ok, so I’m in the US and I’ll likely be going over to the UK.

Simon: It’s probably only a couple of Business Class flights per year that will get you into Bronze.

Cranky: I assume part of the motivation for creating this tier was to help align better with American?

Simon: Yeah, both American and Iberia both offer that extra tier. And of course oneworld as a whole has a name for it; it’s Ruby.

Cranky: Beyond elite, earning has not changed, is that correct? If I fly from LA to London I still earn the same?

Simon: Yes.

Cranky: But redemption has changed fairly dramatically.

Simon: Redemption has changed in terms of redeeming your Avios points. Instead of having quite crude and large zones that we carved the network up into, there’s a finer level of segmentation now so different flights may have different redemption levels. It’s not as granular as mileage pricing, but there are are a number of different levels. We have quite a cool map-based calculator to help people.

Cranky: There’s no award chart, right? It’s more opaque than that. You have to put in where you want to go and it’ll spit out how many points.

Simon: Yeah, what we’ve done is basically create nine zones in the world.

Cranky: So why isn’t there an award chart? I was thinking it was much more complex than that.

Simon: The problem is that it’s fairly easy to do that when you’re just flying BA, but as soon as you start to include partners, it starts to get a bit more complicated. So when we wrestled with doing a straightforward redemption table, it became quite unwieldly.

Cranky: If it’s BA, you get up to one connection and it’s journey based, but on partners, it’s leg by leg.

Simon: Exactly.

Cranky: There’s been a fair bit of criticism about what’s being considered a devaluation. I think the claim was that the cost of redemption would go down on most itineraries, but that was really just online BA itineraries to and from London. How much attention do you pay to the criticism, and are you looking at making tweaks?

Simon: I’ve read some of the same feedback on FlyerTalk and we’ve been quite active in that space in responding to questions in there. And to some extent, communicating in the world of frequent fliers is a bit complicated with all the rules. When you communicate change, it’s important to stay close to the customer. In particular we did clarify that statement. It’s something like 97% of online journeys with BA are the same or better.

Cranky: Yeah, that’s what it was.

Simon: And then once you start to add partners it gets more complicated. But of course because some of the online journeys are better, you can get situations where online plus partner is still better than it was before. It’s pretty complex, but yes, we are getting a lot of feedback especially from specific groups of people who are focused on partner jounreys and we’re doing our best to follow up with them.

Cranky: So have you identified areas where you said, “maybe we should make a little change”?

Simon: I haven’t done that yet. It’s a little bit early. With a change of this scale, you need to find out what turns out to be frequent significant issues and then start working on them. But at the moment, it’s so early into the change that I think it would be just a little bit too soon to start making the tweaks. We may well make some tweaks, but it’ll be further down the road.

Cranky: But you are paying attention.

Simon: Yeah, we watch FlyerTalk, we’re completely on top of the tweets, we have an active presence on FlyerTalk where people are engaged. So we take all of that, that whole space of blogs and more generic social media very seriously because that’s where people are talking about our brand and we need to be very responsive.

Cranky: Can you talk about what spurred the change to the redemption scheme? I mean, I understand the change to Avios to try to get a shared currency, but in terms of changing the way the redemptions work. What was the thought process?

Simon: I think again sort of opportunity to react to a bit of feedback that we’ve been accruing over years since we last made a change. Customers had been saying “the scheme you’ve got is a bit unwieldy.” Of course a lot of people’s feedback and critique comes down to whether they perceive the number of miles they pay on a journey to be fair or not. And if you have a more granular level of charges, then you’re always going to have a more fair selection. That’s because you have very big regions and the shortest in the region and longest in the region are the same price and people ask why. That’s a big driver.

Cranky: The differentiation between partner awards and BA awards, was that an issue of aligning your incurred costs with mileage spend?

Simon: That was very simple. We have individual exchange arrangements with all those partners, so to some extent when people start flying on partner networks we have to recognize the rules and structure of that partner’s program as well.

Cranky: But you’re not differentiating redemption values by partner at this point, right?

Simon: That’s right.

Cranky: I think that’s all I have, but if you do start looking at changes, I’d love to see the fuel surcharge dropped.

Simon: Yeah, if you could just lean on those guys at OPEC to reduce the barrel price, we’ll be dropping the fuel surcharge quickly.

Cranky: I’m sure that’s something you hear a lot of.

Simon: All I can tell you is that not only does the fuel surchrge not cover the cost of fuel but it doesn’t cover the increase in the cost of fuel.

Cranky: Right, but if it’s a redemption ticket, it’s a question of whether people earned the right to not pay that. We could probably discuss this as a scholarly level.

Simon: The basic math is that if the fuel price goes up so that we end up paying $100 more to carry someone across the Atlantic, the surcharge allows us to recover some of that but it’s not $100. We have to recover that from somewhere else. We don’t want to take that out of any part of the customer experience. We don’t have to have lower quality food or anything else. So that leaves us in the uncomfortable position of having to surcharge while the fuel prices are so high.

Cranky: Did I miss anything?

Simon: I guess the other thing to say is that the relaunch is part of a much bigger program of investment. We’ve said it’s about 5 billion pounds including everything from lounges to service experience to the aircraft themselves to technology. We’re into a very big investment at BA and we see that going on for a number of years.

To learn more about Avios, visit British Airways online.

Last night, I attended the launch of Iberia’s new flight from LA to Madrid. This has been hailed as a product of the joint venture between British Airways/Iberia (now under the same ownership) and American Airlines. Is that really true? Yes and no, I think. It’s confusing.

One of the things that bothers me about joint ventures in general is that they are given a lot more credit than they’re actually due. The basic joint venture idea is that airlines come together to create a single business where all decisions are made to benefit the greater good and information flows freely. The participating airlines pool the money and then split it up, so it doesn’t matter which airline is actually flying the passenger. With rules against foreign ownership in place in the US, this kind of cooperation is the closest that US airlines can get to merging with a foreign airline.

In this case, we see the airlines saying that the joint venture has “increased the travel options available to clients of all three airlines, with more frequencies and more destinations, as well as better connections across all three networks.” But how much of this is achievable without a joint venture from a customer perspective?

Airlines can and do codeshare without a joint venture all the time, as you all well know. So the connectivity aspect isn’t something that requires a joint venture. Similarly, frequent flier cooperation has nothing to do with the joint venture. Some people believe that American and British Airways were not able to offer miles on each other’s Transatlantic flights because the feds wouldn’t approve the joint venture for a long time. They might have wanted you to believe that, but it’s not true. It was a business decision. So what exactly does a joint venture do?

Most importantly, it allows for schedule and fare coordination. Before, Iberia could start the flight to LAX, but it wouldn’t be able to strategize with American about which markets had the best connecting opportunities and adjust schedules accordingly. Now, since they share all information, American might find that it’s worth it to shift a flight to, say San Diego by half an hour because there are a ton of people flying that route and the airlines might be losing out to competitors with better schedules.

It has also allowed the airlines to cooperate on routes where they previously competed. Look at the New York to London market and its “shuttle” service. The two airlines have now aligned their flight times so that they complement each other instead of compete. Granted, they still operate from different terminals at JFK, so it’s not an easy shuttle service as you would hope, but it’s a step. And it’s a step that’s only really going to happen because of the joint venture.

Fares can also be discussed at will. So there can be much better route analyses in order to determine where the best place is to put that A340 Iberia is now sending to LA. Maybe Iberia with its own data would have decided that another flight to Chicago made sense. But after looking at the data, the combined information showed that everyone in the joint venture would be better off with the flight to LA. I don’t know if that’s true at all, but it shows how it could work.

So for the airlines, it’s all about the pseudo-merger over the Atlantic. They can now look at the data as one, though with some of the large cultural differences, it’s hard to get everyone on the same page when it comes to taking action. Still, the possibility is there and it can be good in terms of better schedules and more flights.

Can it be bad? Of course. Before, you still had BA, Iberia, and American competing for passengers over the water. Sure, they codeshared with each other, but the airline that flew the passenger got the money so there was incentive. Now, there are fewer competitors in the market since BA/Iberia/American act as one (as do Delta/Air France/KLM and Lufthansa/United/Air Canada.) In the end, the belief is that this will still be better for consumers, at least, that’s why the feds decided to approve it.

What do you think?

Last week, American and its joint venture partners British Airways and Iberia were here in Southern California to pitch the benefits of the joint venture to the region. The airlines are launching a lot of new service here in the next month, and they say the joint venture is a big reason why. I, however, was more interested in how the airlines were going to deal with their sometimes large product differences. The result? There doesn’t seem to be much concern about that.

As you probably know, BA and Iberia are now co-owned by the same umbrella company so they are slowly beginning to act more like one airline these days. All of these airlines have been in the oneworld alliance together for a long time, but it’s only in the last year that they’ve been granted antitrust immunity to effectively operate as one airline over the Atlantic. This is something that Delta/Air France (including Northwest/KLM) and United/Lufthansa have had for a long time so these guys are playing catch up. And they were in LA to spread the gospel about how great this is going to be.

Some of the point here is to promote new service. Iberia starts its nonstop from LA to Madrid soon, BA is adding San Diego to London again, and American is adding a bunch of regional jet flying around the Western US. Oh, and LA to Shanghai too. With the increasingly tightened cooperation, it had me wondering about the onboard experience. Did they think that it was an issue that the experiences could be so different on the airplane? The answer was no.

We need to look no further than the offerings in LA to see that there is a stark difference, even in coach. Iberia, for example, has no powerports and only overhead video screens on its flight to Madrid. American’s London flight has looping movies in each seat with scattered cigarette-lighter style powerports. BA has full audio/video on demand and no powerports. Meanwhile, BA has a premium economy section that the others do not have. And the business class experiences are very different as well. BA has a full flat bed while Iberia and American have different angled lie flat seats. And Iberia doesn’t have a First Class while the others do. And yet, you wouldn’t know a difference existed if you book online at the airline website. Here’s a shot from BA’s:

As you can see, you know the name of the airline that’s operating the flight but that’s about it. If you click on the class of service, it just gives a vague description of what you get on BA in those classes and not the other airlines. You can go to the more robust descriptions on the BA website and there are links to American and Iberia from there, but this assumes that people think in advance to ask if there’s a difference. One solution would be to work toward a combined product standard, but they don’t like that idea.

Jose Maria Alvarado, General Manager of the US and Canada for Iberia said, “I don’t think the passenger wants the same cookie cutter service.”

I think there’s a big difference between having similar product offerings and offering “cookie cutter” service. But let’s assume he’s right and that everyone loves each of these airlines for the differences they offer. Shouldn’t they at least be making a greater effort to describe product differences in the booking process?

Kevin Burns, Regional Director of Western USA and Canada for BA said that “to bias the decision process isn’t to our benefit.” Again, there’s a wide gap between informing the customer of the options and biasing the decision process. My hopes aren’t high that we’ll see this change anytime soon.

This isn’t a problem that only these airlines face. Every airline entering into a joint venture or any close business cooperation has to learn to either eliminate the differences or do a better job of explaining them. I wish more airlines would focus on this, especially as they get tighter and tighter with their partners.

It may have been almost two months since BA brought me out to London, but I still have some good material waiting to see the light of day. Today it’s a tour of the new British Airways First Class which is being rolled out to the fleet as we speak. I visited a mockup in the airline’s seat testing center in an overgrown hangar at Heathrow. Please excuse my horribly corny jokes, which were even worse than my usual corny jokes thanks to my not sleeping very much on the flight over the night before.

As you can see, it’s really well-done. The most impressive thing to me isn’t the seat but rather the ambience that they’ve managed to create in the cabin. The window shades just really change the feel for the better, along with several of the other touches. BA specifically avoided the completely private suite with walls like many competitors. Some will like that while others will hate it. Of course, most of us will only see the inside of this cabin if we’re redeeming miles, but if you’ve got ‘em, this looks like a good way to spend ‘em. (If it weren’t for that pesky fuel surcharge . . .)

I know it’s been a month, but I’ve still had a few posts on the backburner from my London trip. You didn’t think I’d stop posting without something on Heathrow’s Terminal 5, did you? I spent a fair bit of time in the terminal and it is an impressive place, for the most part. Of course, it was absurdly expensive to build, but as I wrote on BNET, the price may have been justifiable in this case. Shocking to hear me say that, I know, and I’m sure there were ways to cut down on cost, but much of it was unavoidable.

Most of you know Heathrow as that awful place where congestion is such a part of life that your plane has to circle a couple times on arrival and when you do arrive, your bags immediately get lost. That’s why British Airways was so focused on building Terminal 5. Heathrow’s previous arrangement had Terminals 1, 2, and 3 in the central terminal area between the two runways. Terminal 4 was on the south side of the airport, completely away from the other three. BA’s long haul operation was in Terminal 4 and its short haul operation was primarily in Terminal 1 and that meant trouble.

The long distances made for all sorts of problems. Yes, bags got lost frequently and connections were long and painful for people as well. Terminal 4 was a nightmare because being on the far south side meant that to get to and from the north runway, BA airplanes had to cross the south runway. That was a very time-consuming process at an airport that operates at maximum capacity. The parking areas were also very tight, so like Delta at JFK, BA had traffic jams between its own airplanes that caused delays.

So BA worked with airport operator BAA to build a more than £4 billion new terminal to the west of the existing central terminal area. That became Terminal 5. Why didn’t they build Terminal 4 there? Well, there was a big sewage treatment plant and that had to be relocated along with a bunch of other stuff. That’s one of the reasons that the terminal was so expensive. There was a ton of site prep work.

But now Terminal 5 is built and it’s a great place. There is the main terminal area T5A and then two satellites connected by an underground train, T5B and the soon-to-open T5C. I arrived in T5B, as do most of the US flights, and found that the scale of the terminal was not noticeable upon arrival. You are shuttled through a series of escalators and trains, and when you finally come out, the arrivals area is a very small place with just a couple of shops. There are in-terminal connections to the Tube, the Heathrow Express train, the Sofitel Hotel, and a ton of buses that take you all over. It works very well, though the up and down of the escalators can be somewhat confusing after a long flight.

The departure level is where you really sense the size and feel of the terminal. The ticketing area is enormous and it lies in a huge open space. The concept has you check in at podiums and then keep walking through to a wall of shops at the back. Security sits on both sides, and I’m told that if the line on the left side is long, go to the right where the premium check-in areas are. Those may be shorter.

Once through security, you come in on a mezzanine level above the departure areas. There are a couple of shops and restaurants up top but much of the action is down below. Once you descend to that level, you get that trademark Heathrow shopping experience where you’re completely overwhelmed. It’s just crazy how much shopping they are able to shoehorn into that place. If you’re a fancy pants flier, you can head to the right where the bulk of the lounges are in the terminal. This is one place where the smooth flow is interrupted. Instead of just walking from the mezzanine into the lounge, you have to go down and then back up to reach that area. Goofy.

There are two large Club World and First Class lounges that also welcome BA’s elites. They’re large, light, and have a ton of options including things like food and champagne bars. Then there’s the Concorde Room. This room is only for First Class passengers and it is old-school. It uses a lot of dark wood, has a fire burning, and is a very quiet place unlike the other First Class lounge. It’s traditional British luxury at its best. The room has a full service dining area and an excellent balcony area where you can look over the little people down below. It also has a couple of private day rooms for those with long layovers. Unfortunately, I wasn’t allowed to take any pictures in any of the lounges.

Back with the normal folks, I found there to be plenty of seating. T5A is where the domestic flights go from so you see a lot more narrowbodies there. To board, you actually descend another level to the gate itself. It flows well. If you need to go out to the satellites, you descend to the train which takes you there. There are some shops and a lounge (on T5B) for people, but you shouldn’t go out there unless you know your gate. Once you go out to T5B or C, you can’t come back to T5A. It’s happened before and apparently required BA’s staff to step in to help figure out a way out without going into the customs area.

Underground, there are apparently several stories of a baggage system that does what Denver’s system was supposed to do before the airlines gave up on it. The result is that lost bag numbers have plummeted and on-time percentage has spiked. When the snow/ice storm hit in December, BA had to cancel scores of flights like the other airlines, but while other terminals had to set up tents to deal with all the stranded passengers, BAA built Terminal 5 to have enough extra space that it wasn’t necessary.

According to BA, the cost savings have been so huge in terms of improved on-time performance, shorter taxi times, and better baggage numbers that it is easily paying for itself, even with the large increase in costs at the airport. In that sense, the savings justify the insanely high cost. Could they have shaved a billion off the place with a less grandiose design? I would assume that there could have been more savings and I wish they would have taken advantage of them. Then maybe airlines like bmi wouldn’t feel so much pressure to drop shorter haul flights because the costs have gone up too much.

But Heathrow is still constrained with two runways and the government has opted to ignore the problem and refuse a new runway. That means Heathrow will continue to see more and more long haul at the expense of short haul so the cost doesn’t have as much of an impact in those cases. For passengers, the experience is certainly a good one, and it’s nothing like it used to be.