We’ve had a couple of interactions with upgrades lately and more often than not, mileage upgrades are becoming less useful.
First, we had someone flying Delta to Europe. The “M” fare that Delta requires you buy to use an upgrade with SkyPesos was so high that it was only a couple hundred dollars more to buy business class on Air France. Miles were useless.
Another effort looking at United to Hawai’i showed that the co-pays were so high that the First Class fares on other airlines were actually about the same price without having to use miles.
What have your experiences been lately? Are upgrades using miles still valuable to you?
This is almost exactly what Southwest has done. It has gone from offering domestic flight awards with limited availability, to handing out fixed-value points with unlimited redemption options. Its previous system was incredibly simple, and, sadly, it has thrown that out in favor of a far more complex scheme. A similar system was announced by Virgin America in 2008 and launched by JetBlue in late 2009.
Even with two fewer major domestic airlines than there were in 2008, surviving carriers have not switched to fixed value systems – at least, not entirely. Delta continues to offer its Pay with Miles program, which allows customers to liquidate their accrued “miles” at a rate of one cent per SkyMile toward the purchase of any airfare. Similarly, United offers its Choices program, while American rolled out its Dynamic Air awards for customers to trade miles for airfares at fixed rates.
Signs of Customer Frustration Reach the Top
Imagine Doc Brown from the movie “Back to the Future” becoming obsessed with airline miles instead of time travel. The character might resemble Randy Peterson, the founder of Flyertalk and milepoint.
Recently, at a frequent flier loyalty program conference, Peterson offered some interesting observations and anecdotes. Speaking on the basis of anonymity, several airline CEOs and airline loyalty program executives divulged to Peterson that they were intrigued by the trend of fixed point systems, seeing this as an opportunity to avoid customers’ dissatisfaction with limited award seat inventory.
This reality comes as no surprise to members of frequent flier programs, who often dislike airline loyalty programs because they rarely offer awards at lower mileage levels. Several banks offering rewards programs, such as Capital One, have also responded to this problem, and offer more products with fixed value reward points.
The Problem With Fixed Value Programs
The airlines Randy Peterson met with have seriously considered revising their programs so that each mile represents a fixed amount of airfare. Peterson, perhaps the world’s foremost expert on points and miles, offered this observation: If airlines convert their loyalty programs to a revenue-based model, how will they dispose of unsold seats?
As it stands now, airlines can offer discounts on select flights, while turning their remaining inventory into low mileage award buckets. If miles come to represent a fixed value towards the purchase of existing airfares, airlines will lose a key distribution channel for their unsold inventory.
The Paradox of Airline Awards
Airlines need their loyalty programs because they give customers a reason to return, as well as the promise of free flights and vacation travel. In addition, these miles function as a kickback to business travelers who receive reimbursement for their travel from their employer. This benefit vanishes when customers cannot use awards for trips to Hawai’i in the winter, or to Europe in the summer.
A revenue-based program fixes the problem of availability, while removing the ability to earn amazing rewards. People want to redeem miles for fantastic First Class trips, not for pennies towards regular airfare.
Southwest Airlines, which will begin offering service to Atlanta in February of 2012, will have a hard time winning over Delta customers who dream of trips to Milan, not Milwaukee. To remain competitive, Southwest has created the More Rewards option to allow customers to redeem points on other carriers. I am skeptical about whether this particular fixed value program can sway devoted Delta fliers. However, only time will tell.
Is There a Middle Ground?
When it comes to award travel, the elephant in the room is fuel prices. Airlines have to justify each award, as every occupied seat and every bag carried burns fuel.
A distance-based award chart may provide the solution. While some take issue with the haphazard implementation of British Airways’ new Avios system, this type of program may be more beneficial than a revenue-based system. This program, perhaps inspired by fellow oneworld member LAN, offers customers fantastic deals on short-haul flights and some multi-stop itineraries. With distance-based award charts, airlines can be assured of a correlation between costs per available seat mile and the mileage required for those awards.
At the same time, carriers like British Airways and Air Canada risk alienating their customers further by turning valuable award programs into weak discount programs under the guise of suspiciously large “fuel surcharges.” British Airways’ justifications for its enormous surcharges strains credulity, especially when you consider that it imposes these charges on award tickets for infants carried on their parents’ laps.
Final Thoughts
It appears that, over the next few years, carriers around the world will continue to struggle and experiment with zone, revenue, and distance-based award systems. Airlines need to generate profits from their loyalty programs, but they cannot forget that customer satisfaction is the only path to that goal.
What awards programs do you believe still offer the most benefits to customers?
Jason Steele is an avid rewards traveler and shares his best tips & tricks related to scoring great deals on airfare and the best travel rewards credit cards on the Money Crashers personal finance blog.
See, Maya’s video had plenty of corny jokes, and that’s my kind of humor. More importantly, it’s NOT the kind of humor I ever expect from American. (I, uh, don’t expect any humor from that airline.) We virtually sat down last week to talk shop.
Cranky: I expect goofy and corny humor from a lot of airlines but the very last one on my list would be American. So can you talk about the concept and how you decided on it?
Maya: I’d like to say there was all this forethought and it was a statement on our brand’s evolution, but it was really about the fact that we had been planning a lot of really big implementations – the high end credit card, the dynamic air award, million miler. . . . All these really big things were supposed to come out scattered throughout the year. It turns out some things got delayed, some got moved up, so we ended up doing all 5 of them in a month or two month period.
We were sending out emails and I was afraid people weren’t reading them. I think it’s true, email is getting saturated as a channel, so we really wanted to do something to cut through the clutter and hear about all the hard work we’ve done. So that was really the genesis. Then we realized it had to be funny and entertaining because nobody would sit through a 4 minute video that was boring. I certainly wouldn’t. The email had a 50% open rate, and that doesn’t count all the people who viewed the video through the website, FlyerTalk, MilePoint, and it got picked up on local news.
Cranky: Did you say 50%, 5-0, open rate?
Maya: Yeah
Cranky: Wow. So is that your personality?
Maya: Yeah, yes. I mean, I wrote it. I think sometimes at American we take ourselves too seriously.
Cranky: I assume the video is just one piece, or shall we say, cornerstone, of your vision for AAdvantage. Can you get into your high level view of where you want to take the program?
Maya: That’s a big question. Our main objectives this year as we talk internally were first, around attracting and retaining our best customers. Clearly a lot of what we talked about in the video are things we’ve done that are designed to retain loyalty of best customers.
Another was around ensuring that we enhance and better communicate the utility of the mile. We know that we’re competing against not just Mileage Plus or SkyMiles. It’s Starwood Preferred Guest, Membership Rewards, they all have very compelling propostions. One of the things we’ve done recently is really enhance the ability, the way you can use your miles, car and hotel awards, dynamic air option, a couple of things coming up in the next few months.
And the third objective was around harnessing the passion people feel for the program. You know better than most that people feel so utterly passionate about airlines, about frequent flier programs, about everything associated with the business, and it felt to me like there was a better way to tap into that. We’ve done that via social media, AAdvantage Facebook and Twitter accounts, and having much more of a dialog. We did a lot of things around the Super Bowl, and for our 30th anniversary, just choosing a flight and giving everyone miles.
Cranky: What about next year? Are the goals different?
Maya: Good question. We’re crafting our 2012 objectives, these all stay and they evolve a little bit and we’ve added to these a couple other objectives. One is around our alliance partners, around improving our proposition on alliance partners. You know BA just introduced a Ruby tier, their base level tier that allows our Gold elites to have benefits on BA which they didn’t do. We’ve introduced three new partners, Etihad, Air Berlin, and Kingfisher for accrual.
Cranky: I’m very interested in the Alaska announcement the other day, which I ended up writing about. Can you talk about the decision to do that? Are you looking to strengthen the relationship with other non-oneworld partners?
Maya: Our first focus is with oneworld, but we have a bunch of non-oneworld partners that are also very valuable: Alaska, JetBlue, WestJet. So we’re also focused on ways that we can strengthen those relationships.
Cranky: A reader wanted to know specifically about JetBlue. Any chance of earning elite qualifying miles? How do you view that partnership?
Maya: I can’t say what we’re gonna do but that’s obviously – New York is a cornerstone for us – so JetBlue is an important component of our alliance partnership. It’s hard when airlines aren’t in oneworld to figure out the sweeet spot but we’re looking at ways to strengthen it.
Cranky: Obviously a lot of airlines look at their elites as the key to success and focus energy on them. How do you look at general program members? What, if anything, do you do to try to make the program more attractive to them?
Maya: It’s very important. As important as elites are, they’re a very small component. Everything that we do, for what we do for regular members and elites, they both equally come into the equation.
I think one of the biggest things we’ve done is really just make it easier to earn miles and redeem them. The number of partners, the number of ways you can earn miles, the number of partners you can earn them with is just staggering. I think one of the things is the general AAdvantage member cares about maximizing earning potential and then being able to use those miles. On the air miles, we’re proud that we carry a larger percent of award traffic and we’ve developed all these non-air ways to use their miles – to bid on auctions for example.
Cranky: At least one of my readers appreciates the options. He sent this tweet:
@crankyflier No questions, just thank them for having so many retail partners to shop and get miles on. Did xmas shopping via their website
You probably love hearing things like that?
Maya: Yeah, the shopping platform and dining platforms are great. It’s a no brainer way to earn miles. If you’re already dining or shopping, there’s no extra spend required.
Cranky: That’s why I think it’s so funny that people get angry when their miles expire. It’s so easy to keep them active.
Maya: Yes, but the other thing that’s a benefit to a regular member is that we make it not so difficult to reactivate. Just show some re-engagement and we’ll give ‘em back to you. There are a couple of things they have to go through and it can depend upon how many miles they want to reactivate, but it’s not unreasonable to ask.
Cranky: With everyone else going though mergers right now and seeing massive program changes, what kind of opportunities do you see coming available? I was at the MegaDO launch and there was a lot of talk from United elites expressing unhappiness with the program.
Maya: You know, having gone through mergers ourselves, you know that it’s easy for those companies to take their eye off the ball because there’s just so much involved trying to bring two giant entities together. We see this as an oportunity to reinforce our proposition, show those areas where we think we have a competitive advantage.
Cranky: So are you actively targeting these customers?
Maya: We’re always looking for ways to attract and retain our best customers. We’re looking for oppotunities to bring more into the fold. I think you saw with the MegaDO with the launch party, with the status challenge which is certainly doable for that crowd.
Cranky: How much time do you spend looking at big picture changes? I mean, the idea of trying to better align the program so it rewards profitable customers (maybe via more revenue components). Is that something that you constantly look at or is it too difficult to make the change?
Maya: We certainly look at it. We look at what all the options are. Right now we’re thinking about what loyalty looks like 5 years from now, the future of the loyalty program. It’s a very competitive industry so you don’t want to do something that’s so out of the realm that it’s going to put you at a competitive disadvantage. So you strike a balance trying to make incremental enhancements to improve the position and at the same time you’re ready to capitalize if the industry moves in a different direction.
Cranky: But in terms of shifting the program to one that probably does more of what you want, encourage additional spend, reward people for buying higher?
Maya: There are things you can do on the edges, like the elite rewards program which is based on points instead of miles. It doesn’t penalize those who earn on miles because you still make the same progress but on higher value fares you earn more quickly.
Cranky: Thanks for taking the time to chat, Maya. I appreciate it.
————
After we finished, Maya had questions for me. She asked about my post on Alaska’s program, really trying to get a sense for how it would impact American. It’s great to see someone running a loyalty program who is so interested in customer behavior. I look forward to seeing more from Maya in the years to come.
Alaska and American have inked a deal that will give reciprocal elite benefits to each other’s elite members. This might not sound like much, but it could make Alaska’s frequent flier program even more interesting for a lot of people, some of whom might not even set foot on an Alaska airplane.
The program had actually started becoming attractive to me before this move, but this just makes it even better. With my “somewhat frequent but not too frequent” travel schedule (one that I assume many of you share), this program really hits a sweet spot for me. But before we get into that, let’s talk about what’s happening. The following benefits will be available to elite members in each program when flying the other airline.
Priority check-in
Priority security lines
Priority boarding
Preferred seating
Two free checked bags domestically
Elite qualifying miles (this isn’t new)
This might not sound like anything special, right? I mean, American has these benefits with its oneworld partners. Most airlines have some sort of program like this within their alliances. It doesn’t even have reciprocal upgrades, so who cares?
I do. And that’s because Alaska has done something that’s very difficult to do. It has cultivated very close partnerships with arch rivals.
Alaska is already closely tied with Delta. Mileage Plan elite members earn elite qualifying miles and they get priority boarding, priority security, priority seats, and two free checked bags on Delta. They even get free upgrades on the day of departure on Delta, if available. Now similar (though not quite as robust) benefits are exchanged with American as well.
If I tried to consolidate all my paid flying in a year on one airline, I would probably qualify for silver status. But I don’t like to fly one airline. It’s rare that one airline is going to provide me with the best option every time. Even if I did squeak out elite status, I would just be an entry level elite so I wouldn’t be looking at a lot of upgrade opportunities. It would really just get me priority screening/check in/boarding and free bags, something that might become much more handy with a kid on the way.
And that’s why I find myself drawn to Alaska. First off, I like the airline. It’s a nice airline to fly with a sharp management team that has created a great business. The biggest problem is that Alaska doesn’t fly very many places. It’s pretty much up and down the west coast for me being based near LA. But when you throw in Delta and American, then it provides a ton of opportunities.
Though I don’t like consolidating my travel with one airline, there’s a better chance of me flying American, Delta, and Alaska enough in a year to get 25,000 miles than with any other program. (And if I did fly all on Alaska, I would only need 20,000 miles for elite status. It’s only 25,000 when including partner airline travel.)
It also opens up a lot of redemption opportunities. Alaska is partners with a good number of oneworld and Skyteam airlines, including Qantas, British Airways, Air France/KLM, Korean, etc. So there are some great ways to spend miles.
What do I lose by not earning on Delta? Not much. I mean, I don’t get upgrades in advance, but I probably wouldn’t get those anyway with lowly status. I also lose out on redeeming for standard awards on Delta itself. That’s ok, because those are usually overpriced anyway. I’m not a fan of Skypesos. (If you haven’t seen it, View From the Wing has a great overview of the program and how to make it work for you.)
The same goes for American, though the AAdvantage program is much more flexible for redemptions. So there is a bit more of a loss there. But it’s not a huge loss for me.
The main point is that I can quite possibly qualify for elite status on an airline without having to change my behavior much. I don’t live for elite status, but if I can earn it without a ton of effort, it will save me from having to pay for checked bags. So as a friend of mine who just made the same decision up in the Bay Area said, I’m going all-in.
In the past, I’ve just earned either Delta or American miles when I’ve flow Alaska, but on my last trip, I signed up for a Mileage Plan account and even earned Alaska miles when I flew Delta. I’m going to stick with that plan next year and see where it gets me. I’m also probably going to sign up for a Mileage Plan credit card, though I haven’t gotten around to doing it yet. Seems like a good move for someone like me.
Sunday night was the launch party for the oneworld MegaDo. What the heck is that, you ask? Great question. It’s basically when a bunch of guys who fly too much actively get together to fly even more. I know, it sounds crazy, but it’s actually a very interesting phenomenon. Stick with me and I’ll explain.
If you’re familiar with the website FlyerTalk, then you know it as a place where frequent fliers and mileage junkies get together to discuss exactly what’s going on. There is a separate forum for each airline’s mileage program and the loyalists all get together to talk in great detail. The FlyerTalk founder, Randy Petersen, has moved on to create a new, very similar, site called MilePoint, and many of the FlyerTalkers have gone over there as well.
Over the years, some airlines have actively courted travelers on these sites, knowing that their most frequent fliers tend to be found here. Continental is one airline that was particularly active in this sense. It turned into meetings with execs as a perk for those active members of the community. Then airplanes started to get involved.
Star Alliance has participated in the past (and will keep doing so in the future), but last night was a chance for oneworld to kick it off as well. Now, it may be called the oneworld MegaDo, but it’s really all about American Airlines here. (At least on the flights side. Hyatt is the big player on the hotel side.) American had its AAdvantage chief (and burgeoning video star) Maya Leibman there along with many on her team to discuss details of what’s happening on the January trip.
So why was there a party when the trip itself isn’t for a couple months? That’s a really good question. Seems like a good reason to just get together and drink. But ultimately it was used to announce the details of the trip. I suppose I shouldn’t be surprised that people flew in from all over the place just for this party – anything to earn more miles, right?
The plan is to start off with people flying to London from New York to spend time with British Airways and then back to Dallas on American. That’s sort of an add-on that’s like a pre-party for the big show. In Dallas, the group will spend the first day hanging around with American’s top brass, poking and prodding them with questions. Then that evening, they are chartering an American 757 that will fly everyone up to Boeing Field where they’ll get wined and dined by Boeing. The next day will even include a VIP behind-the-scenes tour at Boeing. That afternoon, they’ll have another charter fly everyone down to LA. The final day will be filled with meetings with a variety of oneworld airlines.
If this sounds crazy, you’re not alone in thinking that. As Maya said in her speech, “You guys are a different demographic. You’re a different psychographic with emphasis on ‘psycho.’” That, of course, drew a lot of laughs. This isn’t a group that’s easily offended . . . unless you reduce their frequent flier benefits. I wonder if that’s part of the reason that American is doing this trip now.
This is American’s first real push to do a major event like this, but American wasn’t the only airline being discussed. United and its program changes were brought up many times at the event. You can sense some unhappiness and uneasiness about what’s happening at United, and you have to think American is trying to capitalize on that.
Plenty of people at the event were asking whether American would match status as part of this trip, and most of those questions were from United loyalists. It doesn’t look like there will be a straight match but clearly American is interested in wooing people. The airline did announce a big bonus mile offer that would go out to the people who take this trip – the more roundtrips you fly in a three month period, the more bonus miles you’ll get.
In the end, I wonder if the effort is worth it for the airline to do a MegaDo. Sure, everyone has to pay to attend the event, so it’s not like American is losing a bunch of money on the deal, but it does have to sink a great deal of time and effort into putting this together for a very small group. I mean, you had a bunch of AAdvantage team members along with PR people that had to fly in to spend their Sunday night at this party in LA. But I commend them for trying it at least once. They can decide whether it’s worth it or not after giving it a shot here.
If you’re interested in the trip, go to megado.com to learn more. It will likely start around $799 for coach and go up from there. Bookings should begin soon, and I imagine it will fill up quickly. (While I’d love to experience a MegaDo for myself, I won’t be on this particular trip.)
