Thinking About Loyalty and How Today’s Programs Do It Wrong

Frequent Flier Programs

American’s decision to copy the structure of Delta and United’s so-called “loyalty programs” last week got me thinking about, well, loyalty. These programs have evolved to a point where they really aren’t about loyalty at all. If they cared about loyalty, then they’d do this differently. We got into this discussion in the comments on my American post last week, but I thought it worth talking about in greater detail. Were I running the show, I’d stop pretending these programs are about loyalty and create something far better at addressing the issue.

How Airline Loyalty Works

Even though they operate under a single name, each of the big US airlines has two separate frequent flier programs. On the one side are the award mile programs. Those are the ones that let you earn points from a variety of different sources and then spend them on free trips or magazines, or something else depending upon what scheme has been cooked up that week. On the other side are the elite status programs, those that allow you to earn miles during a single period (usually a year) and get special perks for either flying a lot or spending a lot of money… or now both.

The award miles really have nothing to do with loyalty. Those are all about revenue generation. Sure you can earn miles when you fly, but the easiest way to earn miles is by getting credit cards. Those credit card companies buy miles from airlines to hand out to their cardholders, making money themselves off annual fees and high interest rates. The airlines can play with these programs as much as they want, but they’re about making money above all. And for that reason, they aren’t going to go away. They also are never going to be focused on generating loyalty.

The elite program is supposed to be about loyalty. By dedicating your flying (and your dollars) to a certain airline, you get perks. The problem is that those perks are getting worse.

The most important perk of all is the upgrade. This is what frequent fliers live for, and it’s what makes the life of a road warrior tolerable. While upgrades still exist and on the surface appear to be given away generously, that’s just a façade. The reality is that airlines have discovered that if they price Business and First Class options more competitively, then they can actually sell those seats. Delta, for example, now sells about 2/3 of its First Class seats, and that means upgrades are becoming more scarce for all but the top tier elites.

So what are the real benefits? Well, there are still seat assignments blocked only for elites. There are also extra legroom seats that some elites can get for free or at a discounted rate. First bag fees are waived, as are, in some cases, fees for same day changes and phone bookings. Elites also get priority check-in/security/boarding. Before, this use to be a real perk because you couldn’t even buy these options. But now that airlines have gone à la carte, you can buy an elite experience for yourself if you want.

Heck, you don’t even have to buy one. You can get airline credit cards, and those will waive bag fees and get you priority boarding every time. At some point, these benefits just aren’t nearly as valuable as they once were. And that means these programs just aren’t going to reward loyalty, let alone build it.

Of course the people who live in an airline’s hub are going to continue to be loyal to that airline. If you live in Atlanta and need nonstop flights to a variety of places, are you really going to fly anyone else? No. So you’ll earn your elite status because you’re going to fly Delta anyway thanks to a far superior schedule.

The real battlegrounds lie in two types of places. First, there are the competitive hubs. Places like LA, New York, and Chicago have multiple legacy carriers operating a hub, and that means people have real choices. Second, there are the spokes. All of these non-hubs have similar options from the big guys, flying to their hubs and then beyond from there. In these markets, there is real competition and the airlines can be competing for loyalty. With programs that are nearly identical and devoid of substantive benefits, it’s hard to see how that’s going to happen. Airlines are once again racing toward commoditization despite saying they’re going the other way.

These programs have been institutionalized, and I can’t imagine them going away (especially since there are set requirements for elites within each alliance), but if I were an airline that really cared about loyalty, I’d be doing something completely different. The right solution will vary for every airline.

For example, when I moderated the customer panel at the Phoenix Aviation Symposium last month, Holger Blankenstein, Chief Commercial Officer of Volaris, told us about the closest thing Volaris has to a loyalty program, VClub.

Volaris is an ultra low cost carrier that pulls people off buses. People in México have long relied on buses as the primary means of inter-city transport, and Volaris is trying to change that behavior. VClub is pretty straightforward. You pay $49 a year and you get access to lower fares on every flight. (Spirit and Frontier do this to some extent, but they don’t do it on every flight.)

How does this generate loyalty? Well people who are used to taking buses are concerned about the complexity of air travel. This club makes the purchase process easier. If you’re a member, you’re going to be less likely to shop around, feeling confident that you’re getting a good deal from Volaris. A large percentage of Volaris travelers are in a group with elastic demand that can be stimulated to fly more with a good deal. There’s also the emotional component. Just knowing you’re a member of a club, and seeing that you’re paying less than rack rate every time you fly, makes you feel good. It helps with positive association. For Volaris, this has been a home run (if not just for the millions of dollars the airline has generated in membership fees).

Does this work at a legacy US carrier? No, it’s a different dynamic. But there is plenty of opportunity for a legacy US carrier to use the reams and reams of data out there to create a program that might actually help build loyalty.

Airlines know a lot about people. They know where they live, how old they are, where they fly, what their travel habits are, how much they pay to fly, and more. It can get very granular. Airlines can (whether they track it or not, they CAN) know if someone likes window or aisle, if that person has a favorite drink, if that person tends to use wifi onboard, etc. What’s more, people expect that airlines will know this about them. It’s not like some company buying a list that gives them info that a traveler might not want them to have. This is stuff airlines should know and use.

To build loyalty, airlines should use that information to show travelers that they are there to serve them and provide what they need. This program doesn’t even have to provide things for free. Let’s say I’m flying from LA to San Francisco and I want the 2pm flight. What if United came back to me and said this.

We know you love a window seat, but there isn’t one on the 2pm. Can you take the 3pm instead? We can get you seat 12A.

This becomes even more natural with the rise of conversational commerce, another topic we discussed on my panel in Phoenix. (Also an area where airlines need to start getting creative.)

There are a ton of things airlines could do based on the information they have to make air travel a more personal experience. Wrap those services up into a branded loyalty program and you have a compelling case to make to a customer looking to have a favorite airline. The more an airline shows it is trying to take care of a traveler, the more loyal that traveler is going to feel.

To me, that is the kind of action that generates loyalty. And the best part is that it doesn’t only generate loyalty from the most frequent travelers who are elites today. Bob might fly twice a year to Buffalo, but as long as he has an AAdvantage number, that doesn’t mean American can’t know what Bob needs and make for a better experience.

Airlines have come to rely too much on these big, bulky, faceless programs that have set (declining) benefits. Those may lock people in, but they don’t create loyalty. They may bring in a bunch of money, and that’s fine, but they aren’t doing what many people think they are. If airlines really care about creating loyalty, then they need to rethink what they’re doing entirely.

[Original chalkboard photo and cloud photo via Shutterstock]

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26 comments on “Thinking About Loyalty and How Today’s Programs Do It Wrong

  1. Living in a continent where upgrades are not given unless the airline needs to do so because economy is overvooked, … I find it funny that this perk is still valued by people in the US !…
    Low costs in Europe like Wizzair have been doing the discount club for a long time. Recently, I saw that you could even subscribe to options like priority boarding for a yearly fee !

    1. Well, United has an Economy Plus subscription for more than a decade. And you can, effectively subscribe to priority boarding by paying the credit card annual fee.

      1. Except that the Economy Plus on United is not guaranteed an earlier boarding. If you’re seated along the aisle in this section, you will be Group 5, which is definitely not guaranteeing you any overhead bin space. A recent trip had me barely squeaking by with my wheelie overhead on one trip leg and the cabin crew cutting off overhead bags partway through Group 4 on another trip leg. This is even more of a headache since they aren’t returning your bags on the jetbridge anymore, but rather in Baggage Claim. I’ve mentioned this issue to United when they wanted feedback on that trip.

  2. Cranky, it sounds like you are almost thinking of the Amazon -ization of loyalty programs. Make specific recommendations and targeted custom bundles based on customer data, certain fee-based clubs (a la Amazon Prime), etc.

  3. “Sure you can earn miles when you fly, but the easiest way to earn miles is by getting credit cards. … They … are never going to be focused on generating loyalty.”

    Right, but credit cards did in fact contribute toward airline loyalty by building up a customer’s stock of miles in a particular airline. When the customer actually went to buy a ticket the choice may have been influenced by the idea of further building up the hoard that was already there. But with the new dollar-based points system for flying even this incentive will probably disappear for ‘rational’ customers since the increment will be miniscule.

  4. Even the early-boarding has become silly. The long litany of “early” boarding categories before every flight has turned into a farce that takes even longer than the equally silly safety demonstration. And by the time they are done, have the aircraft has boarded.

    (And on a recent UA flight from EWR, I think it added time to the boarding process, because the automated system they used insisted on adding the full flight number and destination to each category. “Now boarding… Spiff-Planet Niobium and Unobtanium Super Plus Select members, Usury Bank Suckercard holders, United Mildly Appreciated members, and those with pets on Pause… United Airlines… Pause… Flight 1234… Pause… To… Pause… Anywhere City.

    Rinse and repeat, over and over again, even for categories with nobody in them.

  5. I agree RE the definition of “loyalty” airlines are currently using. I think I am an example of a frequent traveler that is now being passed over. My daughter lives in France and we now have a new grandson. I’m retired. My wife and I travel to Europe between three and four times a year and we use American exclusively. BUT…I of course seek out the least expensive ticket. With the change in the Frequent Flyer program, my chances of maintaining at least Platinum with AA now become more challenging and less likely. I purchase flight tickets with my own money, not some corporate sugar-daddy and I’m not self-employed so I can’t write off my travel expenses, but with the switch to revenue-based (or at least priority) my loyalty is now diminished and ignored.

    Gary & Karen Lowe

    In our time, must we not face the possibility that the human mind as a social fact might be deteriorating in quality and cultural level, and yet not many would notice it because of the overwhelming accumulation of technological gadgets? C. Wright Mills, THE SOCIOLOGICAL IMAGINATION , 1959

  6. I understand that airlines are a for-profit business and making as much money is the goal. But what they fail to realize is that we as the consumers don’t have to fly them as much or anymore. About 5 years ago AA switched the majority of the flights to my city where I live to RJ’s. Hmmm. Maybe I’ll try Southwest and their 737’s. OK, not the same but the service was good. Then came I can’t use my AMEX card to get into the Admirals Clubs and I had to switch to Citi. Not going to happen.More flying to Southwest and now jetBlue. Now major changes to the frequent flyer miles programs that benefits THEM and not US? Do they really think we are that dumb. So now instead of flying ~70-80K a year all on AA now they get about 12K. I thought pleasing the customer was the first rule in business?

  7. The current programs do not reward a particular type of loyalty: frequency. That is, we fly to Europe three to four times a year because our daughter lives there. I am retired so I pay the freight and I always seek the least expensive ticket. I have Platinum status, but with the new program it may well become more difficult to maintain this since the price will now drive much more of what is rewarded. So, dollars spent count while actual loyalty doesn’t.

    Gary & Karen Lowe

    In our time, must we not face the possibility that the human mind as a social fact might be deteriorating in quality and cultural level, and yet not many would notice it because of the overwhelming accumulation of technological gadgets? C. Wright Mills, THE SOCIOLOGICAL IMAGINATION , 1959

    1. Well, you could say that the airline prefers the one pax paying 4 time the leisure fare on one flight (and who might repeat that if incentived) than the one paying the leisure fare 4 times during the year …
      You might think it’s unfair (unfare ?) But it makes the most sense for them, economically speaking …

  8. “Sure you can earn miles when you fly, but the easiest way to earn miles is by getting credit cards.”

    Easy, yes, but not the best way to rack up a ton of miles. Speaking of Delta (my experience) you’d have to spend $25k on “everyday” purchases to get one domestic R/T at their lowest redemption rate, i.e. unlikely. Those that do spend $100k on a credit card annually probably aren’t trying to get a cheap family trip to Disney. At least for Delta I’d bet most that have the CC want the free checked bag and/or the Zone 1 boarding – which is pretty much a must have to get any bin space these days.

    I’ve commented countless times before that my personal belief is loyalty should be rewarded 100% based on revenue that you generate the airline. The mixed programs they have now still seem a step not far enough when I look and see my $ spent is at Platinum for the year but I’m still 10k miles away from Silver Medallion on Delta. That’s a slap in the face given the thousands of dollars I’ve spent on Delta, a lot of which is because higher prices due to the hub city I reside in. Far too many people can game the system based on where they live and where they fly.

    Secondly, I’m in favor of airlines selling the perks. I get that this may keep some elites out of those seats but they have the same opportunity to buy up. As airlines race to the bottom to offer the lowest fare for Y seats I like to be able to move up with my dollars as I don’t really care about the cheapest seat, I care about the experience and don’t necessarily want to fly 100k miles/year just to get it.

  9. Sometimes I think airlines spend to much time and money trying to come up ways to get people to fly their airlines. Pampering the passenger is how it was done in decades past, now people just want things cheap. That’s the way it’s been since Eastern came out with Max Fares, and the bus travelers hit the skies.

    Forget the complicated programs, just offer reasonally priced fares and schedules they can actually operate on time, and that will keep people coming back to them.

  10. Your idea sort of reminds me of how hotels track guests’ preferences and try to deliver extra perks to their most loyal customers.

    In this case, airlines could provide a more customized and personal touch to customers, much like your experience flying Southwest in a recent trip report. For example, it’s a loyal customer’s birthday so they’re given a free adult beverage on the flight.

    The problem is airlines have trained customers to think of these programs as all about points/miles. It would take innovative thinking to create a loyalty program that you mentioned and I’m not sure there’s enough of an obvious financial incentive for them to do it unless the customer is a road warrior.

  11. I think the closest US domestic version of this might be the occasional drink tickets Southwest sends out to Rapid Reward members after a certain number of flights. I don’t have elite status with WN but fly them often. The occasional free drink goes a long ways towards making me feel like a valued customer at a fairly low cost to the airline.

    1. Sometimes the simplest thing like a free drink can make a big different how one feels about a company.

  12. This article is dead on. There are still enough perks for me to keep flying Delta as a Platinum Medallion but if it changes much more that won’t be the case.

  13. Conversational commerce is an interesting idea. I just booked a one stop flight on Delta over a direct flight on Air Canada Rouge because the latter’s website would not let me know if I could buy extra legroom seats in coach before I bought the ticket. I also find it really annoying that on many airlines to see seating options you first have to fill in all your flyer information (even if you don’t have to click on the buy button).

    Also, I for one, love Delta’s more reasonably priced first class seats (say, compared to United) so I am now “loyal” to Delta in that I always check to see what the Delta option is for a flight. I don’t currently fly enough to earn elite status on a any airline and I may or may not ever get a free flight on Delta’s miles, but as far as I am concerned, Delta has won my loyalty by great service and good prices on first class domestic tickets.

  14. United has a club similar to Volaris VClub. You pay $25 to join, and then you get $5 off each time you book a ticket.

    However, airlines have little need for loyalty programs these days. Loyalty programs were born in the post-deregulation era when there were dozens of airlines competing. Newer airlines were competing mostly on price, but the legacy airlines with higher costs could not. Therefore, they started loyalty programs in order to help improve their value proposition and attract (and keep) customers.

    Now, with several rounds of bankruptcy, legacy carriers can compete on price against the new players. Also, with several rounds of consolidation, there is a lot less competition. Therefore, there is no real need for loyalty programs any more. All but the most frequent fliers will shop on price and jump around to different airlines. The loyalty programs, therefore, have become more of revenue-generating programs through tie-ins with banks. We may even see airlines sell or spin off their loyalty programs into separate entities, as has happened in Europe.

  15. I’ll still never forget when I bought a fare on United from CLT to IAD. Going up it was CLT-IAD non-stop, but to get a better fare, I had to return IAD-EWR-CLT. It was going to take four more hours to get home, but I didn’t mind. I am a plane geek, was flying alone, and saved on the fare. Now being from CLT, I don’t fly United much, but when I got past TSA in Dullas for the trip home via Newark I noticed the United App didn’t show my boarding pass anymore. I stopped by a United Club to ask someone where the nearest customer service desk was. They were nice and just took care of me there. Long story short , they told me my routing had changed to direct Charlotte and I’d get home 4 hours early! I was sort of upset at first because I actually looked forward to the extra flying (I fly only a couple times a year), but at the same time, I was tired.
    Anyway, that’s another thing that can build loyalty. Someone looking out for you. Yes, it was more expensive to go direct, but I’m guessing United had some seats open on the way to CLT and thought to help? Well, probably not, but I’d like to think that :)

    1. They might have needed your seat on your original flights for someone else. Or perhaps there was a cancellation or delay that would have caused a misconnect and maybe hotel costs for UA? I think it is unlikely they were looking to just make your routing easier for you.

      Did you request original routing credit? ;)

  16. Well I’m a United 1K and after a couple of rough years, this year I’m being treated like a king. 100% GPU success on upgradable fares (I’m running out) and about 80% success on CPUs. I haven’t been able to get take advantage of the free buy on board meal as I’ve been upgraded to the pointy end.

    However I like Cranky’s ideas. Free E+, or free drink or BOB food if flying within a week of your birthday. A lounge pass or an e-cert for your 20th, 50th, 100th flight even if it takes you 20 years to get there (with alternatives if that flight is on a puddle hopper from the likes of SBA).

    Of course that means the airlines having a solid robust IT system capable of holding that info. Which pretty much rules out United until Jim Whitehurst kicks them into action (Red Hat CEO and former Delta COO, now on the UA board).

  17. I think you’re missing a pretty huge benefit of the 75k mile+ level, and that is the ability to cancel/change reward tickets for free. This is a tremendous benefit both in terms of the flexibility it provides and in the ability to efficiently use miles (e.g. monitoring for premium cabin/saver availability and switching in even while holding your seat). This is a big incentive to stick around with a single airline, especially if you’ve got a lot of miles banked.

  18. The combination of 6-7 airlines into 3 effectively ended the Elite flyer status era. More elite passengers (not only due to both the combination of both airlines’ elites but also making it easier to be elite on an airline by combining two airlines hubs and destinations into one) fighting for fewer upgraded seats (due to increase in sold seats) turned most precious metals worth of “elite” experiences into just another frustration.

    The one good thing in the post-status era is the notion of “DIY Elite” flying. As Brett points out, you can just buy your way into an Elite experience by paying for economy plus or even a reasonably priced first class upgrade, using a card to pre-board (as if that does much good anymore), pay for Priority Pass to get hundreds of airline clubs worldwide for the price of a single airline club membership and, if absolutely necessary, just pay to check that bag (although your credit card might help that too).

    I actually strongly believe that DIY Elite is actually a better model for most flyers. Less frustration with building up to and maintaining these increasingly arbitrary (and decreasingly useful) status levels and less brand loyalty means you can actually choose the schedule and price that is actually the best for you instead of trying to justify what you know will be an ill-advised layover in ORD.

  19. Airlines keep cutting back perks and getting more aggressive with ancillaries and upsells because they provide a commodity service, customers relentlessly chase the lowest fare and they’re all (except G4, I guess) beholden to Wall Street.

    I think one of the best examples of this is JetBlue. They provide a generally superior product compared to the legacies in economy and economy plus. Free, fast WiFi. Free snacks. Free TV. Friendlier than average flight attendants. But that comes at an incremental cost, and they haven’t demonstrated consistent ability to command a fare premium in return for having a better product. And their stock price has noticeably lagged AA/DL/UA/WN et. al. in the recent period of good times for airlines. Their new CEO has issued a mandate of cost reduction, and they’re going to join the race to the bottom with things like adding seats on the A320s as they chase a higher valuation…

    I don’t see airlines doing “loyalty” per se well because they won’t/can’t invest in it, just like they don’t invest in things like catering.

    I do think though that running a reliable, on-time operation with empowered people to help when things go wrong, drives loyalty.

    (In this way, I think Wall Street is way undervaluing DL relative to its peers, as DL has been running one heck of an operation the last year or two.)

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