Kudos to news media that are trying to explain changes in airline elite qualification. But very few stories are able to cut through the rhetoric and explain the important changes clearly. A story in this morning’s USA Today is a perfect example.
The article leads with Continental’s changes in elite qualification, counting only 50% of mileage flown at lower fare classes towards elite qualification (although leaving out Continental’s escape hatch for next year only – fares booked on the Continental website will still accrue 100% of mileage towards elite qualification). Then it notes changes at Delta and Alaska, and historical changes at Northwest and American. So far so good.
But the article only alludes to problems of using fare class (as opposed to revenue) as a proxy for customer value:
- Continental’s new elite qualification rules mean that for someone paying $182 for a Newark, N.J.-Cleveland round trip, only half the miles would count toward OnePass elite membership, but someone paying $1,240 round trip to sit in first class on the same flight would receive 1.5 credits per mile. On some routes, the difference between a full-credit fare and a partial-credit fare is less than $100.
Moreover, there is no good way for most flyers to even pick the fare class they’re purchasing! And fare classes are incredibly arcane. The airlines moving towards fare class qualification are destroying any simplicity in their programs. Folks buying expensive business fares are also among the least likely to take the time to study up on complex rules.
Imperfect proxy aside, the USA Today piece and nearly all other articles about elite changes, do a poor job of understanding and explaining the devaluation of benefits for frequent flyers. This article even makes it appear as though Delta is sweetening the pot:
- Last week, because of customer feedback, Delta beefed up the incentives it offers elite Medallion members by sweetening its upgrade policy. For instance, members who reach Platinum status will receive unlimited upgrades at the time of booking based on availability when purchasing three economy-class fare types.
“They felt that we weren’t providing enough of an upgrade benefit, particularly when they were traveling on the higher-value economy fares,” says Robert Borden, head of Delta’s SkyMiles program.
Of course, this change was just a partial giveback of benefit reductions announced last year. The upgrade benefit is not as reach as it was in 2002.
And USA Today fails to mention at all that Continental will now require flyers to pay more miles for domestic upgrades, and to pay cash in addition to miles for upgrade awards to Hawaii on mid-level fares.
The folly in the last change — asking flyers to pay cash to use benefits they’ve earn on business travel for (what is most likely) leisure travel to Hawaii — is that lucrative business travelers often make decisions about who to fly not just on how they’re treated when flying on business but also how they’re treated when flying on leisure. In other words, the airline that treats them well across the board will get their business.
In fact, business flyers will often make their purchasing decisions exclusively based on how they’re treated when flying on leisure. In other words, the airline that will place them in first class with their spouse on vacation gives them every reason to be loyal. Treating an elite customer’s spouse well to earn business is hardly a novel concept.
Airlines will find that as they tinker with qualification changes and scale back benefits, they’ll lose flyers. Their risky gamble is that they can replace those flyers with higher yield customers. My own hunch is that it won’t work, but it’s a business decision.
Unfortunately, it’s a poorly executed business decision. If airlines want to tie benefits to revenue, that may make sense. But in order to attract higher paying customers, they need to offer more not less to those customers. And they need to treat those customers consistently well — whether they’re traveling on expensive or cheap fares. In other words, airlines need to look at a ciustomer’s total value and not just the value on a particular ticket.
Continental could have done better by making a change to a more revenue-based model of elite status and then either adding benefits to its top 75,000 mile tier or to a new 100,000 mile tier.