Are Loyalty Programs Really Worthless? (Only if you’re disingenous…)

Chris Elliott has another column on how awful frequent flyer programs are, how we’d be so much better off without them.

Which seems crazy to me. Some people may not get full value out of them, some people may be confused by them, but that doesn’t mean they aren’t still worthwhile — both to those of us who maximize them, and even some value to those that do not.

Chris presumably believes that the programs are costly, that if travel providers got rid of the cost they would lower prices. But he fails to understand first, that the programs themselves are profitable (rather than being a cost center) and second, that they are a marketing device without which there would still be a need to spend resources in marketing — presumably less effectively, at higher cost, perhaps pushing up prices.

Elliott thinks they programs are hard to leave behind because once you drop a travel provider you had been loyal to (once you realize the loyalty isn’t rewarding), you wind up with other providers who have programs that you join. Why? Because the programs are worthwhile! Because you don’t want to leave value on the table! Which would seem to undermine Chris’ point, based on demonstrated or revealed preference.

How awful are these programs? Here, the column includes a parade of horribles such as:

Vera Finberg decided to toss her United Airlines miles into the recycling bin after a recent trip to Australia and New Zealand. The carrier made her buy more miles to redeem an award ticket and denied her priority wait-listing benefits because of a technicality, she says.

So Ms. Finberg didn’t have enough miles for the award she wanted, so United ‘made her buy’ more miles. Since she was going to Australia and New Zealand, she was clearly getting an award at the low or ‘saver’ level, since United doesn’t fly to New Zealand and they only offer awards at that low level with their partners (in all likelihood flying some Air New Zealand at this point).

And what of being denied priority waitlisting? Well waitlisting is not offered when booking award tickets that include partner airlines. She could have stuck to an Australia trip, flew United, and waitlisted. But those technicalities will get you every time!

But to demonstrate how worthless miles are, the column gets a bit disingenous:

There’s also the value of points. Airline miles have been assessed as being worth anywhere from one-tenth of a cent to no more than two cents a mile, and not by an admitted skeptic like me, but by the companies themselves.

If airlines are calling their own loyalty points worthless and acting as if they are worthless, is it any wonder that customers are doing the same?

Airlines ‘assess’ the miles as being worth as low as one-tenth of a cent, thus they are “calling their own loyalty points worthless.”

Let’s unpack that. Airlines book a liability for the outstanding, unreedemed miles that they print. That liability is for the expected future cost they’ll incur in redeeming those miles. Granted, some miles will go unredeemed (or expire!) and that reduces the liability.

But the biggest reason that the cost (not the value) of the miles is low is because when they’re redeeemed at the saver level they are being redeemed for seats that the airline believes would otherwise go unsold. So it doesn’t cost the airline much to redeem the miles for the seat — the incremental cost of booking the ticket, marginally more fuel based on the weight of the passenger, maybe a soft drink served free during the flight.

The liability has been booked as low as $25 for a domestic ticket that costs 25,000 miles, or as the column states 1/10th of a cent per mile. But that doesn’t mean the mile was only worth 1/10th of a cent to the consumer who gets the flight!

Certainly Chris knows this, and it feels like a cheap shot to me to stick it in a column where it’ll be read by folks who don’t understand the accounting.

Now, there is an issue I agree with. I understand the frustration of a Hilton HHonors member who burned all their points before the hotel program increased the number of points it would take to book most of their rooms. It’s not that the points had no value, but that the chain had announced each point would have less value. The member behaved rationally — cash out at the top. And then re-evalauate which program would be best going forward. Nothing wrong with that!

And perhaps I can offer advice to folks so that they don’t wind up in the same situation as the last traveler quoted in the piece:

Peter Hansen, a former elite-level customer, doesn’t want to live in that kind of world. He believes that companies aren’t really loyal to their customers, something he found out the hard way when he retired.

“It was truly amazing how quickly the preferred status turned into forgotten status,” he said. “The loyalty simply evaporated.”

Here I sympathize. Once you stop requalifying for status, you lose the perks of that status. The solution? Pick programs that offer to let you earn lifetime status based on your loyalty. Many do! And then be loyal!

I’m an American AAdvantage Platinum member for life, based on the two million miles I have earned in my account since joining the program. I’m in my mid-thirties, and as long as they don’t renege on their promise I will never fall below Platinum.

United and Delta have lifetime status offers based on flight activity as well, United’s being a more generous program than Delta’s (shocking, I know…).

And Hyatt and Marriott both offer lifetime status in their respective programs, as well.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Pingbacks

  1. […] I slept in this morning, and didn’t get around to reading emails until something like 9:30am!  Weee!  The email at the top of my inbox was Chris Elliott’s daily missive.  This particular article opined about the sins of loyalty programs and questioned their value.  It also includes a few examples from hapless (helpless?) travelers that have been bitten one way or the other by a loyalty program.  I was going to get around to writing my own take about this later today, but I’ve already been beaten to the punch.  Gary Leff was up earlier than me this morning, and I agree 200 percent with everything he says.  So check it out. […]

Comments

  1. Why bother dissecting Chris Elliott’s columns. He reminds me of what Washington said about Helen Thomas: the crazy old aunt in the attic.

    Elliott is, candidly, a fool when it comes to many of his opinions about travel, including his opinions regarding frequent flyer programs. Just because somebody is actually willing to pay for these foolish columns to be written and published doesn’t mean his opinions are worth anything. Personally, I’d trust the travel opinions of about 99% of Flyertalk posters over Elliott’s.

    Which perhaps explains why Elliott often loathes Flyertalk in his columns, too.

  2. Well he does have a point about SkyPesos. I imagine it’s pretty galling to be charged triple the points & $150 for a ticket you supposed you’d get on the cheap.

  3. I find Chris Elliott columns always entertaining. I can only wish that he will certainly continue on his very honorable mission of keeping the individuals like him out of the airline/hotel/car rental loyalty programs. Then our flying in F and visits to Club Lounges will be even more pleasant.

  4. Thanks to this writer that there may be a bunch of naive travelers out there who follow his advice and dump loyalty programs. This is only beneficial to us as we have less people competing for the limited rewards.

  5. I don’t know what the tricks are to using miles. I’ve been loyal to United for several years now in an effort to get a saver award to New Zealand with my father next year. Probably the last trip we would take together.

    I cannot find a single standard or saver award available – even a month prior or following. Seems to me my miles are useless. Should I not be booking so far in advance?

    Any help would be appreciated.

Leave a Reply

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