In the October 17 MilesLink newsletter, Randy Petersen declares that revenue-based frequent flyer programs are coming.
[I]t is not a matter of if the legacy carriers will follow the current trend, but when. I’m comfortable saying that at least one or all of the remaining legacy carriers will have announced a change or conversion to a “new normal” of how miles and other travel currencies are earned and burned within a year.
…Let’s be realistic, many don’t place Southwest Rapid Rewards in the same category as other legacy carriers such as American and United. But the fact is they are one of the largest domestic carriers and as such actually have one of the largest frequent flyer programs. Granted, its appeal and practicality isn’t for the global warrior and “upgrades” aren’t even listed in the in-flight menu. But nonetheless, they did make the change, and as strange as it seems to some, painful adjustment aside, they seem to have not lost members of that program to competing carriers.
Not if, but when the same happens to legacy carriers, there will be a larger adjustment for many to make. But keep in mind, it’s a change to the currency of the programs, not a change to the benefits and practices of the programs.
…the idea has now gained substantial traction with Southwest’s adoption and the rumors of Delta and US Airways following suit, as well as American and United. I can’t imagine any reason why any of the legacy carriers haven’t done some sort of research and developed contingency plans to adopt this “new normal.”
..”I feel a change comin'” and whether we like it or not we’ll have to get on board. But until we see what it really looks like in a legacy program, the stress and anxiety is wearing on us here at InsideFlyer.
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My own bet is that Delta does this, announced in 2013 for 2014 roll out. Others think this is coming more quickly, and Delta has certainly shown themselves willingness to make changes to their program without notice I do not believe they would purposely generate the customer confusion that would come from doing this out of the blue. So my guess it happens, just not immediately. It’s certainly been rumored for awhile.
I also don’t think it’s coming down the pike with the rest of the legacy carriers as quickly as Randy seems to imply. They’re generally preoccupied with other matters, many of them do hop onboard and mimic each others’ changes once a program takes the plunge, but for something of this magnitude I have to think that other programs would be foolish not to step back and watch how things unfold for the first legacy program adopter.
In that piece what I had in mind was the Southwest, JetBlue, and Virgin America model of earning a certain number of points based on your spending and redeeming those points based on the cost of the ticket. You get airline scrip on some sort of fixed rebate model, and that scrip can be used as cash with the airline.
That’s not the only way to do what might be called a ‘revenue-based program.’ And the devil in all of this is going to be in the details. If all programs did is increasingly bonus higher revenue fares (United already did this with changes to their program for 2012) and provide the option to book any seat desired with points at a fixed-value per point based on fare (in parallel to the award chart) this would be no big deal.
American offers something like the latter (“Dynamic Air Awards“) for its elite members only, presumably they rolled it out as a trial. United rolled out Choices to its co-branded credit card holders some years ago, it still exists but hasn’t gotten much marketing attention in awhile. Delta has pay with miles for co-branded credit card holders as well already.
Expanding these options — as long as these don’t replace the award chart, or coincide with greater restrictions on inventory at the saver level — would be a modest improvement in the eyes of some members. Not me so much, since at the point where I’m receiving foxed-point value I’m not longer interested, you no longer combine the rebate from travel or credit card spend with the leverage of the mileage program’s bulk purchase of distressed inventory that allows you to take a small number of points and turn them into the sort of aspirational travel that would otherwise be out of reach. In other words, taking away the award chart that allows consumers access to the sort of value that’s currently offered takes away the romance and allure of the programs and undermines their value proposition.
At the point where it’s a cash rebate, the mileage credit cards wouldn’t be better than cash rebate cards — and most consumers would be better off with a good cash rebate card
Furthermore, the romance would dissipate, taking with it the consumer motivation to participate heavily in the programs. The ‘loyalty’ factor would be undermined.
The key details to watch are hotel partner awards are priced, to the extent that airlines are still able to purchase those at a deep discount. If Delta adopts a revenue-based program, will they allow their points to be used at the same fixed value on partners like Korean and Czech to acquire revenue tickets? (And shouldn’t those tickets earn miles?) Other airlines around the world would -still be offering ‘saver’ award inventory. Will Delta custmoers continue to have access to that inventory? And at what price?
How will earning from non-flight activity be treated? We have some clues from credit cards and other partners of programs like Southwest, JetBlue, and Virgin America although in general those programs have fewer partners than the legacies do. Certainly the co-branded credit cards of these airlines (big Southwest signup bonuses notwithstanding) are far less rewarding than their counterparts at United, American, or for that matter the hotel programs.
It will be interesting to watch if airlines move in this direction, ultimately gutting the value proposition of the credit card companies that are crucial to their survival. Alaska Airlines takes in 10 times as much revenue from selling miles to Bank of America as they will make or lose in a single year as an airline. Both United and Delta pre-sold over half a billion dollars of miles to their credit card sponsors in order to provide liquidity. United’s debtor-in-possession financing and bankruptcy exit financing was provided by its co-branded credit card issuer. The banks hold massive sway here. It’s possible they just go along with change, or are convinced that change is good. But I’ll be curious to see how this plays out.