USA Today covers the impending risk of changes to frequent flyer programs, moving from rewarding miles flown with an airline to the amount of money spent — turning the legacy frequent flyer programs of airlines like United, American, and Delta into the much more modest offerings of Southwest and JetBlue.
The piece is titled Frequent-flier rewards: Change is in the air and Randy Petersen predicts this is going to happen:
“I would suggest by this time next year there’ll be at least one, if not more, of the major carriers that have adopted this kind of new normal among frequent-flier programs,” says Randy Petersen, publisher of Inside Flyer magazine, which closely follows loyalty programs. “I think in five years we will have forgotten about the old system.”
I’m quoted making the case, though, that the simple metric of ‘who spent most?’ as the smartest way to determine which flyers to reward is bad business.
“There is this belief that they’re rewarding the wrong customers,” Gary Leff, author of the travel blog View from the Wing, says of mileage-based loyalty programs. “I think it’s a mistake to say you want to reward whoever is spending the most.
“If I’m a business traveler at a company with a contract with United, I’ll fly United no matter what,” Leff says. “You want to reward people who are choosing to shift their business … and that might not be the person giving you the most absolute dollars.”
I also suggest that fundamentally upending a profitable business ought to at least receive significant scrutiny.
Most carriers won’t reveal exactly how much revenue the programs bring in, but some program watchers, such as Leff and Petersen, estimate that they translate into billions of dollars through the sale of miles to banks, hotels and other businesses that award them to customers.
And while the piece quotes Randy as saying revenue-based systems work for hotels, I think that misses an important distinction between revenue-based earning (in-hotel spend translations into the number of points earned — in some cases) and revenue-based redemption where a point is worth a fixed amount of money towards the cost of airfare. At a penny a mile a business class ticket to Europe might be 500,000 miles and a first class ticket to Asia might be 2 million miles. Even when you care about revenue, you still need award charts to price excess inventory at more logical levels.
The author of the piece even gets Delta’s Jeff Robertson on the record:
But a complete switch from miles to fares for a long-standing loyalty program would be daunting, some airline officials say. “We’re always anticipating the future,” says Jeff Robertson, Delta’s vice president of its SkyMiles program. “But the reality of that is, that type of change is massive. … It has massive implications, and it requires massive analysis and would not be something we’d do without a lot of analysis and prep work.”
… and me on the record getting a bit choked up and emotional over my beloved programs.
Leff and other program watchers say that such a move by any carrier would likely draw a backlash.
“A lot of people who are engaged with you because of what you’re offering now are going to be unhappy with something that’s fundamentally different,” Leff says. “People have been saving miles for dream trips for years. … All of a sudden people could find their miles don’t get them what they’ve been saving for, and that’s when people get pretty emotional.”