Devaluations are Personal Failure: Why Executives Need to Resign in Disgrace

When programs devalue in a really big way, that is an admission of failure.

I’m talking here about wholesale guttings of an award chart, not price bumps of 2-3% per year.

When a loyalty program executive finds themselves in a position of having to reduce the value of their currency by, say, 30% it’s a major business failure, or more likely many compounding failures.

In these really big instances it amazes me that we don’t see scandal and program executives resigning left and right.

After devaluations of the magnitude of United’s and of Hilton’s we should see executives on TV declaring,

I have dishonored myself, my family, and my company. I have managed this program so poorly that the value proposition no longer works. I have failed. The program has to be changed. I have submitted my resignation, effective immediately.

Now it’s true, programs need to satisfy members, and in a perverse way devaluations help do that. The programs issue too many miles. There aren’t enough award seats, especially with planes flying full. They need to either increase the number of award seats or increase the cost of each seat, otherwise you just have frustrated members who can’t redeem. Here’s the basic theory of miles as an alternative currency, subject to inflation.

At the same time programs don’t need to spend as much marketing to fill planes when planes are already full. But that’s an argument for reduced earning, not for changing redemption prices.

Some programs, already revenue-based, are supposed to reward spending at a fixed amount. But Southwest already devalued their new revenue-based program.

Nonetheless devaluations are predominantly an admission of incompetence or dishonesty on the part of the executives running the programs.

Here’s why programs devalue, and what personal failure each signifies.

  • Sometimes a new program starts, and the people who designed it didn’t know what they were doing, didn’t understand how the program would work in practice. They may have been too generous from the start, or they got the rules wrong so members drove up costs in ways they didn’t predict. That’s an issue of competence.

  • Other times programs have simply been badly managed. They short-sightedly printed too many miles, got themselves in trouble because they printed currency the program just couldn’t cash. (“Too many miles chasing too few seats.”) That’s equally an issue of competence.

  • Travel providers also get in trouble, airlines went through bankruptcies, and they turned to their frequent flyer programs to generate business. They printed loads of miles, and predictably devalued. Classic pump and dump scheme. They convince members to buy tickets to earn miles based on a value proposition, and then change the value proposition. It’s tantamount to fraud.

  • Other times programs just see everyone else doing it, and they think they can get away with it too. (“Everybody is doing it so why can’t we?”) Put another way, a program executive thinks that their program doesn’t have to be very good, it only has to be a little good and that’s relative to what others are doing.

We need to bring back the idea of shame.

There was once a stigma attached to failure. After decades of bankruptcies, and rewards for the executives who steered airlines through it, there’s no longer shunning of the executives that get the big decisions wrong and destroy value. That needs to change.


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 »

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Comments

  1. I think we all deserve some blame here. You could draw analogies to the recent housing bubble in 2008.

    Home buyers/Users of miles:
    Housing prices never go down! I’m going to buy an expensive home and get rich when I sell!
    VS
    I’m going to get all of these miles and travel the world in my mini-suite for FREE! I’m going to gather millions of miles!

    Mortgage brokers/Blogs pushing credit card offers:
    Now is a great time to buy. I have all these loan offers to present to you. I’ll fudge a little paperwork and you’ll be ok.
    VS
    Look at all these great credit card offers that give you miles. Go and spend. Also, I’m part of an army of people looking for mistake fares that you can take advantage of.

    Wall Street/Airlines:
    We’re getting rich! Lets keep the party rolling. When it all comes down we’ll be bailed out.
    VS
    We’re getting rich! Lets keep the party rolling. When people can’t cash in their miles for anywhere near the levels we promised we’ll just say tough luck.

    Everyone plays a role in this….

  2. they should also commit ritual suicide and close the hotel or airline after a short period of all free flights and hotel rooms

  3. Some of it is already there, say you are selling more your business class seats, then you reduce the saver availability and have them pay standard award. No need to devalue. They are dishonest in that they created the miles inflation.

  4. One of your better posts! Surprised it has taken so long for someone to say this in such simple terms.

    Fraud or imcompetence: either way, someone needs to get fired! But that won’t reverse the damage done…

  5. @Nic Did “they” create the miles inflation? or did “we”? Cheap MS and credit card bonuses have created the inflation IMO.

    I do, however, agree with Gary. I work at a large corporation that laid off 5% of our workforce last week, but of course execs are still getting bonuses paid. There’s no responsibility anymore, and we wonder why children don’t accept responsibility for misbehaving.

  6. Not defending devaluations but businesses can’t operate under the rigidity that you propose. Try to design an award/redemption program that works well under times of both low demand and high demand. Even if we assume complete competence and no intention of fraud, that program would be criticized for being both too stingy in awarding miles and too stingy in redeeming them.

    Devaluation is not 100% an admission of failure, its and adaption to a new environment.

  7. “Did “they” create the miles inflation? or did “we”? Cheap MS and credit card bonuses have created the inflation IMO.”

    “they” did by selling miles to the credit card companies at a price and volume which they could not support internally.

  8. in this space & time there is no concept of public shame. a rapist, child molester or criminal can walk out in public places and not get called out & shamed at, like their crime is separated from their individual person. in china public humiliation come with you wherever you go it & should be.

  9. “I have dishonored myself, my family, and my company.”
    “We need to bring back the idea of shame.”
    WWBAD (what would BoardingArea do)? 🙂

  10. Gary,

    Rapid inflation is generally not considered healthy. So when an airline does it, yes, it’s an admission that they failed at something.

    I’ve mastered this game pretty well, but I honestly hate knowing that I’ve accumulated miles faster than I can spend them, and they probably won’t be worth in two years what they’re worth today. I’d prefer it if I earned fewer miles but with lower inflation rates.

    As per the airlines and their obsession with BK, yes, it’s interesting how we don’t have a concept of “corporate” shame, but “personal” shame is alive and well. File BK as a company, and who cares? File BK as a person, and you’re scarred for a very long time. Why a double standard? Because corporations typically have deeper pocket books?

    IMHO, one structural issue that has to be resolved before airlines stop making BK filings par for the course is how labor contracts are structured. This idea that airline employees always get raises no matter what isn’t consistent with the rest of the free world. The airlines know it too, and when things get too expensive, off to BK court they go.

    Any idea what this industry would look like if airlines had to liquidate instead of get their debt reduced in BK court? Failing airlines under the current structure would lead to new airlines getting formed and hiring everybody and Year 1 pay rates, solving that problem. And labor knows it, so at the very least there will always be concessions as long as labor thinks management is serious about shutting doors.

  11. I believe accounting standards are the root of the problem. Airlines carry miles on their books at relatively low value, so every sale to credit card issuers, WITHOUT LIMIT, creates a reported profit.

    The accounting treatment provides no reason for management to restrain its sale of miles or points. Members then attempt to redeem their miles or points, and suddenly the problem (a shortage of hard product) appears.

    Managers need to look not just at accounting effects but ability of members to redeem. The latter is where they let us down every time.

  12. Interesting theory, but not always true.

    Let’s say I’m a top dog at a major USA airline, that’s had a frequent flyer program for 30 years. It’s taken for granted that this ff program makes my company money. But I’m naturally skeptical of this, so I do some studies. I find that most people will fly regardless of the ff benefits (or, more narrowly, a particular ff benefit). So eliminating the program (or just a piece of it, or devaluing it) actually will make my company more money. Is that a failure?

    No. It’s genius.

  13. The airlines are greedy. They make millions selling miles to credit card companies, retailers, etc. Their frequent flyer programs are a major source of revenue– but not if they’re worthless. And that’s their problem now.

  14. Very Polyanna-ish.

    Any executive who can figure out a way to sell stuff at 2 cents a unit and buy it back later at the devalued price of 1 cent a unit (without breaking any laws) is a genius who should be rewarded with giant bonuses.

    In a sense, the mileage programs are doing reverse manufactured spend where we, not the banks, get left holding the bag.

    Classic pump-and-dump? Hey man — that’s capitalist system. Tantamount to fraud? How can that be — every travel blogger reminds us constantly that miles have no intrinsic long-term value. Unless it actually IS fraud (which it isn’t) then why shouldn’t it be applauded?

  15. This post is ridiculous. Miles programs devalue because the airlines know exactly how many total miles are outstanding and when those totals reach certain thresholds where devaluation is in the airline’s best interest. People continue to accumulate miles/points, and airlines continue to earn tons of revenue from their co-branded credit cards and/or bank deals with cards that transfer to their miles. The smart play for airlines (and banks) is to continue those lucrative revenue streams while simply devaluing the miles needed for mileage awards. That is exactly what they’ve been doing. The fact that it now requires MORE miles to get awards is not an issue for any airline since all airlines have done this (and that is why everyone knows AA will do the same once its merger with US is completed). With fewer airlines after mergers, there is less need for the airlines to be as competitive with each other since consumer choice is more limited. The ONLY thing that would change this scenario is if the government began to regulate these programs–but that could endanger the programs and cause them to devalue even more than they do now. The best scenario would be government regulation that requires 6-12 months notice before any significant devaluation by any airline rewards program in order to somewhat cushion the effects of the devaluations. Otherwise, you and those like you are just railing at your decreased ability to get free things forever instead of appreciating that you had that ability for as long as you have had it. Times change, and this is the new reality. Suck it up and stop whining. Everyone in these threads have benefitted far more than the average consumer with regard to mileage awards, and everyone in the USA has benefitted far more than any consumers in any other country because of the competition among banks for consumers to spend on their own credit cards–because the USA has more banks and more consumers that rely on credit than any other nation. It’s just that simple. There is no whining in playing the rewards game; you either adjust or get out. Again, short of airlines being required to notify in advance that their programs will change/devalue, there is NOTHING that can or should be done.

  16. The concept of dishonor and resignation exists in maybe Japan, but not here in shameless honorless America.

  17. Do you forsee US and Europe Saver award being increased to book, or miles earned tied to spend like JetBlue and Delta now do? This has kept me from choosing either of these airlines I once flew co-equally with UA, US and AA, even though I see many more desireable flights when I do my daily searches that I would have chosen if they hadn’t devalued my miles earn like that.

    I got the feeling that they weren’t caring how many customers like me (fly economy monthly) they lose when I emailed Delta to point out they aren’t competitive with the other majors by not offering one-way awards at half the rt miles required. Their attitude was that if I didn’t like it, I could leave. I did.

  18. This is rich.

    The bloggers including Gary sold their soul to the credit card companies the same as the airlines. Maybe certain bloggers should also resign in disgrace.

  19. Its kinda funny that this is basically a call for regulation as I read it. Businesses have proven that they will NOT honor what they promised the customers, and thus government should step in to regulate any devaluation be announced and time given before it takes effect…”shame” is not something that the US operates on, but regulation is.

  20. I think is the best post I have ever seen you post……..it is analytical brilliance and your idea someone should be held accountable is spot on……….an airline executive should have their lifetime record annotated as “middle seat coach by bathroom only” and a hotel executive lifetime profile should read “only book in room requiring pest treatment/maintenance”……….let them drink their own kool aide……….

  21. At first, I had planned to bring up Japanese business culture. Then the all-American solution came to me, one person or a small group will hire a law firm(s) and in time a class action suit will ensue. In the end, each consumer will receive next to nothing and the lawyers will become wealthier.

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