There’s nothing sacrosanct about miles per se. Sure, it doesn’t make sense for a program that gives out points based on how much you spend to call those points ‘miles’. But Capital One does it, so why can’t Delta?
At best miles are a proxy for a loyalty relationship: more miles flown is more of one’s life spent in an airline’s metal tube.
That loyalty relationship goes well beyond rebates or punch cards in getting people to prefer one airline’s product over another. When airlines boil down rewards to percentage back on transactions they lose the psychological leverage they have over consumers.
Still, I’ve also written that rewarding money spent, when it’s someone else’s money, does incentivize at least some customers to spend more. Frequent flyer programs are about two things:
- creating product differentiation out of something that’s inherently a commodity, a seat between point A and B, and
- creating incentives for passengers to make purchases based on their own interests rather than their employers’. And revenue-based does exacerbate #2. So it may increase revenue at some margins. It amazes me that big corporate customers don’t resist this.
“Customers who spend the most” aren’t the same as “the most profitable customers.” It’s a misunderstanding of average versus marginal. They should be trying to compete for the wallet share of frequent travelers.
And sure you award miles to those once a year travelers too if they bother to sign up, but at United and American you still have expiring miles (theirs will expire, and of course Delta had expiring miles before they didn’t.. expired a ton of miles from their balance sheet and then declared miles shouldn’t expire). Of if the points don’t expire it’s because the traveler may have signed up for a co-brand credit card, shopped through the online portal, credited rental cars to the program — in other words, became a profitable customer.
The metric doesn’t have to be miles per se, but it should focus the customer on choosing one airline over another. Delta and American do an interesting job of this with their small business programs, actually: earning is greater for connecting flights than it is for hub city flights they figure they’re going to get anyway.
Up until earlier this year American even prioritized upgrades for connecting passengers over those originating in hubs. Downsides there of course is the resentment of hub captives. There may be only so far you can push it, but the airlines already do it.
Frequent flyer programs changed what are essentially a commodity to be sold at the lowest price – an airline seat between any two cities – and turned them into a differentiated product with brand identity and customer loyalty.
Frequent flyer programs are – themselves – highly profitable as standalone businesses. That’s a testament to the way they have taken an aspirational good, and put it if not within reach than at least imaginable for tens of millions of people. And it’s channeled consumer behavior well beyond the sub shop punch card ever could.
By re-commodifying the experience, revenue-based earning (and burning) is merely a transaction; a rebate instead of a reward. And that undermines the key insight that made frequent flyer programs the most successful marketing innovation in history.
Good luck with that, US airlines.