It’s interesting that as airlines try to re-align their programs to ‘better reward high value customers’ (read: devalue the program for lower revenue customers, and at best remaining neutral for high spenders) they introduce mileage-earning from flight activity based on ticket price but have not yet introduced revenue-based redemptions.
Delta has hidden their award charts but still, more or less, prices awards on the basis of award charts. United maintains award charts. American is expected to as well.
You’d Expect Revenue-Based Earning to Pair With Revenue-Based Redemptions
On the one hand, revenue-based earning leads to a logical conclusion of revenue-based redemption. As ticket prices rise through inflation, more points are earned and the number of points required for redemption rises in tandem. With fixed award charts, inflation means more miles earned — and a need to regularly devalue either earning or redemption prices to offset.
Hotel Program Lessons for Revenue-Based Programs
Hotel programs are similarly revenue-based: points earned from in-hotel spend are calculated as a basis of that spend. While redemptions in the major programs are chart-based (each hotel assigned to a fixed-price category). As a result hotel programs each year shift hotels to different categories based on their actual or projected room rates. And they introduce new higher categories (Hyatt went from 4 to 7 categories, Starwood from 5 to 7, durin gthe time I’ve been following them).
And hotel programs find themselves needing to constantly run promotions in order to keep up, and drive consumer behavior. Their revenue-based earning model alone doesn’t do it.
But Airlines are Gun-shy About Revenue-Based Redemption for a Reason
When Delta was plotting out the course of SkyMiles they planned to introduce revenue-based redemptions. You weren’t going to get a fixed-value per mile (for instance, a SkyMile worth a penny). Instead they were going to borrow liberally from programs like US Bank FlexPerks: ticket prices within bands would have set mileage values. There would be a table where a certain number of points would be required to claim tickets in a range of dollar values. 25,000 miles might buy any ticket up to $375, for instance.
Here’s the FlexPerks flight award chart:
I’ve often derided the model as ‘being like a punch card’. For every X spent, you get Y. It upends the most successful marketing innovation in history which is, itself, wildly profitable on a standalone basis. This is a billion dollar business – which isn’t actually in ‘trouble’ in any conventional understanding of the term — that’s being turned on its head.
Funny thing is I had heard Delta executives talk up the model in precisely the same way — that it had ‘the simplicity and fairness of a sandwich shop punch card.’
But consumers told Delta in focus groups that they wanted the opportunity to get value out of their miles. They’d rather have that than fixed certainty. Delta execs generally deride this idea, don’t understand it, and think consumers are being irrational. They aren’t. Because consumers can use their limited miles when they get good value for miles, and use cash to buy tickets when they don’t. They don’t need to take whatever mileage price is given. And if a loyalty program doesn’t offer the opportunity for superior value, it isn’t a motivator.
Delta Tries to Do It Through the Back Door, Will Others?
Delta was gun shy about revenue-based redemptions because they thought it would turn off their members. It was a step too far.
But instead of committing to keep the value of their award charts, they started moving to the very model they had planned only through the back door. They declared the end of the 25,000 mile award. In order to get there,
- A majority of routes started requiring 3 week advance purchase to get the lowest award prices.
- The cheapest routes got lower mileage prices.
- They ramped up their use of ‘journey control’ to make sure award availability would more closely match price.
The elimination of award charts let them get closer to their original plan of tying award prices to fares without actually saying so.
It’s just a constant stream of new ways to limit actually getting superior value from miles. Delta is the leader in the space. United has developed a reputation for managing by doing what Delta does. Of all the airlines in the world, American’s top executives most admire Delta.
But even Delta has – and hides – its award charts. Let’s hope that other programs are more respectful of their members as they come to understand the importance of giving members at least a shot at value.