Miles are still an amazing means to get premium cabin travel without spending a lot of money.
Redeemable miles are no longer a reason to choose to fly one airline over another. And if you’re going to earn elite status from your flying anyway, that’s great, and you should try to put yourself over the top of the next-higher tier you’d make naturally anyway.
But the airlines are diving head first into destroying their success using frequent flyer programs to turn a commodity product (a seat that gets you from A to B) into a differentiated one. By offering revenue-based programs for earning and potentially burning, they offer mere discounts to customers who had been the least price sensitive. By limiting benefits they give those customers who would spend more and never consider another airline little reason to do so.
- Fares that don’t earn full benefits
- Difficulty of obtaining benefits, especially upgrades, through the success of selling seats at a modest premium while also shrinking premium cabins
Miles are still highly valuable. Two thirds of airline miles are earned for things other than flying a loyalty program’s airline, though — I certainly don’t need to choose whom to fly because of the miles.
- I book now on schedule and price. A week ago I flew United, it was the most convenient flight at the best price. They wanted under $100 to upgrade to first. All I wanted was extra legroom, but economy plus was $60 so the buy up was worth it to me.
- I will still make top tier elite status on American with no problem. But I won’t give them all my business. I didn’t even used to shop around.
When I’m not even choosing my airline based on loyalty program something has happened to the programs. I just booked a Southwest ticket for next week.
Elite status still matters, in some ways more than ever. You get free checked bags and priority boarding (so you don’t have to gate check your bags) at the first elite tier, but you get those things for signing up for an airline’s co-brand credit card.
Top tier status comes with real benefits, but upgrades are becoming harder and harder as airlines:
- Sell their first class seats cheap which is fair, but status got a much bigger benefit when 10% of first class seats were paid for versus well over 50% at Delta.
- Fly planes that are full so there’s fewer leftover seats to upgrade into.
- Have consolidated to the point where it’s easier to earn elite status since there’s a bigger route network, you can keep your flying on one airline more than before.
- Have made it easier to earn status so there’s more customers to compete with for dwindling space. Spending thresholds at United and Delta were supposed to weed out elites. But Delta offers ‘rollover miles’ that help inflate their elite ranks, and United and American offer bonus qualifying miles on premium fares.
Airlines built multi-billion dollar businesses that did the impossible:
- Turned an airline seat from a commodity product to a differentiated one that customers had a brand preference for
- And took their loyalty currency and turned it into an all-purpose currency that businesses from banks to realtors to mortgage banks spent big money on.
When US airlines were going through bankruptcy their loyalty programs remained profitable, and the airlines sold points in bulk to banks to provide significant liquidity.
But loyalty programs are a counter-cyclical business. When times are tough they’re generous spending marketing dollars. When times are good they scale back their marketing spend. That much makes sense. But they also seek to reduce the cost of their past efforts by abrogating the promises they had made in the form of miles during tough times.
All the while Delta, then United, and soon American will go to revenue-based earning. Delta still has award charts but has done their best to calibrate those to revenue-based redemption including through advance purchase requirements to get low award pricing and journey control to prevent saver awards from being available on certain combinations of flights.
Revenue-based earn and burn Which means effectively offering a rebate on spending towards future travel — essentially a discount — giving the biggest discount to the customers who used to be the least price sensitive.
The US airlines are rapidly undermining the profit centers of their loyalty programs, but going even further to eliminate the differentiation between products that those programs provided. And for the most part they don’t even realize it.