How Airlines are Destroying Customer Loyalty, and Why That’s Bad Business

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.

  • Devaluations
  • 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:

  1. Turned an airline seat from a commodity product to a differentiated one that customers had a brand preference for

  2. 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.

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. Today, 80% of the airlines are owned by the big four, and the boardrooms of these airlines have the same people; i.e., a boardroom member is on more than one of these top four airlines’ boards. This way they devalue everything, going revenue based. Just like the cereal companies—-notice Kellogg’s Product 19 doesn’t have any free toy inside.

    However, you also notice the installation of “Premium Economy”. Reason: Less Flyers (with low cost fuel). Next, robots replacing cabin crew for pre-departure drinks?

  2. There are some really good points in this article, and Gary is always very insightful, but I disagree with the comment that revenue based earning/burning would be “giving the biggest discount to the customers who used to be the least price sensitive”.

    Most flyers today don’t even have a frequent flyer number. They sit out of the game because they believe they’ll never accrue enough miles to make a redemption. If airlines turn miles into a “discount” program, the infrequent flyer would essentially get a $50 voucher instead of 5000 miles that they view as worthless. This voucher may be enough to tip the scale on the price-sensitive customer’s next purchase.

  3. I think this article very well sums up my travel patterns.

    After being a United 1k for the previous 10 years I have achieved million miler status.

    Now between that, the credit cards I have on Delta and AA, and the Southwest companion pass my spouse has there is hardly any incentive for me to fly United for any particular flight or to try to achieve high level status with them.

    Even as a 1k my complimentary upgrades are non existent as I do not purchase top tier economy fares and United is selling many first fares now.

    About the only benefit I see to top tier status is ability to change or cancel award tickets for no fees….especially important now that miles are harder to earn by flying and that the ideal award space only opens up days or sometimes hours before the flight. Being able to change an award itinerary (at least on United) a dozen times with no fees or penalties is a nice benefit.

    But certainly one that does not offset the time and money costs if AA, DL, and SW frequently have better travel times and dates for my domestic travel requirements.

    It’s quite sad actually as I used to be quite proud of being a United loyalist and now I could care less about flying that airline…ironic since I’m now a million miler flyer.

  4. United net income drops after move to revenue based loyalty program. Surely someone at United could have predicted this would happen?

    United Airlines beat analyst expectations on first-quarter earnings Wednesday while suffering a 38% drop in net income, which the carrier blamed on the strong dollar and a larger decrease than expected in business travel.

    United’s fuel cost was 34.7% lower for the quarter, at $1.2 billion during January, February and March, compared to nearly $1.8 billion a year earlier.

  5. Quit acting like you’re some life long loyalist to AA. You only started flying recently and before were UA. Why do you and all the bloggers pretend you’re such loyal to the carrier?

  6. I’ve got news for you. Nobody in the world cares anymore about legacy US Airlines or their alliances be it One World, Sky Team, etc. Better service, better planes, better airports, better routes AT better pricing (particularly one way)……that is the new metric. Mix and match works better than loyalty to folks who keep cutting back reasons to be loyal.

  7. You have made a great point.

    I fly a lot on business to Mexico (from Florida) and for the last UA flight I got– are you ready?–147 miles in EC+ for MEX-IAH-TPA. That is all. So where is my motivation to stick with UA or any airline for that matter?

    Believe it or not I am now flying JetBlue out of MCO. The schedule it’s better, the flights are nonstop, I have a better seat, and they offer a family shared miles program. Granted, flying JetBlue won’t get me 2 first class award tix to Male anytime soon, but I have credit cards and manufactured spend for that.

  8. Gary-

    Looking forward to the Southwest trip report! And if not, a write up on the process for changing or cancelling a ticket as a non-status passenger. 😉 You may soon realize the value proposition of flying with them…

  9. All this is fine unless you are primarily loyal to Southwest and don’t fly enough to make status on one airline PLUS the occasional trip on another. I don’t care about bag fees. Or change fees. Or a differentiated seat. I will pay a little more for SW not to deal with all the other bull from other airlines.

  10. I completely agree with the ” I didn’t even shop around” comment by Gary. Until this year, I blindly went to aa.com (am EXP and lifetime Plat). In 2016, I’ve had more segments on UA and Delta than on AA. With SPG Plat for “early boarding” on Delta and a credit card for UA, I have the same thing as a low level elite. End result: I spend less money and spend less time on a plane.

  11. What about the destruction of loyalty…miles and points from cc sign-ups. Miles so easily accumulated and we move across programs to get best deals, there is no loyalty at all to credit card companies nor any airlines. Move points to Eithad to buy AA flights more cheaply. Almost like we are miles currency dealers. Airlines chasing profits by selling points and award seats to cc companies without any care how it affects their elite actual cash paying clients. The point on all these changes is that elites are simply not bringing in enough profit to justify their perks. Airlines reducing elite benefits to be in line with elites true value to the airline. It is all fair. So elites complaining and saying they are switching allegiance . So what! You are not the best source of revenue to begin with that is why your benefits were being reduced. Sip your champagne in first class and loss money for another airline giving you oversized value if you can

  12. @Kimmie

    LOL
    Your so right. It isn’t even worth them giving any miles for these flights
    I used to suck it up and fly to Newark just to get 2,000 United miles round trip Now they barely give me 600. Less than 1/3 rd is what they used to award !!!!!

    Now I fly to my prefered LGA and take one airline going one way and another going another way to either MIÁ or FLL (whatever is cheapest)
    My second choice after price would be schedule
    Oh well I guess it’s good for the United NON-REVS
    They will have more seats available since we aren’t redeeming out miles on them or flying them as much

  13. Agreed with all but the last sentence. Of course they know. It’s not like armchair bloggers have this brilliant insight that elude teams of actual professionals with much more than anecdotal data.

    They don’t care. Because times are good, they’re making money, and they don’t need to pay out in order to keep the planes full and prices up. If times change, they’ll change, of course. And when miles become more valuable again, people like you and me will come back. But, from the airlines’ perspective, why start paying now?

  14. All the whining in the world won’t change the simple fact that with fewer “big” airline and the concomitant reduced competition on more and more routes, there is less need to differentiate with better loyalty programs. If you don’t like what AA has done, it’s not like UA and DL haven’t already done it or soon will…as vice versa. This is what happens when you let the be less competition creating more profitable airlines.

    The fact is that we’ve enjoyed a free ride using miles for an amazing length of time–decades now. There is no other product or service which allows one to accumulate credits for free premium services/products in the same way that miles do…except perhaps for hotel rooms, of which there is FAR more competition and choice available. So we should be pleased that we could enjoy it for as long as we did.

    Revenue controls for airlines and loyalty programs DO make sense from any reasonable business perspective. We may not like it because it lessens our ability to get free product, but free product isn’t what the airlines are trying to sell. Suck it up, people.

  15. I have been buying F straight up or with upgrade $ for a couple of years now while everyone else scrounges for upgrades that never happen. This is why UA doesn’t even let you see the price to buy up until after you buy a coach ticket. So yes, you travel bloggers are finally onto the new game.

    I am loyal… to all three carriers! AA, UA, and credit DL to AS. When you pay for F you don’t need elite benefits. The mileage multipliers for elite status are not worth it to me, versus cc bonuses and spend.

    When the cc game soon ends, all that will be left is prem fare sales. There are a few tricks on how to get great deals on paid domestic F but none of us are stupid enough to put it on ft nowadays, we’re all just figuring it out on our own. I see little hints here and there on ft.

    The carriers know what they are doing – in the age of “big data” the airlines can model what cohorts are actually making them money in exchange for loyalty and make it worth it for those people to pick them. With corporate contracts business travelers that pay for int’l J/F do not actually get to pick their airline. So there is a small subset of people that can pick their airline and pay for J/F and all of the firepower is aimed at those people.

    It’s just a different game now. With not much to write about, frankly.: (1) a recap of what’s good in ft good deal premium fares, (2) explanations of how to leverage the few sweet spots left in the asian carrier charts, and (3) explanations as to why paying a mix of $ and miles for awards can be worth it.

    That said I have greatly enjoyed your blog.

  16. I’ve sort of expected that consolidation would result in both fewer loyalty incentives and possibly the end of or lessening of alliances. Once an airline has a big enough network they don’t need those things.

  17. Peter Y has it right. The new game is called “save up your money and buy what you want”. Big data and competition from foreign carriers are going to mean market-priced domestic F and international J, rather than the legacy model of bloated fares to snag the corporate folks with bottomless pockets and then giving away the rest of the seats.

    Of course another factor is who is going to flinch first on capacity. “Full planes” are the norm now, fo sure. But then some bean counter is gonna get this bright idea – “Hey, why don’t we put a widebody on that route? Let’s order some more of them!” And then we end up with overcapacity. Everything is cyclical for sure.

  18. I agree with most of this, but not so much the conclusion. I think the airlines now exactly what they are doing and I think they now how it will affect their financial results in the short term in the current economic climate, but I doubt that they know how it will affect their results in the long term.

    I agree that undermining the value of the programs eliminates the differentiation that the programs had provided, but on the other hand I see that the differentiation between the carriers and services is just shifting to other factors – services, schedule and price – all of which are more valuable to me than miles. There has never been more choices for premium class travel, and the prices are as good as they have ever been – to me that’s great. I don’t need to be loyal anymore, and yet I have the choice between as many as four different cabins on some flights. 15 years ago in the US there was coach and their was first class, and first class was prohibitively expensive for most people (excluding corporate travel) and the only way most people flew in first was through loyalty and miles. Now most domestic carriers have some version of premium economy, and a very reasonably priced domestic first cabin, and there is even competition for flat bed domestic first class.

    So now we all get to pick from a broader range of service choices and price points and can almost always pick more direct/shorter flights because we don’t need to worry about loyalty. The mileage programs may not differentiate the airlines anymore, but there are plenty of other factors that do differentiate the airlines now. What I wonder though is which airlines will be able to stay competitive when the economic climate changes – because they won’t be able to fall back on the mileage programs to keep them afloat next time.

  19. I’d rather have airlines put money on better passenger experience than provide a crap experience and then have to discount the hell out of it through (barely redeemable) miles.

    Delta understood this and it’s worked wonders for them. Customer satisfaction is highest of the network carriers (proving that a strong frequent flyer program has minimal impact on satisfaction), as is its profitability (which closely follows customer satisfaction). Now the others are following. Yeah!

    Oh and as far as the next recession goes, nobody ever said “things are bad so I’ll buy a flight for the miles”. So if they all give out less, they all come far ahead as demand won’t change.

  20. Edward says: “Oh and as far as the next recession goes, nobody ever said “things are bad so I’ll buy a flight for the miles”. So if they all give out less, they all come far ahead as demand won’t change.”

    Right, no one is buying flights for the miles in a bad economy but the buckets of miles that the airlines sold to credit card issuers in the last recession kept AA afloat at least, maybe others. As fewer and fewer people care about the miles, the less valuable the buckets of miles will be when passenger revenue falls.

  21. @Bill nails it: “All the whining in the world won’t change the simple fact that with fewer “big” airline and the concomitant reduced competition on more and more routes, there is less need to differentiate with better loyalty programs. If you don’t like what AA has done, it’s not like UA and DL haven’t already done it or soon will…as vice versa. This is what happens when you let the be less competition creating more profitable airlines.”

    The airlines know exactly what they’re doing in curtailing their frequent flyer programs.
    They have an oligopoly, and no need to compete in most regards.

  22. Apparently the legacy carriers under-studied Amtrak Marketing:
    When I gave up on United and switched back to American in 2007, I accepted their challenge to reach Platinum status within a contiguous quarter. However, I soon learned that it was rare to be upgraded, because there was always somebody else who had higher status/more miles. To secure F Class for the comfort, I realized it required either purchasing the lower level F ticket, or, applying miles to the coach ticket, which now requires a higher cost level as well. Also, notice the round about way you are routed when using miles to go anywhere–good luck with a non-stop!

    Will never forget my experience with “flying with status” back in August, 2011, on United ORD-SFO. Traveling with my daughter in F Class, Purser requested she change her meal selection, as a higher status behind our bulkhead row requested the fish. I tried to explain that when I flew regularly in the 1970s, if one meal was out, the business people were mature enough to accept another selection. Although we refused, or, to trade-out for a coach meal, the purser switched the meals anyways; my daughter never had lunch. I was in the process to litigate United when 9-11 occurred, and our priorities changed.

  23. I agree, Gary. There are a lot of people who used to do no shopping around, or very limited shopping around. I used to be able to justify a higher fare or less convenient schedule because of the mileage earned or the (reasonable) shot an upgrade. Now the upgrades seldom clear, even ones I’ve cleared with certs get messed up in IRROPS, it’s a much lower consideration.

    I had never bought tickets on B6 or VX before, but don’t have a problem with that now. I’ve bought tickets on UA, AA, AS, DL, AM, BA, B6, VX and others in the past year — the changes in loyalty programs have made me sort of a freelancer if you will.

  24. I reached this conclusion awhile ago. I’m ok with it, really. A long, long time ago, when it was impossible for a non-elite to select a bulkhead seat or exit row at time of booking, I thought to myself, “What idiots. They could be *charging* for this seat, and I’d pay for it.”

    Now that I can pay for it, there goes less incentive to be elite.

    Now that F fares are priced reasonably, there is even less incentive to be elite.

  25. I’m a value-flyer and the elite status gave me the free bags, lounge access and occasional upgrades. Now that most elite benefits are harder to get or gone,I am not putting as much effort into chasing the status as I’d spend extra money doing it. As an example, Air Canada flights as well as most other Star Alliance carriers are always significantly more expensive. Now I just take the lower fares, pack efficiently, bring my own entertainment(for the plane and the terminal) and my own food/snacks. I make my own comfort, I get my free flights from credit cards that are flexible(not airline related) and I am loyal to no airline. It is a bit of a relief actually, now that I have so many more options.

  26. Haven’t airlines outside the US done this for a very long time? LH has 25% RDM cheap economy fares TATL. They’re cheap, but if you buy them and you’re an elite, you’re not getting the kind of benefits you would get if you bought C or F.

    I think SQ has 10% RDM fares…

  27. Gotta be honest, if it wasn’t for blogs like yours I would have no clue how to redeem my miles. That’s the type of customers the airlines want. Someone who doesn’t know how to use the miles and then redeems for domestic travel for high mileage rates.

    Now that I’ve accumulated enough miles and learned how to earn I’ve booked premium travel around the globe. It’s a shame the airlines are going revenue based earn as we all probably buy tickets based on cost first.

    I’ll stay loyal to AA as long as they don’t peel back too much of our benefits as I still value the premium seats at no cost. Watching carefully though.

  28. Quite agree with you… I used to go for the same airline (and directly to their site to book, sometimes paying more than the competition) so I can bank my miles there but now I’m completely open to price competition in most flights. I get mile from both revenue and non-revenue sources but revenue sources are not as great either so I’m not so “loyal” to the airline(s) that I used to be… Most of the benefits that comes with status can be obtained via credit cards as well.

  29. Excellent discussion in the comments. Couple notes:

    1. The shopping around factor (shopping around instead of heading straight to AA.com) is part of the unseen cost in any loyalty conversation. Airlines are not great at accounting for the unseen.

    2. If you listen to airlines you’ll hear that they view their products as having always been commoditized, they (all, ironically) intend to differentiate on service, reliability, schedule.

  30. Interestingly in this morning’s American Airlines earnings call they differentiated between consumers who are commoditized and who are not, arguing that reduced benefits for elites will extract more revenue from non-commoditized consumers, failing to realize it’s precisely those benefits which make them non-commoditized.

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