Delta adopted a revenue-based frequent flyer program for frequent flyer earning two years ago, and removed their award charts to reduce transparency with members. (They intended to do full revenue-based redemptions but were surprised by member pushback in focus groups.)
Naturally United and then American followed because they blindly copy Delta the way fast food restaurants locate stores near McDonalds on the belief that McDonalds is smart and knows what they’re doing.
We’ve seen LATAM in South America make a similar move, and I’d expect to see a European program make this move sooner than later.
Alaska Airlines ran the numbers and found that nearly all members would be worse off if they went revenue-based.
Alaska believes only 5% of flyers would earn more miles under a revenue-based program. 79% of flyers do better under their mileage-based system. In other words, 79% would do worse with revenue-based.
We know that Delta, American, and United set the break-even mileage-earning substantially above their average fare and American was candid that fewer miles would be awarded for flights after their switch than immediately before it.
Last year Alaska re-iterated their differentiated, more value program as a competitive advantage. It’s helped them to grow and remain highly profitable despite Delta’s onslaught in Seattle. (And Delta concedes that its revenue premium isn’t driven by changes to SkyMiles.)
Delta has even added to its frequent flyer program as it loses its partnership with Delta. My only beef is the lack of notice of changes to members, such as raising the price of Emirates awards and eliminating Japan Airlines premium economy awards from their charts. Still, Alaska’s award pricing is on the whole better than competitors and so are routing rules allowing stopovers on one-way awards.
Now Brian Sumers in Skift covers Alaska Airlines comments continuing to stand behind its decision to keep a generous frequent flyer program while major US competitors cut, cut, cut.
“We have a huge percentage of our guests who are earning miles and using miles, and that’s equally as important as how much you actually paid for that ticket,” [Chief Commercial Officer Andrew] Harrison told analysts. “We all have different business models but at the end of the day, we believe that a generous loyalty program for our business …. will be a very very good thing for us longer term and for our investors.”
Alaska has a similar philosophy on first class upgrades. Alaska executives said Wednesday the carrier is still selling only 35 to 40 percent of all first class seats. At another carrier, such as Delta Air Lines, which in late 2015 said it wanted to increase its paid first class load factor to 70 percent by 2018, Alaska’s paltry first class sales would be a disappointment.
But Alaska executives insist that giving first class seats to road warriors — even ones who buy cheaper tickets — drives loyalty. “The philosophy for us is to have a generous upgrade policy,” Harrison said.
Even if Alaska eventually changes its mind and takes the revenue-based cop out, that shouldn’t come any time soon. Their Virgin America acquisition means their focus is elsewhere and they aren’t going to want the message of devaluation as they’re working to win over Virgin’s customers (indeed, the economics of the deal are predicated on convincing Virgin America customers to sign up for the Alaska credit card).