If frequent flyer credits at United, Delta, and American are earned based on the price of a ticket rather than the distance flown, why are those credits called miles? (Here by the way are the other questions that are rarely asked about travel.)
And if what matters is how much a customer spends, not the distance they fly,
- Why aren’t these credits awarded on unflown — but paid for — segments?
- Why does elite status still require minimum miles or segments flown? Indeed, spending is set at a lower-than-average threshold for the miles flown (12 cents a mile when average fares are higher, and higher still for frequent travelers)?
The answer of course is that customers accept miles and not dollars. And that miles remain a proxy for amount of business given to an airline, for wallet share among heavy traveling customers. And that still matters in fact it matters more than spending.
A minimum amount of spending removes benefits from customers who weren’t contributing much to an airline’s bottom line, and redistributes finite benefits like upgrades to heavier spending customers (especially important now that the availability of upgrades is so limited, as airlines take tens of dollars for those seats in upsell rather than granting upgrades).
But spending alone doesn’t determine profitability, and more importantly you don’t want to reward profitability (spend more for profitable business you’re already getting, that just reduces profits) you want to incentivize incremental profitable business (encourage greater wallet share, more flying).
A customer whose corporate contract with your airline has them buying a ticket on your non-stop flight not replicated by any other airline isn’t someone you’re encouraging through your frequent flyer program. Discretionary travelers who have a choice in carrier are what matter.
Frequent flyer programs were meant to provide differentiation amongst airlines where none existed. Airline seats are more or less commodity products (Delta is a little bit more operationally reliable, and Southwest and JetBlue offer a little bit better inflight economy experience, but even their seats are commodity products). So frequent flyer programs create brand loyalty, and get a customer to take a connection rather than a non-stop or wait for a flight 2 hours later instead of flying at the ideal time. That matters.
And airlines know it which is why they still give out ‘miles’. Which is why elite status is still predominantly determined by flying and not spend.
When carriers started awarding miles for flying based on spend they:
- Reduced the number of miles for flying awarded
- Increased the number of miles required for awards
In other words they made flying less rewarding. Planes are full. There aren’t that many incremental seats to fill. This is now the 4th longest period of post-war economic expansion in the U.S. although annual GDP growth has hardly been robust.
And most miles aren’t even earned by flying, frequent flyer programs are really credit card incentives. Programs fulfill two functions — recognition and reward — and the reward function is majority based on plastic. Recognition is elite status, and that’s still largely based on miles flown with the lowest spenders lopped off.