United’s current program is designed to reward high spenders.
- They award mileage bonuses for buying full fare and premium cabin tickets.
- Elite status requires a minimum spend on airfare ($2500 for Silver, $5000 for Gold, $7500 for Platinum, $10,000 for 1K) or driving value to the airline for other activity like credit card spend ($25,000). Ancillary revenue and partner activity is much less expensive for United than air travel.
- Global services. Their top tier of status is based on revenue, not miles flown.
Now they want to make redeemable mileage earning based on ticket price, too.
And while there’s a case to be made for focusing your greatest investment in your best customers (although in my view a better case to be made for focusing your greatest investment where you can generate additional business at the margin intead of rewarding business you’ll get anyway), you want to focus on the money your customer is spending. The last thing you want to do is make your customer focus on just how much they’re spending with you.
Airline frequent flyer programs have been incredibly successful doing three things:
- Getting people to choose what seems like a commodity product – an airline seat getting from A to B – based on brand. It makes customers brand loyal.
- Getting people to spend more money – often someone else’s money – to stay with their preferred air travel provider.
- Becoming a universal currency — customers love travel, it’s motivational, and so miles become real reward dollars that are leveraged by selling to other businesses for big bucks.
Asking customers to focus on how much they’re spending is precisely what you don’t want to do if you’re running a business trying to get your customers to spend more money on your product when your competitor is selling it for less.
And rewarding customers for spending — giving them more if they spend more — upends what’s already an uneasy relationship between travelers and their employers or clients.
Already travelers choose an airline even if it’s more expensive, which may not be in the best interests of the entity paying for the ticket (although it may be given the value of elite benefits conferred).
Employers and firms have come to live with frequent flyer programs influencing traveler choice. But what about when the transaction becomes even more crass?
When airlines are directly giving passengers more back in their mileage accounts in exchange for spending more money. It’s no longer a reward disconnected from the financial transaction itself.
- Get your employer to buy full fare instead of a discount fare and we’ll give you more miles.
- Wait to buy your airline tickets, give your bosses the excuse that schedules had to wait to be firmed up, and the price of the ticket will likely be higher and we’ll reward you more for acting against your employer’s best interests.The revenue-based earning model is a kickback. And it’s bound to create uneasy relationships at work.
American Airlines should be sending its corporate sales staff out tomorrow to all of the best customers they’ve wanted to sign on, and say
We’ll take good care of your employees, and especially so when they spend more time with us.
But we aren’t going to sign you up as a customer, and then kick back to your employees a percentage of what they spend with us.
We won’t pay your employees to spend more of your money than they have to.
You wouldn’t tolerate that from any other vendor, so don’t tolerate it from Delta or United.
United and Delta are exacerbating what’s already a principal agent problem created by frequent flyer programs, where a traveler wants to make spending decisions with their employer’s money that aren’t the same decisions the employer makes. This just brings it all back into stark relief.
Update: Apologies that comments are off on this post, it wasn’t intentional and trying to fix that.. Update 2: Fixed.