A couple of weeks ago many readers took advantage of the deal of the year.
- British Airways ran a premium cabin sale.
- Prices were lower than advertised.
- From more cities than advertised.
- With deals available throughout Europe and not just London as had been advertised.
And the sale was stackable:
- With the AARP $400 business class discount
- With the Chase 10% discount on British Airways tickets
- Or instead of the 10% discount, with using miles to buy down the fare (at 2.5x the usual value of British Airways Avios)
This was an advertised sale, which stacked with other advertised promotions, and wasn’t actually a mistake fare. And yet some people were spending ~ $450 in cash for roundtrip business class to Europe. They had to spend 30,000 Avios to do it, but for travel through the end of January it even earns a 25,000 point bonus either with British Airways or American.
Like I said, in my view deal of the year.
The AARP discount was just renewed through early 2017. It seems to me that they shouldn’t be offering it on discounted “I” fares, but it’s fantastic that they are.
However the question is why BA was running the premium sale in the first place, and why it was available so broadly and at lower than expected prices? There may have been a mistake made at BA, but it also does make some sense in the context of a year-over-year drop in premium traffic that was noted in the British Airways Q3 earnings discussion. BA disproportionately relies on premium traffic, which is sort of ironic given their inferior premium product. (They were once pioneering with lie flat business, but now lag with dense cabins and a comparably poor soft product.)
I’m more of a global pessimist right now than most. No doubt ‘most’ are smarter than I am about the global economy, and so I’m less likely to be right.
But since I believe quite a few controversial things I’ll say that I think China is entering its Great Recession, something the Chinese government had managed to delay for years but finally caught up with them, now there’s a ton of malinvestment to be liquidated and a whole lot less low hanging catchup growth to fuel their economy.
Europe got a Greece deal done but is far from out of the woods. Russia continues to implode.
And this all has implications for the US economy as well. Low fuel prices for the airlines are both a blessing and a curse and we only focus on the blessing. It lowers costs. But fuel prices are low largely because of lower worldwide demand for oil, because of the slumping economy. Airline revenues are falling, but if the economy slows further those revenues will fall further.
All of that makes me think this is the worst possible time for frequent flyer programs to devalue. When the economy is strong, planes are full, and prices are rising an airline doesn’t need to spend as much marketing dollars to fill incremental seats — there really aren’t incremental seats. But as the economy slows, fares are falling (which they are), you need to invest in your marketing engine. Not cut it.
It’s a cautionary tale as American prepares to finalize what they’re going to do with AAdvantage post-integration with US Airways, and something that all programs need to consider. It is a mistake to assume full planes and no need to incentivize or compete for business is a situation that will continue much longer, in fact the facts on the ground may have already shifted.
Unfortunately, though that should be the lesson it may not be. This is very much a herd industry. When Delta was working through the issues of its new, less generous and far less transparent frequent flyer program their planes were full and at increasing prices. Their airline operation was their unique selling proposition. It may have made sense to spend less on marketing through a loyalty program.
- United, which manages by doing what Delta does, followed suit — but United has a different business than Delta does.
- American is now facing these questions (“Do we do what the most admired airline does, because the most admired airline does it?”) when the facts on the ground have changed.
But this is a herd industry, and US Airways was even speculated as a possible first airline to introduce a revenue-based frequent flyer program before Delta but the American merger got in the way.
We’ll see whether they have the vision to respond to different facts with different solutions. And we’ll have a better idea reasonably soon.