Making changes without notice to a loyalty program is the worst thing any program can do.
- It’s unethical, because it breaks a promise made to members
- It’s bad business, because it undermines confidence in the program (and that confidence is necessary for the program to successfully drive consumer behavior)
- And in some cases it’s even illegal.
The Last Month Was Terrible for Loyalty Program Changes Without Notice
Last month American introduced variable award pricing on two routes not just without notice but without acknowledgment even, they still haven’t explained the way in which their ‘AAnytime’ awards have changed.
Until now they’ve said explicitly that there would be one price on a given day for spending extra miles for last seat availability, but for New York JFK – San Francisco and New York JFK – Los Angeles the AAnytime price may vary on the same day.
This past week I wrote about Hyatt making significant changes to the price of timeshare properties and not telling anyone. That’s only 16 places you can use your points, and apparently they ‘forgot’ to update members when they announced changes for the other hotels a month before those changes went into effect.
The Residences at Park Hyatt Beaver Creek, credit: Hyatt
This past week Delta also raised the price of Europe business class awards without notice. Effective immediately all awards for travel next year priced at 140,000 miles roundtrip rather than 125,000 miles. Members who were saving their miles and close to an award ticket were simply out of luck.
At the beginning of the year Delta made changes to the price of several international awards for travel October 1 onward. You’d think one devaluation in the first quarter of 2016 would be enough for the SkyMiles program, but that would be wrong because they made no notice changes to Tel Aviv awards in March.
Delta is king of changes without notice, they used to actually claim it was illegal for them to respect their members: that this was signaling future price changes and an anti-trust violation.
Never mind that Delta, and nearly every other airline, has announced award price changes in advance. None has ever complained about their competitors doing so to the Department of Justice, received an inquiry from DOJ over the practice, or self-reported a violation to the SEC. The Delta claim was met by hearty laughs among both DOJ and DOT attorneys I’ve spoken with.
But Aren’t Award Prices Just Prices? And Don’t Prices Change All the Time?
In response to Hyatt’s change Rick suggested this was all normal, because “businesses constantly change prices whenever costs or demand changes. Not sure why you think points program must be any different.”
Loyalty Programs Aren’t Cash, They Are a Promise of Future Value in Exchange for Your Business Today
In a standard business transaction you use cash to buy whatever you want, from whomever you wish. But a loyalty program is a promise of future value for purchasing behavior today. Changes without notice renege on that deal.
Think of Lucy, Charlie Brown, and the football. You’re told that if you save your miles, there’s a reward at the end of the rainbow. As you get close, the reward is yanked away from you. It’s bait and switch.
You’re offered miles in some amount for your travel purchases today. And you’re offered miles to incentivize you to use a co-brand credit card today. And you’re offered miles for taking surveys today, or renting cars today. And those miles are incentives because of what the program tells you that you can do with them. This is the promise programs make.
And miles aren’t cash. You can spend cash for anything you want. You can only spend a loyalty program’s points on whatever the program says you can. And cash does have a declared value there are even transparent foreign exchange markets. Delta won’t tell you how much their miles are worth, even with the price of a ticket as a reference point. Are they worth a penny a point? Say what you want about the Federal Reserve, but the value of the dollar doesn’t fall in half overnight.
With cash you can purchase from any vendor you wish. With American AAdvantage miles, if you don’t like American’s prices, you can’t take your currency over to Spirit or Lufthansa.
The Department of Transportation considers changes to award pricing without giving notice “far enough in advance to allow the consumer to benefit from the program prior to the change” to be unfair and deceptive.
Airlines don’t say, “here are our points and they don’t actually have any particular promised value.” They tell you that if you do something for them now, they’ll offer you value later. The only airline that’s ever said they owe you nothing is Delta, through their lawyer, in oral argument in front of the Supreme Court. And Justice Elena Kagan called out the absurdity of the claim.
JUSTICE KAGAN: I just don’t see why that would make sense. Because if I knew that it was really up to you to give me the free ticket, maybe I was willing to get it and maybe I wasn’t. I don’t think that I’d be spending all this time in the air on your planes. You know, I’d find another company that actually gave me the free ticket.
Fundamentally loyalty programs are a trust-based value proposition. Very expensive consultants are telling loyalty programs they need to offer low value easy to obtain rewards because that’s what millennials want. This gets it exactly backwards.
Millennials are less likely to trust brands, especially those that behave like travel loyalty programs which actively break the bonds of trust. So programs have to prove they actually provide rewards.
That’s nothing new, members speed up their points accumulation after redeeming an award because they’ve proven to themselves that their earning behavior made sense. The programs that would win with Millennials and all of their customers over time are the ones that make good on their promises.
I don’t think I’ve ever heard any airline mention the word “promise.” But I do think that I’ve read that the program may change at any time without notice. I don’t like it, but it appears that is how most loyalty programs work.
@DL – replace the word ‘promise’ with ‘offer’ or ‘enticement’ if you’d like.
But airlines make promises all the time, sometimes they’re not merely implicit promises to do what they say or that the miles will have value when it comes time to redeem.
Take for example Delta’s Super Bowl ad years ago announcing that their miles never expire. There was no fine print in the ad. Delta then ‘retired’ Frequent Flyer and replaced it with SkyMiles, moving the points from Frequent Flyer into a program whose miles had expiration.
Delta had committed when they moved to the new program that any elite member who continued to maintain their status could always redeem their old Frequent Flyer miles under the original program’s award chart. That promise went poof as well. It was absolutely a promise.
When an airline tells its customers “if you do X, we will do Y” that is a promise. They can take the position later that consumers shouldn’t have believed their promises because their fingers were crossed (the terms and conditions adhesion contract says they can break any promise they wish). But that doesn’t mean it wasn’t a promise, just that they aren’t trustworthy in keeping their word.
Gary, I’m confused. I thought Delta Skymiles have no expiration?
@Mike D –they had no expiration, then they had an expiration. Then the expiration period shortened. Now they have no expiration again (because “it’s the right thing to do” but of course without going and un-expiring the miles they took off their balance sheet).
Today there’s no expiration. But don’t take that as a promise. Because Delta made that promise before, and changed their minds…
What’s killing these programs is the non availability of award flights in premium cabins for desired destinations and/or the outrageous mileage required to get ticketed. And after the ticket is issued, I’m hearing stories all the time now about people getting downgraded to Y or put on other, less desirable flights and routings. There is no protection for the passenger – lots of broken promises. You can’t count on anything anymore.
Gary,
Do you understand the point of changes without notice from the airlines’ perspective? They, like any business, have two goals: 1) maximize traffic and 2) maximize revenue. When they make a change with notice, then everyone jumps to redeem their miles before the change kicks in, minimizing revenue, and briefly increasing traffic before decreasing it substantially. If they don’t issue any notice, many consumers (expect those who read this blog) won’t notice the change and rush to redeem. And in your example, if someone has 125,000 miles and the price increases to 140,000, it’s not like they are going to give up and start over with another airline. They might not be happy about it, and it might take them a little longer, but the airline is still going to win. The point of a frequent flyer program isn’t to reward customers; it’s to generate revenue. Even if they upset customers in the process, the likelihood that they are going to lose a substantial amount of traffic is low because the vast majority of people, especially the higher spenders like business travelers pick an airline for route convenience, onboard product, and the cash ticket price, not the frequent flyer program. That’s why people still fly United (mostly convenience rather than product, but hopefully that changes soon). When I earn miles, I see it as a small bonus that may or may not change, not like a free flight, because there’s no such thing as a free lunch.
@Oops your argument is that “changes without notice are ok because airlines can get away with it” I think?
So, that boilerplate in every loyalty program allowing them to change terms at any time, that’s invalid because advertising = promises?
Ok, so in what way should loyalty programs be regulated, since a libertarian approach of “well, you are in no way compelled to participate in this program, so this isn’t a contract of adhesion, no government regulation is needed” obviously isn’t working?
@Oops. You are wrong. In the long run, as mileage points tank, so will their value in generation revenue. The business of selling miles for future travel will tank both as an ongoing profit center and on a net present value basis.
Meh, I just roll with the punches. Maybe when the industry or economy sours things will improve again with FFPs. Or maybe not. Or perhaps airlines will do away with FFPs altogether. SUre it’s annoying when no-notice changes hit, but life goes on. And there’s nothing I can do about it, for better or worse.
The word that comes to mind for unannounced devaluations in a loyalty program is “disloyalty”. To the customer. It’s an act of bad faith. I get that there are business reasons for doing it that way, but they’re not reasons that respect customers. Whether or not one thinks it’s important that a business respect its customers even at the expense of profits is going to vary by person. I run a business, and I’d always rather take a buck less than feel as though I potentially acted disloyally to a client who has been loyal to me.
@ Oops
BUT…the ability for people to jump in to redeem their miles before a change is controllable by the airline through the number of reward seats which they release (your rationale assumes a constant supply side which undermines your argument).
ALSO…some airlines (such as QF) specify that notice WILL be given in their T&Cs. This is to engender trust in the loyal customer. By ignoring their own T&Cs the airlines are destroying that trust (and possibly breaching consumer law).
IF airlines want to change without note – they shouldn’t clarify that in their T&Cs: all is upfront and folk can make their purchasing decisions accordingly.
And no the airline isn’t always going to win. Some customers will lower their business, fly coach instead of first, base travel on best fare of the day instead of their preferred airline loyalty program, etc.
Frequent flyer schemes are a business in themselves – they do depend on patronage: they need folk to engage with their program. Driving folk to competitors or at least to an indifference to the program is not good business – the loyalty program itself needs loyalty!
Of course there’s no such thing a free lunch – that applies to the business as well – airlines need to sell / market / engender customer loyalty: customers have points because they have spent money with the airline! The cost to the airline is part of their sales / marketing cost! So the airlines want to present a clue proposition to customers and then change the goalposts to avoid rewarding the customer!? Bad business.
@ eponymous coward
What boilerplate? Some airlines DO specify in their T&Cs that a notice will be provided regarding upcoming changes and specify the period of notice.
@ DL
Consumer law varies from country to country, but in Australia (at least) there is a requirement to deliver on advertised product / service (i.e. must not be misleading, must provide service / product which is “fit for purpose” for the price paid): to that extent there is a “promise” by the supplier implicit in ratio ship between supplier and customer.
@ eponymous coward
One may ask how airlines avoid such consumer provisions being applied in the case of frequent flyer schemes (points have no cash value, etc ) and tighten consumer law as required: frequent flyer schemes are likely the cause of extensive consumer grievance.
In Australia our main airlines of QF and VA provide bestow such luxurious gratuities onto our parliamentarians it may be wishful thinking that any government would likely instruct our regulatory bodies to act, or pass stronger legislation to compel a balanced and ethical behaviour on the part of the airlines.
A libertarian approach may seem intellectually preferable to regulation but such a scenario requires common sense and mutually bifocal outcomes – corporates will always be tempted to greed necessitating a check and balance!
@ Eric
Does your laissez-faire attitude also apply to other situations – you buy a 250g steak and get served a 100g steak in a restaurant, you buy a car with A/C and it’s delivered without the A/C, you book a hotel room with a view and get one without…etc…?
Consumer and trade / practices provisions apply to airlines as well as other businesses!
@eponymous coward – We need to separate out legal from moral and even long-run best interests of the program. I don’t think the libertarian approach is actually that the government shouldn’t change policy here, because the government is protecting programs from civil justice, you cannot sue for anything other than direct violations of a program’s terms and conditions under Northwest v Ginsberg, the federal government is preempting common law contract suits (which are perfectly compatible with a libertarian view of government).
The best approach would be overturning Ginsberg. Outside of that, Ginsberg says your only avenue of redress is DOT. DOT says it has authority here but has chosen not to use it. That’s likely for cronyist, regulatory capture reasons. Nothing pro-liberty about that.
The real problem here is that there are way too many points being given out to customers who may only fly occasionally, through credit card programs. How can you compare “loyalty” points between me with an average of 85,000 miles a year (actual flown) to someone who only flies 10,000 miles a year, but collects points on their credit card.
I wish airlines would either STOP giving out credit card points and focus on the truly dedicated customers. Or, have a different points system that would clearly identify and reward, appropriately,
@Platy:
This boilerplate. Here’s a sample, provided as an example. Many other programs are similar:
https://www.aa.com/i18n/aadvantage-program/terms-and-conditions.jsp
“American Airlines may, in its discretion, change the AAdvantage program rules, regulations, travel awards and special offers at any time with or without notice. This means that the accumulation of mileage credit does not entitle members to any vested rights with respect to such mileage credits, awards or program benefits. In accumulating mileage or awards, members may not rely upon the continued availability of any award or award level, and members may not be able to obtain all offered awards for all destinations or on all flights. Any award may be withdrawn or subject to increased mileage requirements or new restrictions at any time.”
@Gary
So, OK, let’s overturn Ginsberg and say you can have lawsuits about frequent flyer program terms under state laws regarding covenants of good faith and fair dealing, etc.
This boils down to you wanting judges writing the terms of what frequent flyer programs can or can’t do through lawsuits and declaratory judgments, as opposed to legislatures and executives writing the terms of what frequent flyer programs can or can’t do via laws and regulations.
My guess, such as it is, is that saying things like “can’t change terms with no notice, miles/loyalty points represent a property interest that an airline can’t take away or impair arbitrarily” (or whatever would be needed) would rapidly drive airlines to a rebate-based scheme for loyalty programs (not that they aren’t trying to go that way already), where you just rebate revenue spent to the customer. This actually might be better for a lot of people; these sorts of programs are very easy to figure out and understand for consumers: “Oh, I have $100 in WidgetAir credit, that means I get a $100 air ticket!”.
What they aren’t so good for is for bloggers to figure out how to get to the Maldives for pennies on the dollar.
@ eponymous coward
Ouch – I’ve definitely over invested in AA points!
Legalities aside…where business dealing lacks good faith, that relationship is likely to decline…maybe we are seeing the evolutionary process of loyalty programs (declining good faith, moves to revenue based systems by the airlines and less engagement and loyalty by the customer)..if the trajectory of such could be predicted we can adjust our consumer strategies accordingly (e.g. being more cost sensitive and patronising multiple suppliers)…
@ Paul Baker
The airlines are happy to SELL their points to partner organisations (banks, credit card suppliers, car hire companies, etc) for cash revenue bolstering healthy profit centres – now that frequent flyer schemes have evolved into discrete business in themselves it is surely unlikely that they will be regressed into simplistic loyalty schemes primarily focused on airline travel. In the meantime, the airlines may be getting better value by selling the points to a credit card issuer than have you buy a seat on an aircraft!
The general point is these schemes have evolved substantially apart from the concept of “loyalty”…
I agree with you Gary. One of my good friends was trying to get me into miles and points, but I wasn’t too interested. I signed up for the United MP though at his advice when it was 60,000 miles a few years ago but never used it so I didn’t find miles valuable.
Then a mishap happened with my passport and I had to cancel and rebook a trip to Hong Kong at the last minute. My friend used my United miles to book me one way on EVA biz, before it officially became integrated with *A and used his AA miles to book me back on Cathay biz, all last minute. I was blown away by the ease of using miles and what I got out of them. I’ve been hooked every since.
It seems that eponymous coward and others who always respond confused or negatively to your posts about no notice changes from loyalty programs, don’t understand the difference between ethics and law, as you mentioned too. Just because something is legal doesn’t make it ethical, meaning right.
Just because a man or woman can lie to their spouse or boy/girlfriend about a lot of things and go back on all of their promises and not be prosecuted for it, doesn’t make it right. Also that man or woman should also be distrusted by all future suitors as well.
I don’t understand why people don’t agree with you on this one.