Shift­ing Loy­al­ties

What points count and for whom?

Business Traveler (USA) - - FRONT PAGE - By Ram­sey Qubein

As the lyrics from the pop­u­lar song by R.E.M. go: “It’s the end of the world as we know it, and I feel fine.” A bit dra­matic, but in the past year we have seen the“world”of air­line loy­alty pro­grams shift en masse from ac­cru­ing miles or points based on dis­tance flown to a model that looks at how much one spends. They join the ho­tel in­dus­try, which has long fol­lowed a rev­enue-based plan.

Since this type of pro­gram has ex­isted for quite some time in re­lated in­dus­tries, why does it sting so much with this shift among air­lines? It could be the com­plex­ity of the new pro­grams or the de­val­u­a­tion of ac­crued miles that shakes us. Or is it the fact that so few will ben­e­fit at the ex­pense of many oth­ers?

What­ever Hap­pened to Loy­alty?

It could be ar­gued that these points schemes shouldn’t even be re­ferred to as loy­alty pro­grams any­more. With ben­e­fits like free up­grades dwin­dling and award prices creep­ing higher, it seems stay­ing de­voted to one car­rier is more dif­fi­cult than ever be­fore.

Some air­lines have even in­creased the thresh­old for earn­ing sta­tus and added a new min­i­mum rev­enue spend re­quire­ment, leav­ing some fliers with the im­pres­sion that achiev­ing elite sta­tus is only for those trav­el­ing on some­one else’s dime.

And so the ar­gu­ment goes: Do fre­quent fliers even need to worry about be­ing loyal to one com­pany if they – or their com­pany – can af­ford to pay top dol­lar for the top prod­ucts? Are air­lines shoot­ing them­selves in the foot by dis­cour­ag­ing the pur­chas­ing habits of cost-con­scious trav­el­ers? These are the peo­ple that stick it out with an air­line over the years and are even will­ing to pay (a lit­tle) more so that they can ac­cu­mu­late all those lovely ben­e­fits with their car­rier of choice.

Now that some trav­el­ers’ busi­ness is ap­par­ently re­garded as less im­por­tant, we may be­gin to see a shift in the way con­sumers spend their travel dol­lars. If miles are be­ing doled out based solely on money spent and more bar­ri­ers are put in the way to achieve sta­tus, it sim­ply makes sense for most trav­el­ers to choose the most con­ve­nient or af­ford­able op­tion for their needs. No more in­sist­ing on one air­line brand or al­liance. And any­way, why would you if the ben­e­fits are harder to achieve?

Air­lines see it dif­fer­ently, not­ing that there is a li­a­bil­ity as­so­ci­ated with each mile they award. How­ever, they are still dish­ing out loads of miles – per­haps more than they were be­fore, although they are lav­ished on the high­est spenders.

Credit card com­pa­nies buy huge amounts of miles from air­lines as well to award to their own cus­tomers. The pool of miles to re­deem is not shrink­ing, but it is sim­ply be­ing redi­rected to those with the most travel dol­lars to spend. Es­sen­tially, the rich are get­ting richer.

Big­ger Hur­dles, More Cash

To make mat­ters more com­pli­cated, air­lines are in­sti­tut­ing byzan­tine rules that re­quire thor­ough study­ing be­fore you start plan­ning your travel.

Delta Air Lines and United Air­lines are the two latest switchovers to the new rev­enue-based pro­grams. Av­er­age cus­tomers earn 5 miles for ev­ery dol­lar they spend; elite mem­bers earn in­cre­men­tally more miles per dol­lar. How­ever, to earn elite sta­tus for the next year, trav­el­ers must still meet min­i­mum, dis­tance-based thresh­olds.

This means there are two types of miles to track: re­deemable miles and“elite qual­i­fy­ing”miles. Es­sen­tially, you must fly the same amount of miles as be­fore to achieve elite sta­tus, but most will be re­warded fewer points to spend on free travel – un­less you buy the most ex­pen­sive tick­ets.

The two car­ri­ers also in­sti­tuted a pol­icy whereby you must spend a min­i­mum amount with the air­line in ad­di­tion to the mileage re­quire­ments to achieve elite sta­tus. In other words, the air­lines want to as­sure you are pro­vid­ing enough value to them in ex­change for the“free”perks. This makes per­fect eco­nomic sense, as these are public com­pa­nies with share­holder in­ter­ests at stake. But it’s still con­fus­ing. And de­spite all the talk about the wide range of air­line al­liance part­ners that al­low you to ac­crue and en­joy the same ben­e­fits, it turns out not all al­liance deals are cre­ated equal.

The mon­e­tary ticker to­ward your“to­tal dol­lars spent”with an air­line does not in­clude most al­liance part­ners. For ex­am­ple, Delta will only al­low you to fly its own me­tal or that of its joint ven­ture part­ners Air France and KLM to have the en­tire fare count to­ward your dol­lars spent to earn elite sta­tus. Aboard other al­liance mem­bers you earn only a frac­tion of that.

You’ll still earn miles for fly­ing part­ners, but the amount has been slashed by as much as 80 per­cent with some air­lines. It all de­pends on the fare you pur­chase. If you buy an econ­omy class ticket on some SkyTeam mem­ber air­lines, like China South­ern or Viet­nam Air­lines for in­stance, you may only earn 25 per­cent of the miles flown.

“What’s sig­nif­i­cant is that with United and Delta, both pro­grams be­come more com­pli­cated and less re­ward­ing,”says Gary Leff, travel ex­pert and au­thor of the blog View from the Wing.

“These pro­grams have be­come fo­cused on trans­ac­tions rather than loy­alty.”

Re­cent re­search by Price­wa­ter­house­Coop­ers stud­ied sev­eral do­mes­tic routes on the largest US air­lines and found that 40 per­cent of trav­el­ers will earn more points through rev­enue-based pro­grams (mostly pre­mium cabin fliers and busi­ness trav­el­ers). The study found that 45 per­cent of trav­el­ers will earn less. Among those that earn less are those that fly non­stop routes and pur­chase tick­ets far enough in ad­vance to score lower fares.

Chas­ing the Big Spenders

As in any busi­ness, the pyra­mid of cus­tomers gets nar­rower at the top, notes Henry Harteveldt, founder of At­mos­phere Re­search Group and a widely rec­og­nized travel in­dus­try an­a­lyst. There aren’t enough high-value air­line trav­el­ers to go around, which is why we see the air­lines bat­tling for them.

“With these changes, we’ll see loy­alty pro­gram‘elite’tiers thin out,”says Harteveldt, “Ul­ti­mately trav­el­ers who have earned the sta­tus should ex­pect bet­ter ex­pe­ri­ences. I ex­pect we’ll see some tweak­ing of ben­e­fits, both good and bad, as air­lines gain some ex­pe­ri­ence with these pro­grams.”

Amer­i­can Air­lines, which has earned ac­claim from trav­el­ers for not chang­ing their loy­alty pro­gram (yet), has taken the op­po­site ap­proach and is re­ward­ing all trav­el­ers, no mat­ter their ticket cost, with bonus miles for fly­ing on more ex­pen­sive tick­ets. This does not take away from the av­er­age trav­eler’s earn­ings, but it does in­cen­tivize those who spend more.

“The funny thing is that some high-value cus­tomers prob­a­bly aren’t loyal at all: many pur­chase last-minute fares on which­ever car­rier of­fers a non-stop flight,”says Scott Macken­zie, who runs the Travel Codex blog and helps trav­el­ers de­ci­pher how to best earn and burn their loy­alty points.

Amer­i­can’s ap­proach may be a more palat­able so­lu­tion that can ap­peal to all au­di­ences and drive loy­alty to­ward the brand. Oth­er­wise, the only win­ners are busi­ness trav­el­ers who fly on the cor­po­rate dime.

For in­stance, a Delta Diamond Medal­lion trav­el­ing on a $7,000 busi­ness class fare to Asia in the old pro­gram would have earned some­where in the range of 40,000 miles. In the new pro­gram, they would earn 75,000 miles in one trip (nearly dou­ble). That seems a bit much and can even raise the is­sue of cor­po­rate trav­el­ers book­ing higher fares just to ac­crue more miles.

“Cor­po­rate travel man­agers are very con­cerned about this trend, for fear it will lead their trav­el­ers to spend more than they need to on their busi­ness air­fare,”says Harteveldt.“If spend­ing goes over bud­get, busi­ness trav­el­ers should ex­pect to see more strin­gent poli­cies im­ple­mented.”

And so the ar­gu­ment goes: Do fre­quent fliers even need to

worry about be­ing loyal?

These could in­clude al­ways book­ing the low­est fare, which may lead many busi­ness trav­el­ers away from the legacy air­lines al­to­gether and into the hands of lower cost car­ri­ers like South­west or jetBlue. It may even cre­ate a back­lash for legacy air­lines as their bread and but­ter cus­tomers move away, no longer able to achieve their cov­eted elite sta­tus.

When it comes to re­deem­ing those hard-earned miles, there are lots of award seats out there de­spite com­mon mis­per­cep­tions. It’s just tricky to find them. Air­line web­sites may not dis­play all avail­able part­ners or rout­ings, and many reser­va­tions agents may be un­fa­mil­iar with the latest poli­cies or air­line part­ners.

Re­cent de­val­u­a­tions to air­line award charts have added to the sense that award travel is not easily ac­ces­si­ble. The most sig­nif­i­cant ex­am­ple is United’s Star Al­liance awards that were raised over a year ago by as much as 80 per­cent. This year, Delta mys­te­ri­ously deleted its award chart al­to­gether and left cus­tomers guess­ing how much an award should cost.

Whereas a busi­ness class ticket from the US to Europe used to cost 125,000 miles at the low­est level of Delta’s pro­gram, it could now cost as much as 750,000 miles ac­cord­ing to delta.com’s pric­ing en­gine. Prices fluc­tu­ate depend­ing on avail­abil­ity, but there’s no one price to point to as a min­i­mum goal as there was with a de­fined award chart. Tempt­ing trav­el­ers with as­pi­ra­tional awards is dif­fi­cult when this tar­get keeps mov­ing. If all of this is more con­fus­ing than it’s worth

to you, there are peo­ple that can help. Count­less blogs tout the ben­e­fits of loy­alty pro­grams and how to max­i­mize them. There are even con­fer­ences like Fre­quent Trav­eler Univer­sity that host reg­u­lar events with speak­ers that ex­plain how to op­ti­mize these pro­grams.

In­vest­ing in an award book­ing ser­vice that han­dles the search and reser­va­tion process for your award tick­ets for a mod­est fee can be es­pe­cially valu­able to take ad­van­tage of your hard-earned miles.

On the Bright Side

For now, some air­lines like Alaska Air­lines and Amer­i­can Air­lines are re­sist­ing the urge to jump on the rev­enue-based band­wagon, although in­dus­try ex­perts note that they are not sure for how long. They still of­fer points based upon dis­tance flown plus bonus miles for high-rev­enue tick­ets.

For ex­am­ple, Alaska Air­lines noted in their re­cent In­vestor Day that other air­lines’shift to rev­enue-based pro­grams“pro­vides op­por­tu­nity in the near term for Alaska.”

On the ho­tel front, there are ac­tu­ally some pos­i­tive changes. Mar­riott, Hil­ton, and Starwood have all in­sti­tuted pro­grams to award life­time sta­tus for a min­i­mum num­ber of ho­tel nights over one’s mem­ber­ship life. Plus, tie-ups be­tween Mar­riott-United and Starwood-Delta al­low trav­el­ers to dou­ble dip, earn­ing points with both com­pa­nies when stay­ing and fly­ing or shar­ing elite sta­tus ben­e­fits be­tween the two part­ners.

But look­ing down the road, when busi­ness travel dips, will air­lines have lost the loy­alty from the fliers that used to help them fill their planes?“When the econ­omy turns, air­lines may have to start open­ing their wal­lets again,”says Leff.“In the mean­time, it’s im­por­tant for con­sumers to fo­cus on the pro­grams that still do re­ward their loy­alty, Amer­i­can AAd­van­tage and Alaska Air­lines Mileage Plan.”

Many in­dus­try in­sid­ers won­der if Mil­len­ni­als will latch on to this new type of loy­alty pro­gram. Whereas many older trav­el­ers have longed for as­pi­ra­tional travel ex­pe­ri­ences and used these pro­grams as a method to achieve them, Mil­len­ni­als are be­gin­ning their travel ca­reers in an en­vi­ron­ment that seems to have de­val­ued pur­chas­ing de­ci­sions that are based on loy­alty. It may be in the best in­ter­est of these trav­el­ers to ac­crue miles with all pro­grams, but al­ways travel with the low­est fare.

In this new era, says Harteveldt, there will be greater loy­alty to air­lines (and their al­liances) among higher-spend­ing trav­el­ers, and lower loy­alty – if any – among those who spend less. But, the ques­tion re­mains, will those who spend more in­sist as strongly on a brand pref­er­ence or will they sim­ply go with the cheap­est or most con­ve­nient of those high fares?

The perks are still there, al­beit more ex­pen­sive in many cases, and for those will­ing to comb through the new rules and plan their travel ac­cord­ingly, a free trip could be still in your fu­ture. It may be the end of the world for loy­alty pro­grams as we know it, but in the words of the song,“I still feel fine.” BT

There are lots of award seats out there de­spite com­mon mis­per­cep­tions.

It’s just tricky to find them

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