Shifting Loyalties

What points count and for whom?

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