One of the most widely held views of my readers is that frequent flyer programs have become less generous because of airline mergers — there’s less competition.
It’s an interesting view, although I’m not sure that it’s a correct one. We very much still have competition from:
- Delta/American/United/Southwest (4 huge domestic players)
- Alaska/Virgin America/JetBlue/Frontier/Spirit/etc (real domestic competitive role players)
Most customers at most airports have real choice in whom to fly. There are hub captives, for sure (which is to say, one airline offering the most service and the most non-stop options so consumers spending other peoples’ money make purchase decisions based on convenience) and there’s not much serious competition for hubs — outside of New York (Delta and United, and to a lesser extent American and JetBlue), Chicago (American and United), Los Angeles (Delta, Southwest, United, American), Seattle (Alaska, Delta), San Francisco (United and Virgin America). Actually that’s quite a lot!
I believe the drivers of less generous frequent flyer benefits are:
- Full flights, airlines don’t need to spend marketing dollars to fill marginal seats when there really aren’t many marginal seats left over
- Capacity discipline, fairly unprecedented in US aviation history, airlines just haven’t been making big investments to grow their fleets, they’ve grown via acquisition and not throwing new capacity into markets.
So it makes sense for airlines to be less generous rewarding flying, and make no mistake revenue-based programs are less generous overall even if there’s a small minority of flyers who come out ahead. Even a large portion of business fare travelers come out behind when you do the accrual math.
When the underlying state of the game changes, the economy heads south and with it business travel, or an airline starts throwing capacity into markets again this could all change again!
In the meantime, not all programs have become equally less generous.
I know where my accrual focuses.
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Gary, you’re good at publicizing good deals and that’s much appreciated. But please stop being such an apologist for the obvious decrease in competition when it comes to deteriorating frequent flyer programs, poor service. For instance,you say Virgin America with its limited route network is competition for United for most passengers at San Francisco Please. And the situation at many non-hubs is so much worse. You say American’s program has not gotten much worse, and I agree, though we know it’s very likely holding off on cuts while the US takeover unfolds. Go to a site like Flyertalk and see how many experienced flyers stick with what they feel are unsatisfactory airlines due to lack of choice.
Well, planes being full is a function of the mergers, less planes in the sky.
I’ve got to agree with the others. The reasons you state are the resultant effect of way too many mergers. Full flights and capacity discipline are the result of not enough competition. You yourself have a pronounced inclination to fly to Asia on foreign carriers. Why? Because they’re better. The fact of this triumvirate of legacy carriers controlling the vast majority of domestic capacity is awful for the customer. If there were six legacy airlines plus the ones mentioned above, do you truly think things would be so bad?
The nobel prize-winning work of Vernon Smith shows that you need far fewer market participants to create competitive conditions than was generally believed, and in any case there’s no reason in the literature to believe that the current number of participants would be insufficient anyway.
@Nic mergers do not mean fewer planes per se
Christian, you have said that the reason that US airlines are so bad is because of lack of competition, however, then say that foreign carriers are much better, however, the US is the most competitive country in the airline world still. Britain has one airline, Canada has one international airline, Japan has two, Hong Kong has one, Singapore has one, Australia has one, etc., so your theory that competition makes airlines better does not work. Competition in the US has come down to price because that is what consumers here seem to want, and you can’t have both low price and good quality.
@Farnorthtrader – if you are asserting that airlines cannot compete if they are from different countries, I think that that is kind of silly. Are you saying that BA/LH/AF/KL/LX don’t compete? Or MH/TG/SQ/CX?
That was exactly the reason I thought, contrary to your headline.
Alaska has poorer availability on Air France and Emirates to Africa the last few months. Any sense why?
Delta and UA, along with AA, have gotten MORE generous with pax that really add to the carriers’ bottom lines. Any assertion to the contrary isn’t focused on the full picture.
@billy, that is true only for the EARN side of the equation but you have to factor earn rate, redemption prices, and availability. Prices are up and availability is way down. And both of those reductions are true even for the highest spend customers.
@Farnorthtrader – Well said. I do think that there may be a weak point or two in your premise, though. Yes, the U.S. does have likely the most competitive market. If we had six to ten major airlines again, it would be an awful lot tougher for so many flights to fly 90% full. How often do you have empty seats next to you now? Less full planes create more incentives to get more customers to fill these planes. This makes for better service, better loyalty programs, better food, and other less direct benefits, like lounge access, more hubs to connect, etc. It’d be pretty tough to explain how the flying public is actually better off with less competition.
Gary:
As a retired antitrust attorney, I believe that the lack of competition directly impacts the ability to collude successfully, especially where “capacity discipline” (or is it capacity collusion) has continued for such a long time. In my view, a tight three-firm oligopoly can collude much more successfully for longer than a four-firm oligopoly.
@Retired Lawyer well the federal government didn’t feel their anti-trust case was strong enough against US/AA to move forward, they settled with the airline for a pittance..
Airline programs have gotten less generous because of BLOGGERS. There are now ten zillion idiots now gaming the system, with a bazillion points in their accounts, all chasing the same seats. Go to Walmart now and there’s a long line of morons with stacks of gift cards, complaining to the staff when the ATM locks up. The airlines have to respond somehow. Crappifying their programs is one way they respond.
Apologies accepted for ruining everything.