Award charts matter because they offer transparency to members. The fundamental challenge of a loyalty program is generating trust. The frequent flyer program asks members to take action today on the promise of value in the future. The intertemporal nature of the program means consumers have to trust before the company delivers value.
What’s more charts have historically been able to deliver value because saver awards take spoiling inventory that the program can buy in bulk at a discount and ‘sell’ it to members without undercutting the retail price of seats.
Put another way customers gain access to seats at a deep discount – a business class roundtrip that retails for $5000 or more can be sold for pennies on the dollar, with the airline picking up incremental revenue they wouldn’t have otherwise gotten.
There’s a real problem that programs are facing, how to deliver those seats in a world where planes are full and airlines aren’t growing faster than the economy? If there aren’t unsold seats on desirable flights (or the airline is afraid making those available on points would mean customers using points instead of paying cash) the model breaks down.
The answer though isn’t to move towards low value redemptions where a mile is worth a penny. That’s giving up. It means,
- Consumers don’t get outsized value for their points, access to travel they wouldn’t be able to afford otherwise, and the program loses its luster as a motivator of consumer behavior.
- Meanwhile the airline credit card becomes less desirable since it delivers less value than cash rebate cards offering a higher rate of return.
Fortunately it’s not really an either-or proposition, despite what Delta has done and United’s follow. In fact United’s own experience with revenue-based redemptions shows that this new model can easily co-exist with award charts.
United introduced the ‘Choices program’ in 2006 where miles earned with their Chase credit card could be spent on travel at one cent apiece.
- This was a way to solve award availability problems, and deliver cheap tickets at a lower price.
- It was an answer to Capital One which let you spend credit card points for any flight.
- But it was only for miles earned via Chase — those had higher value.
The airline did not abolish award charts, they ran the program in parallel. Miles could pay for airfare at about a penny apiece or be redeemed at the saver level (or standard level) for traditional reward tickets. The Choices program still exists at United.com.
Although at the time I indentified this trend as ultimately something of a canary in the coal mine suggesting that “‘miles as money’ with an anemic rate of return ultimately replaces award charts.” It just took longer than what I feared would happen back then.
United has been talking about revenue-based redemptions since at least 2015. When they announced an award chart devaluation two years ago they,
- Underscored that they still had charts, taking a dig at Delta.
- Took a stab at mixing revenue-based redemption and traditional redemption without abolishing award charts, they published a maximum price for standard (extra miles) awards, but emphasized that price could be lower.
In other words United itself has had two models where award charts co-exist with revenue-based redemption. There’s no reason spending miles as money has to eliminate award charts.
Revenue-based redemptions may skyrocket the maximum price of an award. If that’s too embarrassing for an airline to cop to they could
- Take the American AAdvantage approach where there are six redemption levels, not all published
- Maintain the saver award chart while eliminating the standard chart, so they don’t have to publish the maximum price. Then run award sales where they reduce prices below saver level.
They can make things easy and just expand the Choices program to all miles and customers can book tickets for more or fewer miles as they wish, while retaining traditional saver award ‘deals’ through a published chart.
The only reason, therefore, to actually eliminate award charts is to price redemptions opaquely so that members have a hard time seeing what the program is doing. At Delta that has meant rapid inflation in the price of premium cabin international travel, that they have an excuse for not announcing in advance since the price is whatever they say it is on a given day.
Delta and United have cast their die. While I expect to see American AAdvantage introduce dynamic pricing hopefully they’ll take the smart (and honest) approach and offer this as an add-on not as a replacement for members getting value out of the program through award charts.
For me, a big issue with Delta’s and now United’s shifts to revenue-based redemption schemes is that they haven’t had a noticeable increase in availability. On Southwest, the OG revenue-based program, consumers know the deal – you won’t get outsized value for your points (in part because Southwest does not have an aspirational product on offer) but you know that if you need a free flight, it will be available if there are open seats on the itinerary you want. And the value is pegged at basically ~1.5 cents per point in value when redeeming for flights on Southwest. So, consumers know what to expect value-wise and that they will be able to redeem their points for the flights they want without the hassle of finding availability or paying a completely ridiculous number of points.
So, in the long run what incentive have Delta and United offered their customers to choose their loyalty program over one of their biggest competitors’? Non-elite members earn more points per dollar on fares with Southwest than on Delta/United (6 points on Wanna Get Away fares vs. 5 points on United and Delta), the points are more valuable on their pegged value (1.5 cpp on SW vs. the race toward 1 cpp on Delta), and Southwest members have an easier time redeeming their points than Delta and United.
Certainly, there are more reasons for a consumer to choose an airline than its loyalty program. I think Delta has the best on-board product of any major US airline and Southwest’s route network is far less robust, especially internationally. But the key word is loyalty – will these programs engender any customer loyalty based on these recent structural changes? It’s difficult to make the case that they will.
Companies always make $ gUaP $ based mistakes.
Well-balanced article-opinion on this topic, Gary!
The big 3 can also learn few things from JetBlue loyalty program as an example of very well run program toward the customers. JetBlue is profitable while its miles program is very open and mostly straight forward – giving some real value to flyers.
@Gary
Yup.
The danger the airlines run with this revenue based “rebates” program is that are simply *giving up money*. No spin, no joke, no BS. Take WN for example, with whom I do not have their credit card, and with whom I buy their overpriced tickets once a year for Turkey Day travel because they are the only nonstop option in the market I need to travel in for that holiday. I BUY TICKETS AT THAT STUPID MARKED UP PRICE. And I get points (cash rebate) for which I will somebody redeem for a free ticket on said holiday. THEY ARE WASTING MONEY ON ME. With no points, I will still buy their overpriced tickets because there is no competition in that market. Because someday I’m going to have a free ticket, for which I WOULD HAVE PAID CASH FOR. But hey.
As you mention, the legacy FF claim to fame (and revenue driver) is that inspirational ticket. They’re selling me the tease of a dream. (Kinda like a stripper TBH). Take away the fantasy, and what’s left?
By the time they all convert to a rebate program, they’re just giving up money. Because peeps are going to do what peeps are going to do, and the FF program just becomes a cash back rebate for things you would have done anyway.
A couple of personal observations include the “loss of the dream effect”. Taking away award charts is like taking away route maps. I can no longer dream of a fabulous trip while pondering the award chart or while looking at the airline magazine route map.
Another issue is why would I want to earn airline “miles” that are pegged at 1.0 or 1.5 cents per mile and earned at that rate per dollar when I can just get a cash back or flexible point card that rewards 2 to 3 cents per dollar. They airlines have been doing business with the “devil” (credit card companies) and that may haunt them one day.
Hi Gray
Interesting with your articles but I’m more with Robert in this one
Thanks for sharing
Gary,
The flaw in your posting on this topic is that customers in competitive cities have often chosen to be loyal to Delta despite all of this. Delta’s credit card usage and domination of cities like NYC has only increased since they went to a redemption based model. Delta’s backbone is the business traveler, who by all means are not unsaavy consumers. You and the rest of the points blogging industry must me missing a major motivator here.
I don’t believe the current management team at AA is capable of taking a smart or honest approach to anything.
UA award charts are gone, 1 point is worth a penny, very transparent… Get used to it …
I’m finished with airline miles and credit card companies. The pair of them have quite the racket going, and I can’t wait for the CFPB to start asking questions. As soon as Apple releases their credit card I’ll be signing up, and then it’s Apple Pay and 2% back.
@ Anthony, Gary has pointed out previously that Delta doesn’t NEED to have a good loyalty program, because their operation is better. Customers — especially time-sensitive business customers — are willing to overlook lackluster redemption options because the actual business of flying from A to B is more pleasant and more reliable.
The fundamental failure of UA’s and AA’s follow-the-leader policy is that, by contrast, they suck at the business of flying people. So when the loyalty program is no longer a point of distinction, they just don’t measure up.
For me, AA’s competitive advantage was their loyalty program. It was easy to use and redeem miles at reasonable levels and I bought into their entire program, using two of their credit cards and going out of my way to fly AA even when other more convenient options existed. That’s why I’m closing in 2M miles this year, and I’m an EXP customer whose employer pays for economy tickets and I often buy up to a higher class using my own money.
The redemption rates have been awful for when we want to travel (180k miles for one R/T coach ticket 11 months out during Thanksgiving week which means 720k miles for a family of four in COACH), and I’m typically earning fewer miles per flight when I don’t buy up a class.
With all of that I have stayed with the AA program and will do so until I hit 2M miles and LT Plat the end of this year (insurance policy as I would not be surprised if they increased the target in the future based on all of their other moves). But, the OASIS retrofits are the tipping point for me. While Delta is not perfect, if the FF programs are equal(ly bad) then I’m going to go with the airline with the better product (comfort, IFE, etc.) and operational reliability. Delta also seems to have more PE seats on their long haul planes and lower fares for those seats than AA.
I recently cancelled the AA Platinum card and will cancel the World Elite once I hop over to Delta next year. It’s disappointing to see what has happened with that airline, but I’ve now gone from grumbling to voting with my wallet and will continue to do so.