When Is The Last Time Airline Frequent Flyer Programs Put Their Members First?

Starwood Preferred Guest developed a fervent following among its most valuable customers — that became uniquely obvious when Starwood was being acquired — because leadership of the program put members at the center of everything they did.

When there were internal debates at the company over policies, a tug-o-war with hotel owners, or push back on budgets, former employees tell me that Chris Holdren who led the program up through the merger actually used to make the case for a choice being right for the members.

I’ve hardly been free of criticism for SPG over the years, I don’t think the program was rewarding enough for in-hotel spend and I don’t think hotel properties were always compliant with upgrade policies. I didn’t love the introduction of category 6 and charging double points for hotels in those categories whose rooms were all suites. I didn’t love increasing the cost of cash and points awards.


Al Maha Desert Resort

But on the whole the program and its currency retained its value probably more than any that was larger.

I struggle to think of any decision made by major US airline frequent flyer programs AAdvantage, SkyMiles, or MileagePlus over the past several years that had members at the center — except perhaps a decision not to make a devaluation worse than it was. (For instance when Delta introduced revenue-based mileage earning they had intended to introduce revenue-based redemption at the same time, but customer focus groups scared them out of it.)

Don’t get me wrong, program leaders and PR staff will say that things like United eliminating traditional stopovers of awards and increasing the number of miles required when picking flights using multi-city search was somehow better for members. And they’ll even do it with a straight face. After all changes are “enhancements” that are “based on feedback from members” (not to mention “to remain competitive'”).

The move to revenue-based programs meant awarding fewer miles for flights. Break even earning for fares across programs was set around 20 cents per mile flown, but average fares are much lower than that. When briefing me on their changes American conceded this meant fewer miles earned for flights after the change than before it.

Around the same time Delta, United, and American all increased the number of miles required for flights. I found it telling that when American announced its devaluation they didn’t even give a nod towards needing to raise mileage prices to get better availability as programs usually (disingenuously) do. That was a warning sign that availability could get even worse, which it has.


American A321T First Class, AAdvantage Jacked Up the Price of Saver Awards for No Reason Since They Don’t Actually Offer Saver Awards

We have to spend more money to earn miles that are worth less. We have to spend more to earn elite status (with the introduction of revenue requirements) which delivers fewer upgrades. Seat densification may mean fewer first class seats even available (and those seats that exist are nearly all sold, with virtually no advance confirmable upgrade seats available any longer) though Alaska Airlines points out the need for first class seats as a component of loyalty.

Frequent flyer programs are incredibly profitable, airlines have created a unique situation where their marketing is a profit center rather than a cost. And that’s led programs to go to extreme lengths to squeeze those programs ever further in search of short-term financial results.

That approach is starting to falter at American as they miss growth targets for their credit card. United’s credit card signups lag as well.

These loyalty programs have margins are very high, likely far better than 50%. But as the programs themselves become less valuable they’re no longer as sticky for members. Even if the programs were retaining their value, competitors are increasing theirs. Why spend money on an airline co-brand credit card when you can earn more points which are more valuable points in a bank’s program?

It’s simply not natural to expect to maintain such high margins in a competitive industry, American Express has marketing expenses higher than ever before at a time that the largest US airlines seek to reduce their marketing expenses. They’re seeing members as costs, planning too short term, and putting their very businesses at risk.

The truth is that frequent flyer programs will have to experience lower margins to remain competitive and defend their income streams into the future. And a successful loyalty marketing program actually needs to keep its members at the center of its thinking. When was the last time a US major airline program did that?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. I recall, long ago, when AA made SWUs applicable on all fares, instead of excluding the
    “O”, “Q”, and if memory serves correctly, “I” fare buckets. But this must have been eight or ten years ago.

    Since then, I can’t think of a single instance where AAdvantage became more advantageous to members. On the contrary, it’s been an avalanche of devaluations. Off the top of my head:

    – Change in distance calculation method on OneWorld Awards, followed some years later by their wholesale withdrawl
    – Increases in mileage required for most Awards
    – Decrease in hold-times for awards from 14-days to 5-days
    – Elimination of most stopovers on awards [Though maybe the switch to One-Way awards was a plus?]
    – Halving the number of SWUs upon EXP requalificaton
    – Every single aspect of revenue-based earning

    After a decade as EXP, really, I’m not even bothering anymore to chase status. Juice ain’t worth the squeeze

  2. An extremely eloquent way of saying that the big 3 legacy airlines are acting like a greedy pack of jackals, and that they need to get their s–t together while there’s still time. Well said.

  3. Not Big 3, but WN used to have a Companion-Pass validity period (under RR 1.0) of only up to 14 months. For example, earn 100th credit on May 1, CP was valid until end of June the following year (I think I am recalling correctly).

    Now it’s a validity period of up to 2 years.

    And they used to have blackout days for redeeming. Now they don’t.

    And WN A-List status just recently has allowed better standby options

    Of course, they devalued in other ways.

    A lot of us rag on WN RR, but its performance in the 2017 Freddies indicates it is rising relatively in the public’s view.

  4. Spot on Gary!

    I still don’t understand why stopovers have been eliminated. It’s always nice to be able to experience another country, especially when you are flying through it. It would seem beneficial to the transiting countries economies if passengers stopped over. Even the airlines could charge a fee (which they love doing) for a stopover. It would be a win win, just mind boggling that something that could benefit everyone including shareholders would be eliminated.

    I won’t comment on all of the other things the US3 have done (devaluation, dynamic pricing, availability, archaic routing rules, etc) because I could go on forever.

    You nailed it, the focus is the shareholder and not the customer. As long as it stays that would you would have to be stupid to put anything more then the minimum spend on a co-brand credit card. SPG, MR, UR, even TYP are so much more valuable then airline miles.

  5. I also fly Southwest a lot these days. It’s really an easy decision to make since United’s devaluation. You aren’t going to get the upgrade on United, you don’t earn many miles anymore, might as well book on the carrier which doesn’t charge a cancellation fee. United miles as a currency are still somewhat valuable, so I still earn United miles for online shopping and rental cars, but the miles and frequent flier benefits as a driver to keep me loyal to the airline are no longer functioning as designed, or maybe they are?

  6. Never have. Travel providers and their loyalty programs are a business, not a love-in. They want members to *feel* at the center, and appreciated, and loved, and cuddled. And they will provide benefits, even sometimes improving benefits, to the extent they calculate necessary to meet the company’s business goals. They will be fine with “win-win” solutions so there will be things that members love which also work out best for the company. But that isn’t the same as actually “putting loyalty program members first.” We are a means to an end, not an end unto ourselves. To think otherwise is naive at best.

    I don’t doubt there are some individual people, even sometimes leaders, at those programs who may personally care to an extent and try to look out for members and champion “win-win” scenarios. But as a whole, at the end of the day, they will do what’s best for the shareholders or owners. If they didn’t do so, they would be violating their fiduciary responsibilities and should be fired.

    We members are no different. Does it suck when devaluations or “enhancements” hit? Absolutely! But who here makes their decisions because they really care about Hyatt, Delta, Avis, etc.?? These companies are a means to an end for us as well. It’s just business.

  7. Well, the overarching theme we tend to forget is that the entire purpose of creating your own currency is so that you have the power to dilute its value for your own gain. Otherwise, the airlines would simply offer cash rebates or lower fares. So the entire reason for bothering with all of the staff required to administer and maintain a loyalty program is to obfuscate the perceived value customers think they are getting. It is not so important that you actually deliver that perception through robust award availability. What’s important is that the customer, when making his purchase decision, factors in the potential for free flights from points as a future rebate so that he decides to spend his money with your company. It takes time for the full cycle to play out where after you have gotten the customer to make 30 or 40 purchase decisions before faced with the reality that his points don’t rebate as much to him as he had thought.

  8. Agree with Rob. Rewards points are a form of privately controlled money and just like governments do, the immediate payoff from printing more of it outweighs the long term cost of losing customers because of inflated “prices” for redemptions. The loss of customers can be slowed by making rewards rules obscure, sort of like a government not publishing a consumer price index.

  9. The big 3 U.S. mileage programs are all crap. There is no loyalty there.
    Alaska is who they should be emulating.

  10. Why would any legacy Airline Frequent Flyer program put passengers first? Passengers are just an inconvenience for the legacy airlines. If these airlines could, they would rather have passengers pay for seats, then force the passengers off the plane once they were seated so they don’t have to fly them. Oh, wait-a-sec, they are already doing that!

    At least we still have the highly rated national airline of Texas to turn to…

  11. Delta have made it very clear how much concern they have for frequent flyers . Imagine a common ‘avian’ hand gesture .

  12. Thanks Gary – it so needed to be said. We were lucky to get First Class NY to Buenos Aires. Looking out, I don’t see a single seat in front of the plane a year out. As I told a friend on Saturday, it used to be you planned ahead. Now you have to be retired and able to pounce for a short term seat and be able to see the world that way. Doesn’t help when you want to plan a cruise a year out but in many ways, it is often all that is left.

    Used to be people call me for help. Now I do what I can and often refer them to services like yours – not that I believe there is any magic out there. I never minded the fact that flights were often not non-stop and enjoyed the lounge access, etc. But I’ll be damned if I will take three flights to get somewhere.

    Sounds like time to buy my second home in Florida and spend my days looking at my photo albums of our trips around the world the last 10 years! And the airlines keep selling miles and people keep buying them. Amazing.

  13. AA and UA have devalued the award proposition so far that I’ve cut my flying in half, and have used WN for 6 round trips so far, with 4 more booked. I essentially ditched Aa From SFO, and have only 4 r/t Transcontinentals this year, along with a couple international freebies in business class. UA got one one-way in there. Singapore and Etihad one apiece. Good job, guys!

    In all, I have most weekends at my home, for the first time in 20 years, and I know exactly why: They’ve made it so unpleasant to fly, and simultaneously so unrewarding to play this game in good faith, loyally as I have since 1981, that since I am in control of my own business travel and that of my colleagues, I’ve decided that all these years as a super-elite is just not worth the cost or inconvenience. 100,000 miles for four systemwides that you simply can’t clear at booking to Europe or Asia? 80,000 miles flying that seldom gets a comp upgrade (UA), and nets 50k rewards miles! Which are blocked for all the aspirational partner awards?

    Nope the airlines have made the decision to reduce travel easy.

    Hyatt, are you listening? I’m not even trying to renew this year. I have lifetime elite with two other chains— guess who lost my stays?

  14. I agree completely, but I think you could apply everything here to Hyatt as well. My wife and I just gave up our Hyatt credit cards that have had for years and the Chase agent told me that she was getting a flood of people cancelling the Hyatt card. Same as the airlines, devaluations, no availability due to fake room types, devaluing the loyalty aspect with the new tiers…I could go on, but you get the idea. Ultimately, I think that the big three and Hyatt may make moves that means that they can never recover the revenue stream that they covet.

  15. @Ryan Living in Dallas most of my accumulated airline miles are with American. I get that the airlines are first and foremost focused on adding shareholder value, but what is infuriating is that even on shoulder season, when you know darn well the bus and first class seats won’t sell out, they still don’t have any overseas saver awards. So they will ultimately achieve the goal of draining accumulated miles faster, but as other posters have pointed out, that is short term thinking. I actively avoid American now. Primarily because there service sucks, secondarily, because the value derived from flown miles is so paltry on discount fares and thirdly, out of spite.

  16. Well, to digress, this thread shows the impact of Wall Street greed over the past 25 years. I know of no other industry where it has impacted the general public in such a broad and obvious manner than the US Airlines. The devaluation of their loyalty programs is one thing, the race to see how tight they can pack ’em in to increase profits is another. While not a fan of government regulations, it’s time for some changes here!

  17. I’ve given up. I fly whoever is cheapest or the easiest route; whatever works for me. The airlines have proven disloyalty to FFs. So why be loyal to them. Its now just a price war. No more taking inconvenient routes due to airline loyalty. I do whatever is easiest. Let the airlines choke on it.

  18. Not to be (too) contrarian but I have received excellent value from two FF programs over the past decade: Southwest and Virgin America. So far, I’ve received great value this year with Alaska and JetBlue; we’ll see if that continues

Leave a Reply

Your email address will not be published. Required fields are marked *