The airline industry is a herd business, and Wall Street enforces conformity. An airline that outperforms financially has the space to innovate and plow its own path. An airline that’s struggling can either get in line or face calls for change from investors.
When the bulk of the industry says basic economy is a revenue driver, and an airline resists basic economy, they can get away with it if they’re delivering Southwest Airlines results. Alaska Airlines, which struggled as it worked to integrate Virgin America, had so such rope.
Where it’s still been able to stand out is in its Mileage Plan frequent flyer program.
- Alaska still awards actual ‘miles’, points earned based on distance flown.
- Their award chart remains relatively reasonable with most of their partners. They haven’t devalued redemptions the way that U.S. competitors have.
- And they do a good job delivering on elite benefits to MVP Golds and 75K members.
Despite being hobbled by a less aggressive co-brand credit card issuer in Bank of America, Alaska reports in their fourth quarter earnings call that they “saw double-digit percentage growth in our revenues” from Mileage Plan and that comes on top of “incredible years of growth in our loyalty program since the acquisition.”
The financial performance of the program demonstrates that charting their own course – investing more in marketing – drives customer loyalty and revenue to the airline and helps them to compete effectively against less generous airlines. With Delta’s buildup of a hub in Alaska’s home base of Seattle, Mileage Plan is a unique differentiator from dumpster fire redemption program SkyMiles.
In May Alaska plans to reveal the ‘owners manual’ it has been developing, and the document will include how they make money by delivering value to customers and creating loyalty – what a concept!
The owners manual will serve to build on this history by documenting and memorializing goals in several areas including free cash flow generation, leverage, returns to shareholders, ROIC and pretax margins. It also discusses the factors that have driven and will drive our continued success including the way we serve customers, how we offer value to and create loyalty with guests. And the critical importance of operating with excellence and being a great place to build a career for our people. As Ben said, we will share this in May at our Shareholder Meeting.
Alaska Airlines actually told the truth, that moving to a revenue-based loyalty program would only benefit 5% of members.
The truth is it’s been a big cutback at Delta, United, and American. And Alaska knows that rich marketing spend benefits their bottom line. As their Managing Director of Loyalty explained a year ago, “We love rewarding our members with miles based on how far they fly – not just how much they spend – and easy-to-earn elite benefits.”1