Revenue-based frequent flyer programs have always been less generous. These programs were long popular with ultra low cost carriers, with low margins, where awarding customers little made sense.
For full service carriers it’s not about ‘making sure airlines reward the right customers’. Overall revenue-based mileage earning has meant less total mileage earning. And switching to that model has frequently been accompanied by devaluing the miles on the redemption side, so that the supposed best customers earning more points are receiving points worth less.
Only 23% of airline frequent flyer programs worldwide have gone even semi-revenue based for earning miles. It seems like it must be more because it’s the standard in the U.S. (other than Alaska Airlines).
Punishing cheap fares makes no sense when there are only cheap fares, and that’s what airlines are pushing to fight for their share of limited passengers. American Airlines realized this in offering elite status recognition for basic economy passengers.
When planes were full, rewarding customers less made some sense. Airlines didn’t need to spend as much marketing to fill empty seats when there weren’t many empty seats. The problem now is that revenue-based programs reward customers less in a low fare environment precisely when:
- Airlines need to be rewarding customers more, spending more on marketing to fill all their newfound excess capacity
- It’s cheaper to provide redemptions, with more unsold seats than ever, a condition that will only become more acute as international travel comes back online.
To be sure, revenue-based programs on the earn side can run promotions ‘double spend points’ or the like. But as Ravindra Bhagwanani notes, “to make them meaningful, you often need to go to extremes such as Lufthansa offering up to quintuple miles in its Miles & More program – raising though some doubts among customers how valuable the core proposition really is.” If quintuple points are needed, how bad must the program’s earning be when that promotion ends?
And revenue-based redemptions are risky when business turns south, as Bhagwanani further explains,
As soon as some news emerges questioning the future of an airline – see Virgin Australia or Thai Airways – a run on the bank starts since customers want, obviously, to redeem their hard-earned points before it is too late. With a traditional redemption approach, you can contain such behaviour to certain degree through controlling the inventory offered for redemption.
We’re not going to see airlines that made the switch go back, but it’s a cautionary tale. And they’re going to have to work harder around the constraints of their programs to get them to do the work to help fill seats in an airline world that expects demand to be depressed for some time.
Meh… problem is, nobody cares anymore. Most people flying these days are the infrequent flyers that will likely never earn enough for a meaningful reward and only have loyalty to a combination of schedule and lowest fare.
@ Gary — If we are representative of their other elite flyers, Delta should be concerned. We now have no loyalty to them. We won’t be giving them any cash until we burn all of our miles, and that will take quite a while. We may very well fly them a lot in the next few years, but we will resent them for stabbing us in the back while we are down.
Elite qualification promos are probably a better targeted effort to get more valuable customers to fly.
Alternatively, carriers can create temporary promotions outside of the mileage earning formula (i.e., fly three roundtrips, get one free, circulate percent off promos, etc) so as to avoid focus on the value of the points.
Also, Bhagwanani misses the point on the risks of a revenue-based program, as this approach does not preclude airlines’ control of inventory made available for redemption and at what price.
The airlines are crazy if they think they don’t have to change their frequent flyer programs. Look at United, which launched the revenue-based program at a horrible time in hindsight. Even if everyone gets vaccinated in the next 6 months travel won’t return because so many companies have realized they save a lot of money with virtual working and virtual meetings. How many people will be flying cross-country in 2021 or 2022 for 1 or 2 meetings? Many 2021 trade shows are canceled or postponed until third or fourth quarters.
Hopefully Gary Leff sees my comment re AA Max 8. I read your article re the Boeings taking to the skies within 6 weeks.
2 years ago on the 26th November 2018, Miami to Bermuda flight. Delayed, delayed, delayed finally canceled around midnight. They gave us quite a few reasons/excuses.
We were reassured that the following day we would have a completely new aircraft. The following morning, the flight was delayed, delayed, delayed…finally we had a crew and pilots and were allowed to board… the SAME plane! I know because I was sitting in the same exact seat with the same stain on the seat back. Others had noted the tail number. Cleared for take off. Yaay… Barreling down the runway, literally prior to lift off, it was as if we slammed into an invisible wall. Everyone screamed and flew forward! Fire trucks came out to us with heat sensors and whatever other equipment they needed to ensure the plane was ‘ok’ while we sat on the runway for what seemed like 45 mins before we taxied back to the terminal. After deplaning, we were stuck in the jetway for about 20-30 minutes because the doors wouldn’t open. We were further delayed and had to wait until they found a replacement airplane.
The flight attendants begged us to file a complaint because they had been complaining about the Max 8 but nothing had been done.
Getting off the plane, I took pictures pictures of the Max 8 pamphlet and the number on the tail. The following morning, the other passengers that I know personally, and I, woke up to an AA apology and 15k miles in our accounts. The apology was for the delay/cancelation not the horrific experience of the plane stopping suddenly prior to lift off. When a few of us persisted with our complaints, AA offered travel vouchers.
So unless I misunderstood your article, AA did have what I assume was unreported incidents related to these planes. Imagine a few months later, people lost thier lives on these exact model of aircrafts.
Absolutely terrifying and I don’t care about the inside of the plane if they’re not going to stay in the air. Yes, I am grateful that we didn’t get in the air that day, because I’d hate to think what could have happened if we had.
And yes, I have pictures and the correspondence between AA and me.
@Gary – To Gene’s point, would love to understand what Delta’s strategy is. At least for ex-NYC flights that I’ve looked at, they are consistently 2-3x the price of UA/AA and have made zero change to making reasonable awards available up front. Does this have to do with the blocked seat policy, are passengers actually paying these inflated fares, or are they just ok with “protecting” elevated fares and having fewer passengers? I status matched to DL in 2019 and became a convert despite the diminished value of SkyMiles, but I’ve taken a few flights so far post-COVID and have yet to fly DL as each time the delta (pun intended) in pricing was just too much.
I think the biggest issue with spend based programs is it cuts the pipeline of elites. It much more difficult to ever get on the treadmill.
Another pet peeve are these personalized individual promotions they use these days to target certain customers. I always end up seeing that others seem to get more lucrative offers than I get. What’s up with that? Not exactly a reward for my loyalty, more the proverbial wooden spoon. Which means I end up being less than loyal.
Aside: I wish everyone would call them “points” – even programs that haven’t gone full-rev have no relationship to miles.
it’s a bit wonky if you think about it ie that can one can earn more miles per dollar shopping online than flying on United. Why fly?
Delta showed the entire industry that a dollar invested in improving the product (everything from one less seat per row in the 777 to all aircraft having built-in TVs) yield far more profits than its competitors who invested in the frequent flyer program instead (or did not raid it). Delta’s move t a revenue-based “SkyPesos” may have very well had the very positive effect of shifting all the unprofitable program gamers and hackers to the competition while retaining (and rewarding through elite tiers) their profitable customers. Revenue-based (as a proxy for profit-based) earning is here to stay, with some promos here and there to stimulate demand.
The reality is that airlines need cash and are more interested in cash, so the value of a mile in cents will continue its precipitous decrease. We’re already seeing this on the nonstop transcons on American Airlines who are now discounted to 12,500 miles + 5.60 each way, but only on those flights who sell for $115. That means that you’re getting a rock-bottom ~1 cent per mile in value, which will be the post-COVID norm.
@Gary,
May I ask why you say “We’re not going to see airlines that made the switch go back…”?
As I was reading the article, I was actually surprised to see that at the end, because I felt like it was building up to the opposite conclusion: The Big US Airlines might have to look at retooling their programs and rewinding the clock so as to return things like published award charts; better saver availability and a mile flown = mile earned.
When all of the airlines and hotels (some much sooner than others) finally announced they were going to be extending status through the year, I couldn’t help but chuckle, because any semblance of profitability is probably Q4, Q3 at best, and many many companies (including mine that have been pummeled by COVID) have told most people not to expect even quarterly trips to return until well into 2022, and that’s compared to bi-weekly (average)… My friends in a wide variety of industries are all hearing similar things too.
As always, thank you for your insight and the information you provide us
The problem is that since all fares are cheap the airline is the only one who wins. They pay out less overall. I think the revenue-based programs ruin the fantasy. The average flyer who travels some and sort of understands that miles or points are important still think of how they are getting rewarded for each “mile” they travel because they like to travel. This travel experience doesn’t carry over when they earn 5,000 “points” for a short-haul but only 1,000 “points” for a long-haul discount fare. We travel “miles” together not “points” together. It breaks the fantasy of how awesome it is when I fly together as a loyal partner with airline X and they will “want me” to fly someplace special with them eventually as a reward. A revenue-based airline doesn’t seem to “want me” to travel with them. I remember many years back when Southwest went from segment earning to points. I stopped being loyal to them. I remember Fairfield Inn used to issue paper vouchers for free nights after 10 nights or whatever. When they stopped doing that I stayed there less. I could see my progress to a travel goal.
Having been an elite on BA and AF, more recently UA 1K (dropping to Plat because I was shifting back to BA the last year), I just don’t see any FF program making a difference to me for quite a while. I have only been flying domestically occasionally, where status makes little difference (especially when I am buying F, which I often do). Also, with so many miles in reserve at this point on CCs, I fully intend to use those rather than pay cash for the foreseeable future. I suspect there are a lot of people thinking like that.
Shiny bits of plastic pimped incessantly RUINED the concept of any airline operating a “frequent flyer loyalty program”.
Enjoy the Road to Diminished Returns
Who cares? Loyalty is dead. SWA has best / most straightforward program domestically. If there’s a convenient nonstop with discounted First…I’ll do that. It will be a very long time, if ever, that I set foot on AA again.
I buy on convenience, product, and THEN, price. All of my spend goes into convertible points currencies. I just cashed out 15K in grocery spend using Chase’s Pay Yourself Back promotion….the points didn’t even get used on travel.
I got off the BS loyalty hamster wheel years ago and never looked back. Life is so much more straightforward now. I’ve enjoyed trying the diff. biz products of the European and Asian airlines.
I’ll reinforce the point … I read the title of the article and my first reaction was ‘who cares’. After 4M butt-in-seat miles across all of the programs, congrats to the airlines for pushing me to this level of disengagement. 🙂
Airlines should go back to mileage flown accumulation. Otherwise, stop calling them miles.
It makes no sense to reward the guy who flies two transcontinental trips in business-class more than the guy who flies 70 segments and 100,000 miles.
Wow, this article did not age well at all.