In the October issue of Executive Travel, Randy Petersen adopts a controversial thesis in an article titled, “2 Great Frequent Flyer Programs” — what two programs is he talking about? Delta Skymiles and Southwest Rapid Rewards!
Why is it shocking that these programs would be dubbed great? I’ve redeemed well over 100 million miles for myself and for others, and from my experience and the near-universal experience of those I speak with, these two programs offer less value than their peers. Delta miles are difficult to work with and availability (at the ‘low’ or ‘saver’ level) is relatively poor. Southwest has a revenue-based program designed to reward buying expensive paid tickets and using points for cheap leisure travel on empty planes, with no possibility of aspirational international premium class travel.
What Randy is reporting on is a study of positive and negative comments about rewards programs in social media, Key drivers of success seem to be:
- Problem resolution. Both Delta and Southwest have relatively proactive online presences in social media, especially Facebook and Twitter, where they don’t just engage in one-way conversation but actually engage in customer service and problems solving.
- Expiring points. Delta eliminated expiration of miles in February. This appeals to the masses, the less engaged customers, the ones deriving the least value from programs to begin with. But it eliminates a frustration point. A social media study values every voice equally, and folks whose miles would expire care about a program no more than once every two years (Southwest’s current expiration policy). But there are enough members that these complaints register, and if it’s what folks are most vocal about it affects the data.
- Problems with redemption. This is where I don’t understand Delta’s score, though I don’t have access to the raw data of the study and have to assume while they’re doing well overall it can’t be because they’re especially better on the redemption side. Southwest, on the other hand, has historically been generous and I’d have to imagine that the study isn’t fully reflective of the new program launched in January of this year. Although at the same time, since the focus of redemption activity is largely on cheap domestic coach awards rather than more aspiration awards, Southwest can still find itself doing well even under the new regime.
- Immediate gratification. The study offers that programs rewarding members frequently, rather than delaying gratification for high value awards, get high marks. It’s in high value awards where both Delta and Southwest are most limited.
A program like Delta’s with non-expiring miles won’t generate ire from members who are disengaged from the program, who don’t interact with it for years at a time, and whose only interaction would otherwise be negative (when after several years discover that their miles are gone). Holding unexpired miles on a balance sheet is a real liability, other programs recognize significant revenue from expiring miles. So Delta has chosen to forego this revenue, investing large sums in its least engaged members, but it does well in social media apparently by avoiding the griping of the masses. My contention, though, is that these social media would-be complainers are not a program’s profitable customers, and they’re not likely to become such.
When studying satisfaction with a loyalty program, whose opinion you’re looking at matters. Just as in election polling, likely voters are a relevant metric, surveying the satisfaction of those that actually use a program would be a key variable. And explains the disconnect Randy identifies between this survey and online forums:
The reason this study result is shocking is that it contradicts other data, as well as sentiment on the street and in online forums.
Looking at a broad base of disengaged members, it’s also little surprise that the greatest value would be placed on low value rewards which come easily, rather than higher value awards which require delayed gratification. If the earning potential over any reasonable time horizon of a disengaged member is just a few thousand miles, they’ll certainly prefer redeeming their miles for iTunes than for the hope of international first class in a future that’s hard to imagine.
The lessons of the study purport to be that simplicity and immediacy trump. I spent the last couple of days at the pool reason Walter Isaacson’s Steve Jobs, and in terms of Apple’s success their tightly knit hardware-software-consumer integration (which failed them with the original Mac) and minimalist industrial design, combined with simple-to-use devices (e.g. insisting that nothing on an iPod require more than three clicks) has served them well in recent years. I suppose there is something to this, for the mass consumer technology market certainly, though despite Google’s clean interface they certainly offer some advanced, complex tools. Still, Apple is offering tight integration of experience at the upper end of retail. As applied to loyalty programs in this study, high score correlates with a lowest common denominator strategy. Which I think misses the point for a loyalty program.
Hilton’s take on this is, I think, similar to Delta’s and Southwest’s — customers don’t understand complex value propositions, so offering more value to consumers who don’t understand doesn’t make sense. That’s why Hilton devalued their points and started getting more aggressively into the promotions game.
The limitations of Delta Skymiles are many: fuel surcharges on several partners and several European departures, no international first class, a broken website which does poorly both finding seats and pricing awards, restrictive routing rules, poorly trained agents, no ‘holds’ over the phone (and most partner airlines aren’t available on the website), no changes to awards within 72 hours of travel, to name just a few. But most consumers don’t understand any of these limitations, or how programs differ on these fronts (at least until they’ve invested in the program and try to redeem). As this study and as Hilton’s Jeff Diskin point out, consumers only pay attention at redemption time and the general member doesn’t calculate value propositions. That’s why programs offer mileage redemptions for toasters.
But there really is a bifurcated market — folks you keep on the treadmill for years, some of whom may only engage once in awhile and get mad when their miles have expired after 18 months or 2 years, and the much more engaged, active, loyal members who pay more attention to the details of the program and care about higher value awards whose aspirational nature motivates their involvement.
Members of all stripes care most about a program at the point of redemption. And if your strategy is focused on 30 million or 50 million members most of whom won’t earn but a handful of points, it may not matter much what sort of value you offer to them as long as they get something for their trouble, and it will take them enough years to accumulate points for an award that the members will express happiness all along the way at least until it comes time to redeem and they’re presented with a price of 350,000 miles for a business class ticket to Asia (a la Delta’s website). The really engaged, profitable members though become so much more engaged when they’ve had a good redemption experience for a high value, life-changing even, reward — when a program helps them fulfill their dreams it becomes a part of their entire experience and they become evangelists for the brand.
Simple and low value works for general members and minimizes complaints in social media. But it isn’t a strong reinforcing value proposition that’s sustainable over time. “Social media recommendations” may rate Skymiles and Rapid Rewards more highly than other travel programs. I just have to hope that loyalty program managers don’t think that the social media label suggests that this study means anything more than that their least frequent customers complain less when their miles don’t expire, their problems get resolved, and they get an iTune or a Dallas-Houston flight every now and then.
My guess is that most of the 30-50M customers will eventually use their miles for domestic travel. Less than 40% of US citizens have a passport. Few of those travel to Asia. How may of their customers would even consider going to Asia?
First off, may as well link to the study: https://www.recommendationindex.com/
I had written up a longer reply, but the more I think about it, the simpler the situation seems to me.
From the best I can tell, the study ranks volume of positive and negative comments in social media. Problem Resolution, as you state, is huge, and both do well in this regard. All airlines deal with huge amounts of problems every day. I imagine they get similar amounts of posts detailing negative experiences. Delta and Southwest resolve a lot of them via social media. I would imagine the people involved are a lot more likely to comment about a successful resolution than those dealing through other channels. This has a huge potential to drive their rankings up.
While people may care most about redeeming, they likely don’t care most frequently about redeeming. While Delta isn’t the best at redemptions, the “average” person isn’t that unlikely to run into many of the same issues with any of the legacies. With most recorded references apparently positive, I’m guessing the difference-makers were primarily generating a steady stream of positive experiences.
I think it may be as simple as that. The negative differences between programs may not be commented on frequently enough to really move the needle, and we’re left with little more than a measure of how much conflict resolution each airline does via social media.
Gary, I guess I have a dual personality. I love using miles for premium class international travel, but I also feel that Southwest offers a great value proposition – refundable award tickets. If I’m booking speculative domestic travel, I use Southwest points. If I cancel, the points get redeposited into the account – no hassles, no fees. Great for those of us who are not top tier elites in other programs.
My cousin is just one such “amateur” user. She has membership of every major program and accumulates miles through flying, credit cards, dining and all sorts. She has no status on any airline because she will only buy the cheapest fare when she flies. If she can’t find a cheap fare, she redeems miles as she usually has enough points in one program or another.
However, she does fly long-haul internationally once a year and always in Business. But she always pays cash for those fares as she never has enough miles. I keep on trying to explain the relative values, but have never got the message through – instead she’s obsessed with the fact that her trip to London from the West Coast will net her 10,000 miles!
Could you write a post on credit scores and how to keep them high (after credit churning that is).
I think that a good analogy would be movies. The critics pan a lot of movies that are wildly popular with the masses. Yeah, the films are poorly made with little if any plot, substandard acting, and a lot of fart jokes or car chases. But that is just fine with most people.
I would guess that most frequent fliers are looking to get a free domestic flight or two every once-in-a-while. Even when I was traveling frequently for business for 6-10 years in the 90s, I racked up a total of 700-800K miles, a lot of those on AA where I had status and used rentals, hotels, and a Citi card.
In comparison, my wife and I will earn upwards of 1.75 MM miles and points in the last 8 months of this year since I got involved in real mileage accumulation.
Ike
I would argue that the infrequent and inexperienced traveller has become one of the most profitable customer segments for airlines like Delta.
They are less likely to understand routing or fare rules, so they’ll typically pay a higher airfare; they may be unfamiliar with online booking systems and be more likely to incur a telephone booking charge; they have no status with the airline, so they will always pay baggage fees to the extent they check bags; they are more likely to be unaware that airline meals are largely a thing of the past in Y and are more likely to make inflight food & beverage purchases; they rarely redeem award miles/points, so while the airline still must carry the liability on their balance sheet (accrual), as you point out, they don’t actually have to deliver the service (cash); etc…
Essentially, this customer class demands/expects very little compared to the loyal elite, and they participate very heavily in the airline’s highest-profitability service offerings – whereas the loyal elite either get these things for free or simply don’t participate at all.
And absent any real loyalty, these customers also have the lowest switching costs.
Companies like Delta are very wise to invest heavily in satisfying this customer segment. Yes, revenue/passenger is much lower than yours or mine, but in aggregate these customers probably generate a lot more profit dollars than their most loyal customers do.
The sample is what it is – those who frequent social media. Careful reading and analysis, strategies, etc through reasonably well researched and well written blogs is one thing…hangin’ out on facebook quite another.
While there are certainly some frequent fliers who generate significant revenue for an airline through paid First or Business travel, I suspect many low and mid tier elites are actually money-losers. By the time I avoid baggage fees, use the lounge(s), cash in my upgrades, and redeem my miles for international partner travel at the front of the plane, I probably cost my program as much as they make from the 3-4 long-haul flights in Y that get me over the threshold each year.
In comparison, as Jon says, Ma and Pa Kettle have low expectations of the airline which are easy to fulfill. While a frequent flier may generate more profit on a per passenger basis, they probably generate less on a per flight or per mile basis.
Gary,
I didn’t start accumulating miles of any significance until 2004. From 2004-2007, I was an elite with NW. Half of the time was Plat, the other silver. I actually didn’t bother to redeem miles for *myself* during those years, because every award ticket was a missed opportunity to earn EQMs. However, I did manage to redeem to tickets to HNL for my folks, and one to FRA for my dad.
When I relocated and my travel plans changed, I went into burning mode. In some senses, I was actually astonished that yes, I could actually find the seats and fly J for the advertised price. (One trip, I had to ride Y home, ’cause I couldn’t find availability. Oh well, it was SIN-NRT-SEA-LAX with bulkhead seats and a stop-over in NRT. Not bad at all.)
I’m starting to get my parents on this bandwagon a little bit, albeit they don’t hit it as hard as I do. They’re happy with domestic coach redemptions and low-end hotel redemptions (mainly to go see their kids.) To each their own. But one thing that my dad and I do continue to marvel about is that my wife and I can indeed take the trips we do (CX F to DPS, here we come!) and pay the advertised price.
But you’re right — it’s those trips to SE Asia/S America/Where-ever that stick out in people’s minds. I hate to say it, but a cheap miles trip from LGA-YUL just doesn’t stick out to me.
I guess I’m glad most of the public doesn’t maximize their FFP value, otherwise all the good options, loopholes would go away. It is funny the little things that make people swear off a certain airline. One late checked bag or a few expired.miles and suddenly John Doe will never flu skyline X.again
I agree with Jon and Arcanum. I think the Ma and Pa Kettle flyers are probably more profitable to the airlines. There are so many more of them. They are the ones paying the billion dollars in baggage fees and all the other nickle and dime fees that make the airlines profitable now. They are also probably less likely to ever redeem rewards so the miles will have less cost to the airline.
It seems strange to see “instant gratification” listed in DL’s favour when the cheapest award is 25000 miles. My friends who travel rarely and mostly domestically prefer UA and AA because they can redeem after only 12500 miles (booking an award one direction and paying cash the other). I think the increased flexibility offered by oneway awards is very valuable even/especially for so-called Kettles.
I might have said the same thing more briefly, but I couldn’t have said it better. I had thought that one consolation of an unplanned early retirement would be the use of Delta Skymiles for premium international travel at the “advertised” rate. What was I thinking? And that’s despite the gradual inflation from when I enrolled, watching the requirement go from 80K to 90, then 100K. As for Asia, earlier this year I spent considerable phone time trying to secure two Biz Class tickets from ATL to ANYWHERE, ANYTIME-for nine days away-on DL or any partner for 120K. No joy. I’ve burned through all my UA as well as Continental miles for some good european trips, and the few hundred thousand AA miles will probably work on partners or Oneworld, but it’s those DL miles that make me crazy.
@Shindig search my posts on Skypesos for how to book at the low level with those points. Look especially for Air France inventory, out of DC business class is available almost every day!