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.