Competition does strange things, like making the airlines offer better products to attract customers. Hard to say that’s a bad thing, right?? Delta is adding some new benefits for passengers in their Economy Comfort seats on flights on their main transcon routes. For flights between New York City‘s JFK and either Los Angeles or San Francisco customers in the Economy Comfort (extra legroom/recline) seats will now include free drinks, a free "premium snack" and free newspapers.
Like many things in the airline industry this seems to be a case of things coming full circle, with complimentary snacks and drinks returning to the coach cabin in the name of competition. Virgin America already has free snacks/drinks in their comparable offering (Main Cabin Select). American Airlines is going to be competing with frequencies, upping to roughly hourly shuttle service in the coming year as they get their new A321 planes with fewer seats. United is also pushing new configurations out in the market, though no other special features noted.
How do you react when the head of a major airline loyalty program so bluntly states their case? More to the point, what do you say to the person wondering why they don’t get retention bonuses comparable to sign-up bonuses on an annual basis. Do you believe the programs when they say something like, "Every time we tweak [the benefits] we try to take off something that not many people are using and add something that we think more people will use."
Both the headline of this post and the above quote were offered up by Jeff Robertson, VP SkyMiles, during a session last week at the Executive Travel Summit outside DC. Robertson also offered insight as to why a less valued customer – one who doesn’t hit the spend requirements for Medallion status, for example – can suddenly become valuable enough to rate the status with $25,000 spend on a credit card. Unsurprisingly, it is because Delta will have made a lot of money based on that spend, pushing the customer past the value tipping point into being considered worth rewarding.
Throughout the five days I was at the sessions it was interesting to hear the different views of the parties involved. Sure, consumers want more and airlines want to give less. Airlines say the costs to provide the benefits are going up (as are airfares and load factors, so not too hard to believe). Customers say they want long-term loyalty to be rewarded, among other things. What was particularly interesting to me was hearing the view the credit card companies have on the topic.
Sure, the CC folks are incredibly biased. But that doesn’t mean the ideas they have cannot be solid. David Rabkin, SVP Consumer co-brands for American Express offered up a few views which seem pretty similar to the two-way street discussion, but which also have me wondering about which types of loyalty are the ones really worth rewarding. Using two different examples Rabkin quite clearly indicated that share of wallet is more valuable from a loyalty perspective than total revenue. In one instance it was a simple comment about credit card spending, "Someone who gives a high percentage of spend is loyal, even if it isn’t as much money as someone who spends a lot of money but across different cards…. The guy who only has a small wallet and gives you all of it is golden; give him all the rewards you can."
The second example offered up three hypothetical customers:
- Very frequent domestic lowest-fare customer
- Multiple long-haul F customer, but who also flies on competitors
- Credit card user who pulls your co-branded card out thrice daily
Of these, Rabkin made the argument that #3 was the best customer for the airline in terms of loyalty. Or, as he stated in the session (slightly paraphrased):
We love that guy who is flying in the back of the plane but he’s not making us any money. We love the $10k fare but he’s not loyal. We have to focus on the guy who is bringing us the best revenue.
I certainly agree with rewarding the best revenue more than the other options, but I’m not nearly as convinced that share of spend matters so much as total volume. That’s not to say either is 100% important or not, but earning the majority of revenue from a customer based on 3rd-party transactions is a strange way to believe they’re loyal to me. At another session over the weekend there was some discussion of lesser-known loyalty programs and how some of them (BMI was the big name in this space previously) were shells which seemed to be associated with an airline but where the bulk of the points activity seemed to be wholly third party. There are a couple still out there today. What happens when the operations of the loyalty program become so completely disconnected from the operations of the airline? Is that a sustainable way to run the business? Sure, the airlines get to manufacture the award inventory on their own planes, but when partners get involved there are a lot of variables they don’t control, and that can be a challenge.
Ultimately, considering that 60% of points earning these days happens outside of flying (I thought the number would be higher) it isn’t all that hard to believe that Rabkin is correct in who the most valuable customer is. But does that make them the most loyal? And is that the loyalty to be rewarded?
And then there is the final theme which was pervasive throughout the sessions, "Miles are a relic of history. In the next 5 years, maybe 3, programs will be revenue based." That’s a direct quote from an industry insider and I think that the timeline is probably about right.
The industry is entering into a period of significant change in the coming years. There is significant pressure to reward the right types of loyalty, not just time on a plane and not just absolute spend. There will be moves to shore up programs, ensuring that they remain revenue positive for the airlines while also not losing too much in the competitive landscape. Then again, with less competition, that is much easier to do. It isn’t like there are any programs out there which are ridiculously generous across the board.
Not that it should come as a surprise to anyone, but Delta has joined United Airlines and US Airways in charging $200 for changes on non-refundable domestic US tickets. The change was published on their website today:
It isn’t only customers who are kvetching about the ever increasing focus on ancillary fees. Bob Crandall, former CEO of American Airlines (which hasn’t matched the increase, yet) and generally outspoken commentator on the industry pulled no punches when the topic came up last week at the Executive Travel Summit. Among the choice bits he offered up:
I think the airline industry is making a fundamental mistake when they rely as heavily as they are now on ancillary revenues. The industry cannot have a long future if they are focused on hosing their customers.
I don’t think anyone in the airline industry enjoys nickel & diming customers.
They may not enjoy it, but they’re getting pretty darn good at it.
Looking for some useful perks in an airline loyalty program above and beyond the normal elite tiers? American Airlines has a rather compelling offer out this year in the form of their 2013 Elite Rewards program (registration required!). The concept – extra perks earned at various milestones – is not a new one but the AA implementation this year is one of the more generous versions in quite some time.
There are two main factors which make the promotion so useful this year, mostly by making it accessible to so many customers.
1) The qualifications this year can be made by EQS, EQM or EQPs. In prior iterations the thresholds were defied by EQPs. That meant only high spending customers were likely to earn the benefits. This time around EQMs or EQPs count at the same rate so even the budget/mileage running passenger can earn the awards.
2) The milestones at which the earnings trigger are pretty smart numbers. Even lower frequency travelers can benefit from the 40,000 point threshold and the 125K and 150K levels do a pretty good job of keeping passengers around even after they’ve hit EXP qualification for the year.
2a) They have an awesome infographic. Seriously, it is pretty solid:
Some of the choices at the various threshold levels are not particularly great values. Like why would you choose a $100 Global Entry credit over 4 EVIPs or 40,000 RDMs?!? And it is worth noting that some of these benefits are not unique to American. The Global Entry reimbursement benefit is provided by United to everyone at the 75K level, for example. And additional upgrade instruments are given to UA elites as they pass the higher thresholds, too. Oh, and for UA elites there is no extra effort required for the additional upgrades; they just happen. Delta also has similar awards available where Platinum Medallions choose one and Diamonds choose two from the pool. Gifting status, bonus miles, upgrades and lounge passes are among the options.
Because of the choices involved it is hard to make an apples-to-apples comparison of the programs. Didn’t stop me from trying to, however. If you’re in to award miles (and that’s what you choose as your bonus) here’s what the earnings look like assuming you start from scratch:
If you are a 100K passenger already it looks like this:
If upgrades are your thing and you choose those instead of miles here’s what the earning looks like (and keep in mind that the relative utility of UA, AA and DL SWUs varies wildly by travel patterns, fares paid and destinations and that the regional upgrades are also quite different; also, if you are an EXP to start the year you actually don’t earn any e500s):
Things like the Global Entry option, lounge membership or wifi passes are probably lower value so harder to compare, but if you don’t want miles or upgrades AA is going to be better in this regard, followed by Delta and then United based on my quick review. Similarly, the opportunity to gift status is one which I know is appreciated by many Delta elites in lieu of upgrades in the SkyMiles program.
That’s not to say that the AA program isn’t very good; I think it is quite compelling for many AAdvantage members. It offers the best benefits at the lower tiers and the choices are broader than what Delta or United offer. But it is most definitely not the only game in town.
I’m often intrigued by the information I can glean from Twitter chats. I tend to avoid them more than participate in them but a chat this past Friday hosted by @JohnnyJet and @CJMcGinnis piqued my curiosity so I tuned in. The chat was about summer travel and used the #TravelSkills tag for tracking the conversation. The two hosts didn’t waste any time getting in to what is often a touchy subject: How much is a reasonable price for airfare?
My answer was actually easy to come up with. For summer travel I’ll spend up to 100,000 points for a business class trip to Europe. And I’ve been quite successful in finding those when and where I want them over the years. But that’s just me. What was interesting to me were some of the other responses I saw to the inquiry. Seems that a lot of people think that $1000 is an reasonable upper limit, with many believing that even lower fares are "fair" for such a trip.
Some responses based the price on where they’d end up:
And some considered where in the USA they were starting as part of the thought process:
Every single one of the numbers tossed out as being "fair" was actually below the average cost to operate the flight which would carry the passenger on the trip (based on published average cost data from the airlines). So, with the exception of some bargain fares on oneworld carriers to Dusseldorf (and even those are ~$900 from the east coast), it seems that many of the chat participants are going to be disappointed. Chris points out that average fares are in the $1200-1500 range already and there are no signs of those dropping much anytime soon.
Fares are higher on average than they have been the past few years; there is no doubt about that. Even off-season fares are higher. That mostly comes from less competition, less capacity and a desire by the airlines to actually make some money. Absolute fares are at or near all-time highs, while inflation-adjusted fares are still quite reasonable according to DoT analysis (note that the DoT data is for domestic, not international, but the trends are similar):
Not adjusted for inflation, the $367 third-quarter 2012 average fare is the fifth-highest average fare for any quarter since BTS began collecting air fare records in 1995. The highest was $385 in the second quarter of 2012. The previous third-quarter high was $361 in 2011. Third-quarter 2012 fares were $243 in 1995 dollars, down 18.1 percent from the average fare of $297 in 2000, the inflation-adjusted high for any third quarter (Tables 1 and 2).
Here’s another bit of analysis from Airlines for America, the industry trade group in the USA. It uses DoT data to track overall international fares since 1990 (a subset shown here).
These are overall averages for all international travel, not just peak season transatlantic. Still, the numbers make it hard to believe that getting peak season airfares at below average rates is going to work out well very often.
There was one slightly off-topic aside in the conversation which was also rather entertaining:
Apparently relatively normal airfares are, in some cases, shocking.
Don’t get me wrong – I don’t like paying very much for airfare and when the fare is too high I either don’t travel or I go somewhere else. But I also go in to the transaction knowing what to expect and being able to tell if I got a good deal or not rather than just expecting that fares are always so low. At the end of the day I guess I’m just surprised how low some people think airfare should be to be considered reasonable.
No wonder the airlines are struggling to eke out profits. For too long passengers have become used to the cheap fares offered as a result of excess capacity and increased competition. Mergers and ATI deals have cut almost all of that out of the system. And with the impending US Airways/American Airlines merger and Delta/Virgin Atlantic ATI request working their way through the regulators the competition is going to decrease. It is good for consumers that the airlines are able to remain in business. But that will mean higher fares, more crowded planes and fewer choices, all of which make for not-so-happy passengers.
Wilmington, Delaware has a rather inconsistent history with commercial air service. Denver-based Frontier Airlines will start service during the first week of July to five destinations. The airport last saw service in 2008 from SkyBus and from Delta in 2007.
None of the service in question will be particularly frequent; Denver gets the most flights at four weekly. That sort of schedule can be performed with relatively low aircraft requirements but it also means virtually no business travelers thanks to the not-so-often flights. That fact isn’t lost on Daniel Shurz, Frontier’s senior vice president, commercial. Shurz notes that Frontier is "[T]argeting primarily leisure customers… It makes access to these great destinations more convenient and certainly more affordable."
The new service from Wilmington is in addition to service to 10 destinations from Trenton (TTN), less than 60 miles up the road. Admittedly the two are split by Philadelphia and cover different cachement areas but they are still mighty close together and will serve many of the same cities. Still, quite interesting to see the build-up of service at smaller airports on the east coast.
If nothing else, these routes represent some great opportunities to collect fun lines and dots on my flight map.
Passengers will have one more option for flights between Milan and New York City starting this Fall. Emirates will launch the route in October 2013 ending their 5 year hiatus of service between New York and Europe. Their previous iteration of service was to Hamburg, Germany which ended in 2008.
Flights will depart New York at 10:20pm, arriving in Milan at 12:15pm the following day and continuing on to Dubai at 2:00pm. The westbound flight will depart Milan at 4:00pm, arriving in New York at 7:00pm the same day. The eastbound flight time is nice, providing useful onward connection options in Europe. It is also a late enough flight such that sleeping should be reasonably easy for passengers. Westbound the timing is great for passengers who want most of a day in Europe before heading back to New York City. Onward connections are limited, however, with the late arrival at JFK.
The route will compete directly with Delta, Alitalia and American Airlines There is also a flight on United Airlines into Newark. And the Emirates 777-300ER will be the largest plane on the route, adding a lot of capacity and also adding an option for first class service.
I now know which route I’ll be looking over the winter for bargain deals.
PointsHound, the hotel booking engine which also lets you earn airline points, has a promotion out through the end of March earning members 500 bonus miles in their airline program of choice for completing a new hotel booking. PointsHound currently has 5 partners available:
When the program initially launched there were some limitations in the earning scheme, most notably that bookings made via PointsHound were considered OTA bookings by the hotels and therefore not eligible for earning points in the hotel loyalty program as well. Earlier this month that started to change as the company introduced certain markets and properties where it is possible to earn both airline points at booking AND hotel points during the stay. That’s a big upgrade for people who like their hotel status just as much as their airline points.
The double earning is limited right now but expected to grown in the near future. Ditto for the collection of partner airlines.
Still no option to search directly for properties where the double earning is possible but that will hopefully change soon enough. In the mean time, at least worth looking in to again, particularly with the 500 bonus miles on offer right now.
n.b.- The link above to PointsHound is a referral link for me. I don’t know if it still actually does anything, but it used to offer bonus points for enrollment.
Another lawsuit has fallen in the lap of United Airlines and their MileagePlus frequent flyer program. This time around it is not based on elite benefits but on claims that passengers are not begin credited with the proper number of points per their contract with the company. And, I must admit, what I saw when I actually read the filing surprised me quite a bit, mostly because the claimant missed the opportunity to go after what is likely a legitimate data set and instead went with one of the more ridiculous claims I’ve heard in a while.
Hongbo Han has filed a class action claim in Illinois suggesting that the airline is shorting customers because they are credited only with the nominal point-to-point distances between two cities rather than with the actual miles flown on any given flight. Han claims that this approach violates the terms of the contract with Mileage Plus because:
Nowhere in the MileagePlus Program Rules does United state that mileage or miles credited are not actual miles flown by the member. Clause 18.1 of the MileagePlus Program Rules merely states that "[i]n the case of air travel, mileage will only be credited for flights actually flown by the member."
The filing includes a number of Beijing – Dulles flight details, noting that United routinely awards 6,920 miles for that routing despite the actual flight routing being more than that. Han’s complaint details the actual miles flown on his travel dates and suggests that United owes him those miles, plus the 25% bonus on those extra miles due to his "Premier status."
Han does acknowledge that the awarded flight miles are determined by the "purchased ticket routing" which does not necessarily match the flown aircraft routing, so it is not entirely clear that there is much of a case here, but I suppose we’ll see. The part where Han cites a USA Today "article" about points as supporting his claim through selectively quoting the content out of context also probably isn’t going to help the case.
What is most surprising to me is that Han took the rather less certain claim in filing the case, ignoring that the number of miles credited often is actually less than the distance between the airports even on the most ideal routing. The IAD-PEK flight he mentions several times in the claim only earns 6,920 points. But the distance between the two airports is actually 6,921 according to the most commonly accepted formula for calculating the distance between two points on a spheroid of the earth’s dimensions. Newark to Hong Kong is 8,065 miles. United even knows that:
And yet they routinely only ever award 8,060 miles for the trip.
There was some outrage a year ago when the points credited for each city pair changed, mostly to lower numbers. United at the time claimed that the issue was related to differing data sets and calculation methods. Ultimately they simply backed off the changes. But that seems a much more likely case of being able to actually win a claim against the company than the suggestion that actual flight miles should be used.
To be fair, I was pretty drunk on a flight back in October 2007 and during the time we spent circling over Virginia and Pennsylvania waiting to land in Newark I wrote an open letter to Continental asking to earn the points actually flown rather than just the point-to-point distance. But I also was joking. This guy filed a class-action lawsuit over basically the same thing.
We’ll see where this one ends up, but I have a feeling it won’t be in Han’s favor.
A copy of the filing can be found here.
UPDATE: It seems that United isn’t the only carrier facing this challenge. US Airways and Delta were served with nearly identical suits (citing the same USA Today story and basically just search/replace on the other salient details) as well.
Looks like registration for the Delta/Starwood Crossover rewards opened up a couple days early. The program goes into effect on March 1st but the registration opened up this morning.
Some more coverage of the Crossover rewards benefits can be found at the links below. In the meantime, go ahead and get the registration done. You probably want that anyways.