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.
I had the opportunity last week to sit in on an industry conference focused on loyalty programs, points and consumer behavior. Not surprisingly, a decent amount of the conversations were around credit cards and how they are shifting (or have already shifted) the market. One of the sessions offered a comparison of airline versus bank rewards cards and the results were, to some extent, surprising to me. Here are a couple of the results they showed:
Of course, the numbers are based on certain assumptions, and those assumptions are based on averages, not the extremes. And even the average numbers they’re using are flawed, I believe (assumes $18K annual CC activity). But the overall concept is still interesting. The general conclusion reached is that the cash-back cards are more valuable than points-based cards when the end goal is domestic leisure travel. And, quite frankly, I cannot argue that conclusion.
The real differentiation point, in my view, is what the customer is actually looking to get out of their travel rewards spending. That aspect of the equation is often overlooked in these sorts of reports. Analysis which starts given a certain set of assumptions will invariably reach those conclusions. This report starts with the assumption that only domestic seats bookable online are desired by customers and, unsurprisingly, gets to the result that the co-branded cards from airlines are pretty bad at providing that benefit. Ironically, the airlines can (at least in theory) provide the benefits at a lower cost given their control of inventory and the ability to offer only distressed inventory towards award redemption.
On the plus side, the analysis is pretty good at showing the disparity between year one and subsequent years. That’s as good a way as any to remind consumers that their loyalty is being bought, and that they should consider being sold on a regular basis. Somewhat ironic that they are so up-front about this when at the same time the airline folks at the event were saying things like, “Loyalty has to be a two way street; otherwise it is just bribery and that’s not sustainable.”
If you want to read the full report it can be found here.
Looking to travel using JetBlue TrueBlue points in the next couple months? For the next couple days you can save 30% on the redemption costs.
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JetBlue doesn’t have too many promotions like this so when they do it is always worth taking a closer look. In this case the value of the TrueBlue points can be up over 2 cents in certain markets. That’s a pretty significant value opportunity for those points. Obviously the dates have to work for you, but this is a pretty good deal if they do.
The Etihad buying spree shows no signs of slowing down any time soon. The Abu Dhabi-based carrier has confirmed that it is taking a 24.9% stake in Jet Airways. The move also includes Etihad buying three pairs of Heathrow slots from Jet and investing $150mm in the Jet Privileges frequent flyer program. Jet will establish a hub in Abu Dhabi as part of the deal, adding connectivity into the region and integrating with Etihad’s network there. That this is the first major foreign investment in an Indian carrier is significant, to be sure. And there are many things which may come about as a result.
One major question being asked is if Jet’s Brussels hub will move to another airport. Dublin is one idea being talked about based on the Etihad stake in Aer Lingus. Berlin or Dusseldorf could also be options with Air Berlin connectivity as well. And Germany probably presents better business options for passengers and a better connectivity point on to continental Europe. On the down side, Berlin’s airport is mostly full now and the new one may never open so that could be a problem.
Another bit to watch will be the development of the loyalty program. At the end of 2012 Etihad acquired Air Berlin’s Topbonus program. They also acquired the program of Air Seychelles. These programs are currently being run independently, but the potential to fold them into a single, global solution is quite real. The part where Etihad is pushing the cutting edge of loyalty offerings, especially on the redemption side, means that the potential for a very interesting shift in the loyalty landscape globally is very real.
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.
Two unrelated interactions over the past week or so have me thinking about loyalty and value and where to draw the line in the search. Somewhat interesting to me is that one of the stories comes from the passenger side and the other from the airline side and they both have a similar conclusion. Both are also surprisingly rational, which might just be the most shocking bit of all.
I’m not paying for my flights but when I see something that’s half the cost, I can’t help it but to go with the lower cost carrier.
The above is an excerpt from a post on FlyerTalk made by a relatively new member trying to figure out how they should focus their loyalty given the spread in fares. Even if the money doesn’t come out of your personal pocket there it is a challenge to spend so much more for essentially the same product. Somewhat unsurprising was the suggestion by some members that the double fare can be justified but I suppose that’s part of the mentality at play in the market. Of course, it isn’t always the same product and there are both big and small differences between the service, flights and value on any given choice. Still, I tend to struggle with justifying the 2x price point to make a trip like this happen. And for passengers paying out of their own pocket that’s an even harder spend to justify.
The second quote came from an airline loyalty executive talking about his program and carrier and their approach to loyalty marketing:
I may not get 100% of your wallet. But I want to be in your consideration set on every transaction.
It makes sense, of course, that no company thinks they can be all things to a passenger in every scenario. There is a bit of humility required to get to that point and such a display is not often seen. And that’s a shame, really, as such an approach is probably better for most passengers most of the time.
To be fair, I know I’m not the same as most passengers and I know I’m not the target of that loyalty program. But they do get my consideration on every trip. Part of that is because they’re generally a more pleasant airline to fly on in my experience but the other part of that comes from having a rational and practical approach to the market and to addressing their customers.
Loyalty programs are great when the rewards you’re realizing are greater than the investment being made. Just make sure you’re accounting for that as you make your loyalty decisions.
PointsHound, the hotel booking site which lets you earn airline points for your stay, has added a few new partners to their earning options in the past couple weeks. American Airlines‘ AAdvantage, Virgin America‘s Elevate and the Etihad Guest programs are now options for their members. This brings the total number of earning partner options up to eight:
In my quick scan of the site this morning the Etihad and AAdvantage earning rates seem to be about on par with those from United’s MileagePlus or Delta‘s SkyMiles programs. Earning rates in the Elevate program appear to be rather lower in the few I saw, but still reasonable.
Definitely worth checking out the earning options with PointsHound when looking at hotels, especially when not staying at a branded property (or where their Double Up feature works and you can get both earnings). In some cases cash-back portals might still be a better value, but PointsHound is definitely in the running.
Also, if you’re new to PointsHound and want 250 points in your favorite program when you enroll feel free to use my referral link (I get 250 points, too). The other links above are direct without any referrals.
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.