You may have missed a couple of recent posts from Ben and Gary about rumored changes to the United/Continental Mileage Plus program. In short, the buzz is that they will start requiring minimum annual spend to be eligible for Elite benefits and prioritize upgrades based on fare rather than elite status. The big shift, if this is all true, is that they will much more tightly tie spend to benefits and reward travelers for spending more on an individual flight than on long-term profitability/loyalty.
Gary makes an excellent point that a successful frequent flyer program should shift wallet share and generate revenue the airline otherwise would not have received. In addition, rewarding people for buying expensive tickets they would have bought anyway (ie, they work for a company where they have to fly United) seems silly, as those travelers will fly United regardless of the loyalty program.
First, I’d like to point out that frequent flyer programs are not really loyalty programs, and I’m always slightly bothered when I see those two terms conflated (for the record I used “conflated” there only because one of my close friends went through a period in college where he tried to use it in every essay he wrote). Companies do not engender loyalty through a points program, they create loyalty through positive customer experiences. To wit: Four Seasons, the hotel chain that probably has the most loyal customer base in the industry, has no frequent stay program. JetBlue created more loyalty than any airline when it launched 10 years ago, and it did that with no frequent flyer program (at the time).
Both Four Seasons and JetBlue created loyalty through an extremely consistent customer experience that was markedly different from the experience offered by competitors. In fact, loyalty created by customer experience trumped frequent flyer programs, as JetBlue was able to grow its transcon business even after American Airlines was basically giving bonus miles away hand-over-fist on those routes to try to keep customers off JetBlue, but in the end AA pulled out of JFK-OAK and JFK-LGB. The “loyalty program” was unable to build loyalty.
That out of the way, frequent flyer programs are really three things:
- Most importantly these days, they keep airlines afloat by selling miles to partners (like their credit card partners) to give away.
- A rebate program where they rebate part of the cost of your ticket by giving you miles for the flight
- A rewards program where the people who fly the most miles with them (not necessarily their most profitable flyers or most frequent flyers) get to sit in first class on domestic flights with some level of frequency.
None of those things is a loyalty program.
Assuming the rumored changes are true (and I wouldn’t be surprised if we see spend – as a proxy for profitability – tied in with rewards), this is a big change, and airlines are then trying to get a bit more sophisticated with how they reward travelers for flying with them. Continental did this a while back where they only gave half elite credit if you booked a cheap ticket on a 3rd party channel. This is gone now, and it really ended up screwing corporate travelers who were forced to fly on cheap tickets booked through a corporate agency. But I understand what Continental was trying to achieve – why reward people for making choices that lead Continental to pay higher distribution costs. In other words, they were trying to reward more profitable travelers.
But I have an idea that I think isn’t insane to actually reward the people they want to reward. I agree with Gary that they’re trying to shift share of wallet. Why should they reward people who are flying from a hub city on a route with no nonstop competition? Those folks were going to fly anyway. Instead, why not reward people who make an active decision to fly on the airline. So, why not base the number of miles you receive on whether you’ve shifted wallet share. How? Let’s try this: Keep the miles earned the same. You earn base miles for cheaper tickets and a bonus for more expensive tickets (this is already the case). You then get a kicker if you are departing and arriving from non-hub cities. If I live in Dallas and I’m flying to Milwaukee, I’m likely flying American because it offers a nonstop. But if Continental wants my business, and I have to fly through Houston to get to Milwaukee, shouldn’t I be rewarded for that? And shouldn’t Continental be happy that I’ve shifted my spend from American to Continental? This is all marginal revenue for them – 100% revenue they would not have otherwise received.
My proposal: use revenue management to manage the number of points (and elite points) people get for a given trip. When the airline displays a fare, they should also display the number of miles and elite miles you’ll earn for purchasing that ticket. They can raise or lower the number of miles and number of elite miles based on whether they’re trying to induce you to buy the last seat on the plane; whether there’s competition on the route with seats still available; what the competition is charging for that route; etc. If they revenue manage the fare to try to maximize profitability, why not leverage miles (and elite miles, which could be even more of an inducement) to do the same?
This would more tightly tie the miles passengers receive to their value to the airline. If airlines are basing their status on miles, it seems silly that you would get the same reward for buying 1 round-trip ticket from New York to Bangkok as you do for buying 17 round trips from New York to Cleveland (roughly – you get my point). Those travelers don’t have the same value to the airline. But they would if the airline told you how many miles you’d be getting for each flight and changed that value based on your value to them.
Does this make frequent flyer programs more confusing? I don’t think so. Yes, I know how many miles (roughly) I received for my flight yesterday from New York to Cincinnati. But if I were flying from, for example, New York to Bogota I have no idea how many miles that is, so why are the miles an inducement? Under my scenario, airlines would clearly spell out how many miles I’m getting and use that to try to induce me to fly Delta’s connecting flight through Atlanta rather than Continental’s nonstop flight.
Crazy? I don’t really think so. Plus, it doesn’t make some travelers feel like they’re being penalized, which is what happens when you tie revenue to Elite status.
This doesn’t solve the loyalty issue (that’s for another time), but it does give airlines more leverage to get passengers on their planes and off those of the competition. And that would benefit everyone.