MilesBuzz! - Why would an airline reward miles flown?

It puzzles me that airlines give free stuff in exchange for how many miles a customer flies.

I know that there's always talk of a more revenue-weighted system for rewards, but I'm just wondering, why have airlines ever done anything except a revenue-based system? When did they ever think it would be a good idea to have customers fly more miles, instead of just wanting them to hand over more money? One explanation I can think of is that maybe 20 years ago, there was a stronger correlation between the length of a flight and its fare? Right now, of course, the two are largely unrelated, and it's often the shortest flights that are most expensive. And it's the highest mileage flights which cost UA the most to run.

No, I'm not a whining high-revenue flyer. In fact, it's the realization that I'm reaching 1K despite having spent very little money on UA this year that's bringing me to question the miles-reward system.

Thoughts?

Simplicity is the obvious answer.

How are you going to allocate frequent flyer points on the basis of flights taken on partner airlines, bought in a different currency? Will the partner airline report the exact revenue? With or without taxes? As at what date, given that foreign exchange rates change constantly? Imagine all the arguments they'd get into... "I would have been 1K if you'd processed my LH flight on Wed, but because you processed it on Thu I fall short by US$4!"

What about shared tickets that aren't part of the same frequent flyer scheme? One year, I flew MEL-MNL-LAX on Philippine Airlines and back to Australia on Air New Zealand. Would the airlines allocate equal revenue? Revenue based on their costs? Revenue based on distance flown with each one? (In which case, we're back to a distance-based system, aren't we?)

Some countries actually have privacy laws. I doubt that an airline I fly on with a consolidator-issued ticket actually knows how much I paid for it. I doubt that they are legally allowed to give that information to another company overseas. They probably could draw up a contract that required members to allow that information to be passed around, but that's another level of complexity again.

I agree with Kremmen. The logistics of keeping track of the dollars spent is much more difficult than keeping track of miles flown.

While it is relatively easy for an airline to determine the fare for customers that purchase a published fare, there are also alot of non-published ticketed fares out there. The airlines do not how much the customer paid for these types of tickets: Priceline, bucket shops, wholesale, bulk rate, tours, contract rate tickets, etc.

Even if the airline were able to accurately determine ticket prices, I think they would have originally used miles anyways since it is more attractive for marketing purposes. Customers do not want to be constantly reminded of how much money they are spending on airline tickets. Wouldn't you be disgusted to know how much money you're actually paying for airline tickets? For many of us it is in the tens of thousands. Who wants to be constantly reminded of that?

On the other hand, customers are always interested to know how many miles they've flown. They would rather think "I flew 32,768 miles this year! Woohoo!". Nobody wants to think "I spent $12,332 on airline tickets this year! Woohoo!"

Face it -- miles flown vs money spent is just more marketing sexy. Yeah?

If you pay full fare to sit up front, the number of frequent flyer miles you earn or the perks you get from them most likely does not matter to you. Frequent flyer miles and status is very important for the discounted/coach passenger since it allows them extra perks.

I think that the major reason is that it would not be as attractive to most people.

It will take a long time for the low fare traveler to get status and therefore he/she might be more willing to switch airlines (even for a fare that is $10-$20 less expensive). Using the current system if a competing airline has a fare that is $20 cheaper of a 2000 miles RT many people will stay with "their" airline because of the value of these miles is higher (for them - due to status or getting closer to an award level or status level) on the current airline.

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Sagy

I think there's also the fact that airlines compete in different markets and it would be impossible to attract regional/corridor frequent flyers to your airline if your FF program were strictly revenue based.
Let's face it:Even if you always buy FC an hour before the flight, there's no way a
SFO->LAX ticket is ever going to cost more than one SFO->LHR or ORD->AMS.
You will adopt some sort of strategy that recognizes that 60 500 mile hops are just as valid as 60 7000 mile marathons or you will
drive these regional flyers over to your
competitors who DO cater to them.

This to me is why UA rewards segments and miles as well as revenue. If somebody suffers the ignominy of the Shuttle( which often involves MORE delays,rebookings and other inconveniences than a mainline flight) for 100 segments for work, what do you say to them?
"Sorry your job doesn't let you fly anywhere REAL like these other people over here?"---Not if you don't want to permanently lose market share in that region. Nope, you find some way to recognize that they are valuable to you as well because they contribute to your bottom line in that region.

It looks like it's about being fair, but as always, it's always about economics....

JD

FWIW, National Airlines' FF program is dollar based.

I'm an "up front" flyer, mostly on now-almost-extinct TWA, but also on basically every other airline now, UA, US, AA, DL.

One of my favorite features of the Aviators program was the revenue-based status. I always very easily qualified for mid-tier status based on dollars spent, but rarely on miles flown. Did it matter to me, you bet! What better acknowledgement of dollars spent than having that card in my wallet. Although it's true that I didn't need most of the benefits due me because I was flying first class anyway, on the odd time I wasn't flying on a first class ticket, the upgrade was always nice. The companion upgrades were fantastic (flew with my sister JFK-SJU in first). There is also the matter of guaranteed seat availability for upper level elites. That can be very valuable.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">FWIW, National Airlines' FF program is dollar based.</font>

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">One of my favorite features of the Aviators program was the revenue-based status. </font>

And look where it got them http://www.flyertalk.com/forum/smile.gif

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Jet'Dillo:
Even if you always buy FC an hour before the flight, there's no way a SFO-&gt;LAX ticket is ever going to cost more than one SFO-&gt;LHR or ORD-&gt;AMS. </font>

Actually (and stuff like this is is exactly what made me ask my question, because this sfo-lax-sfo costs more than i paid for sfo-sin-sfo):

United Airlines 1831
Airbus A320 Oct 01 17:30 depart SFO
Oct 01 18:51 arrive LAX Class: First
United Airlines 2080
Boeing 737-300 Oct 01 22:00 depart LAX
Oct 01 23:16 arrive SFO Class: First
Total Airfare (including taxes and charges): USD 679.00

If one flies a lot (a lot of miles, a lot of segments) then they are obviously on your airplanes and in your terminals a lot. Thus the perks that come with status matter a lot. Thus granting status will ensure continued loyalty.

Under this chain of logic, there is no similar way to guage the importance (and thus loyalty) of the perks based on revenue...

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by anthonyanthony:
I agree with Kremmen. The logistics of keeping track of the dollars spent is much more difficult than keeping track of miles flown.

While it is relatively easy for an airline to determine the fare for customers that purchase a published fare [...]</font>

Even this is not always easy. I've always been surprised how little information the airlines have even when flying on regular tickets on a single airline purchased through a travel agent. In many cases, all they really know is the booking class. Often, they don't even know the fare basis, let alone the fare paid. I've had to track this down myself a few times when making changes over the phone, or for a lost ticket application. When a ticket gets used, the fare paid for each segment may be indicated on the face of the ticket, but this may never get associated with the passenger's record in the computer. In short, it would be very difficult for most airlines to implement a revenue-based system. Many attempt to do something in that direction by offering mileage bonuses for travel in full-fare coach and paid business or first class.

Hmm, something to do with miles actually posted on MilesBuzz http://www.flyertalk.com/forum/smile.gif

I think that the reasons may be historic and also as mentioned for simplicity. But also consider that airlines want FF programs to be universal, for the benefit of all not a few. If the airlines start rewarding revenue, then the perception would be negative among a lot of people. How do you then reward someone who is just starting to fly and has no idea about how much s/he would be flying in the future. The current programs reward the little guy, which is good.

My feeling is that in the future there will be more emphasis on revenue. We have already started to see promotions targeting miles/bonuses for higher fares. BA's elite program is heavily geared toward those paying higher fares. AA has a dual model where you can qualify either based on miles, or on a combination of miles and fares. I think that the industry will head towards the dual model.

I have also heard references to elite members being the best customers, e.g. 1K members are United's best customers. But Mileage runs/ Baht runs dilute such statements. So one can be 1K without really being one of United's best customers (though most of them would be good customers at the very least and likely among the "best" customers). But the bottom line is that the hig rev. passengers are the "best" customers.

[This message has been edited by PG (edited 10-01-2001).]

Someone who fly's 100,000 paid miles even in discounted coach is still a good customer to the airlines. If a plane is flying half full and someone buys a seat for a mileage run or to maintain status, that is one more revenue passenger/seat that otherwise would have gone empty.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by PG:
I have also heard references to elite members being the best customers, e.g. 1K members are United's best customers. But Mileage runs/ Baht runs dilute such statements</font>

I guess it depends on what "best" means. If an airline does its yield management well, mileage runs are basically them selling seats that would have definitely been empty otherwise to people who wouldn't have travelled otherwise.

Selling people something they don't need in order to run aircraft more efficiently certainly helps the airline. Also, in my experience, those who engage in such acts to gain status are usually very positive about the airline to others and have great knowledge about the advantages of status levels. Many who always fly paid first class really don't care which airline they fly with and/or are forced to use whichever airline their workplace books them on. Which are better PR for the airline? I'd suspect the former, but it's not an easy thing to measure.

I like the way UA is managing it. Miles for the masses, but a program to watch for, and reward high $ volume individials.

Just like Vegas. Points based system for the average player, but an enirely human team to attract and retain the high rollers.

In the end, everyone should be happy.


[This message has been edited by skofarrell (edited 10-01-2001).]

It wouldn't seem too hard to have revenue-based FF status for tickets purchased directly from the airline. In fact, this would seem like a good idea for the airlines, as it would (1) encourage less-frequent business travelers to purchase tickets directly from the airline instead of from travel agents (so the airline pays no commission) and (2) encourage less-frequent business travelers to stick to one airline (increasing the carrier's market share of those $1000+ RTs).

Do not the airlines currently have a form of revenue based programs currently in place. On AA you earn miles and Q points. All discounted tickets earn 50% Q points. Full fare earns 100% Q points and business/first earns 125% and 150% Q points. It takes the same number of Q points and miles to earn the same status levels. The people who earn these levels on Q points do so with fewer but more expensive tickets.

Of course, Southwest doesn't fool with miles. Fly 8 times (or 4 through June 2002) and get one free. Doesn't get much easier than that.

If you went to a pure revenue model you'd no longer have a freqent flyer program, you'd have a frequent payer program. As it is now the benefits go to the people who spend the most time on airplanes, which is to say, the people who are in position to use the benefits of status most often. Under a revenue-based model, you might be able to make the lowest tier by buying just a couple of walkup F midcons a year. But someone who flies every other week and waits for a fare sales to buy bunches of tickets at once might get nothing even while spending a lot of time on one carrier. I think the latter customer will appreciate the benefits of being elite far more than the former customer would -- in fact, what use will the other guy have for free upgrades and SWUs?

Even under a revenue model, I'm sure several among us would still do runs to make status. We'd just be buying $3000 last-minute ORD-SFO tickets instead of $27 tickets to Paris. Mileage runners will become status runners, but they won't go away.

The next step would be to just sell status --pay UA $X and you get to be Premier, pay $Y and you're 1K. But if I wanted to be an elite flyer I'd just buy an F ticket in the first place.

Two reasons. First, employers, who pay for most of the high priced tickets, would be very antagonistic toward programs if they blatently rewarded spending more dollars for the same flight. So for now, it's just our dirty little secret.

The second reason is airlines don't care. Give away the miles and restrict the rewards. Believe it-it works.

aa's executive platinum status started as a revenue oriented tier. points were accrued @ 1.5 for f, 1.25 for j,1.0 for y,.5 for disc coach. it would take 200k m1 in l or whatever or 67k in f. fortunately they now give the status for 100k mi.

It seems to me people (myself included) believe what they would like to believe. Because you do mileage runs, you believe, hey, they're good for the airline, too; and hey, they'll exist forever, and so forth. And because you're milking the system (and rightly so, don't get me wrong--the airlines are in the business of making money and so you have every right to work the system to your advantage), you start feeling the system is correctly put together, etc etc etc.

Now I'm guilty as sin of working the system so again, don't get me wrong, I'm not criticizing you. I achieved elite status on NW back when they gave miles for their weekly specials. But I can't understand why everybody would b-tch and moan when NW stopped giving miles. These were cheap fares, and it was all too easy to fly the JFK-NRT route twice in one year, pay $900 and suddenly be in the same category as mid-level executive who flew 15 roundtrips a year.

I think it boils down to this: it's in the airlines best interest to more or less reward miles as opposed to points for all the reasons listed above (convenience, ease of matching partner airlines fares, etc) but mostly because it allows airlines to send 'payment' back to the business passenger thus creating very strong incentives for the passenger to maintain loyalty to one airline, even if the business passenger's company pays considerably more. If they rewarded by dollar, this would create grounds for the companies to demand they get the de-facto "refunds." By paying for miles, the airlines can successfully argue that FF miles are NOT refunds or discounts, but a different animal together.

Hey i'm open to correction if you can show me i'm wrong. peace out

Plenty of room for discussion here

First Airlines do not reward you for miles flown...ie, my ff tickets earn no miles, right? Hotels allow me to earn "status" for point stays, if I buy practically anything. If airlines were rewarding us for miles flown then the purchase of a glass of wine would add points to our "trip count, at least" for status.

Stated elsewhere well, if you spend enough, you can earn status at levels lower that those published. So it is a dollar program as well as a miles program.

Then status and miles earned are not the same thing either. Elites are paid more for flying in different seats on the plane, yet all seats fly the same distance (dollars or points?).

CC give points per dollar spent. Airlines could do the same thing. A few problems exist, as mentioned elsewhere.

The bottom line is that each airline does what it believes helps them the most and then we get to pick and choose IF we live and travel where competition exists. The same is with the hotels.

That is the free economy "doing its thing"

That is my opinion and observation.

Why reward you for miles? Well, because if they put your butt in a seat -- whether it's first class, or the discounted coach -- they make money. So, they want you to fly. They want to get money from you one way or the other.

Plus, think about it. It takes 25,000 miles to get a free ticket in the US. If you value the miles at $0.02 per mile, that means those miles are worth around $500.

I just did a IAD to LAX roundtrip. That got me around 4,500 miles. I paid around $350 for that.

In order to get to the 25,000 miles that I need for a trip, I'll have to fly six of those. That means, assuming that I get the $350 price each time which is by no means guaranteed, I'll generate $2,100 for the airline.

And that seat that I get for the free trip -- well, it's likely to be a seat that they didn't sell anyway, so it really doesn't cost them anything.