MilesBuzz! - Why not eliminate frequent flyer miles?

Note - only playing the Devil's advocate role here because I'd like to see if anyone has good ideas about how to change the current program for the better. I posted most of this in another thread ...

I agree with the last 2 opinions - I used to fly CO and scrambled for upgrades but when I found out that Midwest flew non-stop instead of a connection like CO did to Reagan, I tried them and won't ever go back except to destinations Midwest doesn't serve. They may be more expensive, but I'm not chasing upgradeable fares, worrying about elites ahead of me on the waitlist, etc - and the seat room is terrific. Another thing - I don't miss that Pavlovian response I used to get when I got an upgrade - the airlines call it a 'reward' but it began to feel like more of a doggy biscuit I 'earned' by jumping through their hoops. But since I wasn't guaranteed my biscuit, I wasn't always a happy puppy.
But no stress now in that regards, which is good, since I need to reserve that for the 9/11 worries, A300 concerns, reclining seats, cancelled flights, etc - and I even have some left over for worrying whether I'm doing my part for this country by spending enough money on stuff I don't need!

Here's a wild and probably ignorant idea - why not gradually eliminate the frequent flyer program rewards as they are now, in the sense of honoring them until the miles are used up, then switching the programs to a price discount tier and still keep the upgrades. After all, a lot of elites get there by travelling on business. For a crude example, as soon as an elite level is reached, give some fixed percentage off all future purchases of tickets for that person as long as their elite level is current, something applicable to either business or personal travel. You could even offer the discounts based on class of travel. Say 5% for silvers coach, 10% for silvers business, 10% for gold coach, 15% for gold business, and 20% for platinum coach, 20-25% for platinum business.

These are just examples to make my point, but I think this whole frequent fliers miles concept has gone way overboard and rewards people for buying merchandise, flowers, phone service, you name it! And it leads to tons of rewards that cannot be claimed due to lack of reward seats held back by the airlines. Add the administrative costs in administering this program and it ain't cheap!

Yeah, I do those other things to get miles because the program exists, it's easy and you're nuts not to take advantage of it. But it doesn't mean it's the best system in light of the current troubles. Reducing costs for fliers and airlines while making airlines fill more seats and earn more revenue seems to be a goal worth achieving - I don't want all airlines to adopt the Southwest model (no offense!), just as I don't want only one make and model of a car sold in the U.S.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by KCFORREAL:
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concept has gone way overboard and rewards people for buying merchandise, flowers, phone service, you name it! And it leads to tons of rewards that cannot be claimed due to lack of reward seats held back by the airlines.

[/B]</font>

Yes, there are limited rewards, but remember that the florist and the Long Distance service are paying for those miles. The airlines MAKE money from those. It just breaks down to the merchants buying our ticket.


I wanted to add this: Most of the time when I use a reward certificate, I am also inclined to buy a ticket that they may not have sold otherwise. (By taking the kids or husband with me on that trip).


[This message has been edited by fscher (edited 11-14-2001).]

fscher: good point! But I'd think that those same merchants who pay the airlines to offer those miles must incorporate that charge into the price of the items you buy - so we're the ones paying for those miles, not the merchant.

As to the concept of replacing FF programs with graduated discounts, the airlines don't want to do this. The FF program is far cheaper for them as a method of maintaining loyalty. If you look on one airline's SEC filings, which disclosed that its actual cost of providing a future FF ticket seat was approximately $20 in actual cost (a little extra fuel perhaps plus the meal I think), and that that is the reward for 25,000 miles, I think it is easy to see that the actual discount one would "earn" would be on the order of a few dollars off a ticket.

The reason that the FF program works so well is that the airline can provide an incentive to us (FF tickets or upgrades) that is worth far more to us than it actually costs them to provide it(given less than 100% loads on their planes). Thus, we may value the seat that we get for a FF ticket at $400-500, whereas the cost to the airline is about $20. Last Feb. I used 4 FF seats to the Caribbean. Cheapest fare I could get was $750 each. I used 30,000 miles each ticket. I consider that I got about $3000 in value for the 120,000 miles.

So, in some aspects it is a win-win situation for both sides of the equation.

Djlawman

"Topic: Why not eliminate frequent flyer miles? "

Them there is fightin' words!

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EWR CO Gold

Djlawman: yeah, I've used 40K miles on 2 different occasions to but 2 tickets on short notice that would otherwise have cost $3,000K, so in that sense I like the miles for short-notice travel or under-sold flights. I think perhaps the point has to do with their overall ticket pricing structure that makes those seats so much more expensive if you were to buy them but only cost $20 for a reward traveller. Maybe the question is, are frequent flyer programs are money-generators and if so, why can't they consistently make profits? Maybe it's just that question that leads me to wonder about the miles ... but then this question is nothing new ...

Well, let's think this through. A reward for a economy class ticket will cost you 25,000 miles for travel in the continental US, correct?

Now, if you value the miles at $0.02, like I read you're supposed to, that's $500 for a ticket, and you have to give them at two weeks notice. Raise your hands if you pay $500 for a ticket for travel within the continental US booked two weeks in advance.

If you do, may I be your travel agent and pocket the savings?

Don't forget that many of those business travellers aren't paying for the ticket themselves. Saving the company $70 on a $700 ticket isn't much incentive. Earning miles that can be used for personal travel or upgrades is.

What elite status FFer in their right mind would even consider a domestic award other than when it has been discounted to the 15K level? Use of such amounts of miles/points are better made as upgrades on long-haul, discounted coach paid trips, never for a flight that could otherwise be purchased for under $300 with similar restrictions. As will all programs, the real rewards are found at the top end: 75K or so for a $5K+ business class ticket to Europe, Asia or SAmerica from NAmerica is certainly a better deal, and use of one's earnings. Afterall, this is just 3x the silly domestic award, but worth 15x as much.

As for the original proposition of this post: FF programs are here to stay. The airlines have dug themselves too deep to bail out now. Whether they do build loyalty or are competitive factors has become a mute point. And we too are hooked as end users: FF programs are the crack cocaine of the business travel world! Free trips, upgrades and other elite status perks. Just try to take them away from us...

My personal value for my ff miles are 1 cent each as stated by mdtony, I wouldn't pay $500 beans for a continental us ticket. I figure the most I will ever have to pay to fly say IAD-LAX for example with advance purchase should be about $250. My personal rule for using FF miles for ticket purchase is not to use them unless the ticket is $300 or greater for Y. I won't think twice on spending miles for Int'l upgrades though.

However I have had last minute personal biz that would have cost me close to $2k for a ticket where my 25000 FF miles were worth just that. So it really depends how you use the miles that you have (and probably how many miles you have in the bank) as to how you value the miles.

My valuations are for my usage, I'm sure the rest of you have different valuations and use patterns as well as a wide disparity in mileage balances.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by mdtony:
Well, let's think this through. A reward for a economy class ticket will cost you 25,000 miles for travel in the continental US, correct?

Now, if you value the miles at $0.02, like I read you're supposed to, that's $500 for a ticket, and you have to give them at two weeks notice. Raise your hands if you pay $500 for a ticket for travel within the continental US booked two weeks in advance.

If you do, may I be your travel agent and pocket the savings?</font>

Interesting points all. It is truly a pleasure to fly YX and not have to spend precious brainpower worrying about "will I get the upgrade...did I call in time...etc etc"

If you recall (I'm not old enough--born 1963-- to remember anything but the tail end) there was a frenzy about trading stamps (S&H, Top Value, Eagle, etc) from approximately 1956 through 1970. Growing up in St. Louis the last supermarket chain stopped giving them in 1981 (National), but Famous-Barr (the big department store) gave them until 1988 or so (Eagle Stamps, actually the program was owned by May Department Stores).
Publix (big Florida supermarket chain) gave S&H until about 1990.

The craze ended with the recessions of the early 70s. Frequent flyer points are the same thing, 25 years later. In the 60s, the aspirational goods which were "sold" by the stamp companies were household things (my parents still have the picnic basket which I remember getting with them). There was a statistic that 40% of the small electric goods sold in the early 60s were distributed through trading stamp companies.

(Interestingly, Eagle Stamps, mentioned above, were a bit different--you filled a book of them and then took them to the department store (Famous-Barr) to get $3 in merchandise from them. A friend my age grew up near Cleveland where Eagle Stamps were used--the big department store (May Co) was owned by May (duh) and the redemption process was the same.

Now, with greater cultural sophistication (as well as personal income, leisure, etc) we look for travel for our "redemptions".

FF miles aren't going away unless we have a bad recession verging on depression. You can have too many toasters. I don't think you can have too much leisure travel.

JL

The first airline that tries to even DEVALUE my FF miles will lose my entire loyalty on principle; eliminating the program would result in me shifting my 150,000 miles/year to ANY OTHER airline but the one that did it to me. And since I'm in control of my firm's other employees' travel, I'll take a lot more than that.

No, the game is set. Forget about it, BBS lawyers/airline apologists; Changing the rules, regardless of their "notices" saying they can, will be a declaration of war by THEM against US. There *will* be a significant loyalty penalty paid by the airline that messes with the reward structure, regardless of legalities. My money's on shorting the stock of whichever company starts to dilute the ff benefits, as I'd predict it will be the next corporate casualty, once those who actually are buying the high margin tickets quit flying for their competitors. And collusion between them will bring down a rain of state Attorneys General, making the Microsoft antitrust case look tame. (there's just too many headlines in jumping on airlines, if they endanger a million folks' imagined or planned vacations).

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by SST:
The first airline that tries to even DEVALUE my FF miles will lose my entire loyalty on principle; eliminating the program would result in me shifting my 150,000 miles/year to ANY OTHER airline but the one that did it to me.</font>

Except they already did this. It used to be 20,000 miles for a ticket in the continental US and now it's 25,000. And they all did it right around the same time, so jumping from one airline to another didn't do any good.

They have the legal right to change the terms of their frequent flyer programs whenever they want, up to and including termination of those programs.

And all the collusion lawsuits in the world won't do jack about that.

A heretic in our midst!

Seriously, I use my FF miles almost exclusively for upgrades. I'm happy that by using a combination of $ and miles that I can sit in First.

A recent example: ORD-HNL on UA. I paid $390 plus 30M miles for a $4200 First Class fare. Value per mile of 8c. Miles cost me about 1.5c apiece to earn.

Now for the good part: I earned about 25M of those miles back because of earning/bonuses (the 2x post-disaster bonus is an anomaly). Net cost in miles? About 5M.
I don't want to give up on this ROI.

[This message has been edited by Mikey likes it (edited 11-14-2001).]

Here is a lesson in Marketing:

Airline Mileage Programs were created because they were an ingenius way to create brand loyalty in a market where the product is essentially the same from all of the competitors. Otherwise the ONLY incentive for the consumer would be to buy the least expensive or most convenient.

Mileage Reward programs cost very little to run because they utilize seats on planes that would otherwise go empty (for the most part). Only a fraction of the miles are ever redeemed.

Airlines have quickly learned that loyal customers are their best customers. I can't tell you how many times I have flown on American Airlines because I wanted the Aadvantage miles even if the schedule was less convenient or the rate slightly higher than competitors. Most business travelers are not that price sensitive, they care more about upgrades and personal mileage.


<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by KCFORREAL:
Note - only playing the Devil's advocate role here because I'd like to see if anyone has good ideas about how to change the current program for the better. I posted most of this in another thread ...

I agree with the last 2 opinions - I used to fly CO and scrambled for upgrades but when I found out that Midwest flew non-stop instead of a connection like CO did to Reagan, I tried them and won't ever go back except to destinations Midwest doesn't serve. They may be more expensive, but I'm not chasing upgradeable fares, worrying about elites ahead of me on the waitlist, etc - and the seat room is terrific. Another thing - I don't miss that Pavlovian response I used to get when I got an upgrade - the airlines call it a 'reward' but it began to feel like more of a doggy biscuit I 'earned' by jumping through their hoops. But since I wasn't guaranteed my biscuit, I wasn't always a happy puppy.
But no stress now in that regards, which is good, since I need to reserve that for the 9/11 worries, A300 concerns, reclining seats, cancelled flights, etc - and I even have some left over for worrying whether I'm doing my part for this country by spending enough money on stuff I don't need!

Here's a wild and probably ignorant idea - why not gradually eliminate the frequent flyer program rewards as they are now, in the sense of honoring them until the miles are used up, then switching the programs to a price discount tier and still keep the upgrades. After all, a lot of elites get there by travelling on business. For a crude example, as soon as an elite level is reached, give some fixed percentage off all future purchases of tickets for that person as long as their elite level is current, something applicable to either business or personal travel. You could even offer the discounts based on class of travel. Say 5% for silvers coach, 10% for silvers business, 10% for gold coach, 15% for gold business, and 20% for platinum coach, 20-25% for platinum business.

These are just examples to make my point, but I think this whole frequent fliers miles concept has gone way overboard and rewards people for buying merchandise, flowers, phone service, you name it! And it leads to tons of rewards that cannot be claimed due to lack of reward seats held back by the airlines. Add the administrative costs in administering this program and it ain't cheap!

Yeah, I do those other things to get miles because the program exists, it's easy and you're nuts not to take advantage of it. But it doesn't mean it's the best system in light of the current troubles. Reducing costs for fliers and airlines while making airlines fill more seats and earn more revenue seems to be a goal worth achieving - I don't want all airlines to adopt the Southwest model (no offense!), just as I don't want only one make and model of a car sold in the U.S.

</font>

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by SST:
The first airline that tries to even DEVALUE my FF miles will lose my entire loyalty on principle; eliminating the program would result in me shifting my 150,000 miles/year to ANY OTHER airline but the one that did it to me. And since I'm in control of my firm's other employees' travel, I'll take a lot more than that.

</font>

What if they all eliminated the program at the same time. I don't think that we will not fly if there are no frequent flyer miles. If we need to be somewhere, we will have to fly. FF programs have just been used to maintain loyalty. But if the total travelers remain the same for the industry, then airline as a whole are just losing with FF programs. I think that if all the carriers could agree to drop the programs together and stick with it, it would be a good move. It's probably not possible or even legal, but if it were, I think that it would be smart.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by LAJim:
Here is a lesson in Marketing:

Airline Mileage Programs were created because they were an ingenius way to create brand loyalty in a market where the product is essentially the same
</font>

Well said Jim. FF miles are kind of like a wedding ring. They were both created to encourage loyalty in a market where the product is essentially the same...

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by hindukid:
...I don't think that we will not fly if there are no frequent flyer miles...</font>

I for one would fly significantly less if there were no FF miles. The flights that I would fly would not be on the majors, either. Airlines like WN, FL, and B6 will win out totally and 100% if FF mile programs end. http://www.flyertalk.com/forum/smile.gif

i'm a mileage junkie here, just as much as anyone else. and i realize that mileage plans have the ability to be revenue generators for airlines. but i doubt that they are for all airlines.

consolidation is the word you should remember. does it make sense for both CO and NW to run separate programs and duplicate costs? Remember, OnePass was the marriage of CO and EA's plans.

The star and oneworld alliances are ripe for consolidation of FF plans. But the individual plans will have to be spun off from the parent first, so that no one carrier has ownership of a plan that other airlines use to outsource their programs to. much like the current travel agent distribution computer systems. all were owned by an airline at one time, but as they became a bigger piece of profits, and smaller airlines contracted to outsource, they were spun off.

personally, it would make my life a whole lot easier if i only had to belong to a few programs....

I wrote a piece a couple years back about why frequent-flyer programs aren't likely to go away. If you're interested it's archived at http://www.memecentral.com/mu/mu0028.htm

I did read your artical, thank you QuietLoin - trip down memory lane for those of us who signed for these programs on Day one - many good points.... I would add that the value of a business class upgrade (50,000 miles rt) from a $500 coach ticket on the LAX-LHR route (over $7,000) is incredible - especially when you will get back 3X the miles in the form of miles and bonus. (30,000+) with a net cost of 20,000 miles and $500.00 - that's a wow, great value - great reward - and what did it cost the airline for that empty seat they filled measured against my loyality. Pennys. This is for AA - United will not let you upgrade from all fares...which is one of (the many) reason I really try not to fly United.

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Askworldtraveler, EXP,4 million AA miles+++Hilton Gold (thanks to EXP)

I love this web site - In the past year before joining, I have learned so many useful thigs and seen so many informed opinions - just bought October-issue I-bonds and got MWE miles for them (not the only reason I got them) as a result of reading a topic on this site.

As I said, I was playing Devil's advocate to see the arguments for and against miles. Someone's comment above does make sense - we'd still have to fly even if no miles were given. Someone else says maybe, but a lot of their trips woudln't be taken any more if miles weren't given. Someone else says '... only a fraction of the miles are ever redeemed.' - does anyone have exact figures on that statement if it's true? If it's true, are the miles just piling up in accounts unused? I've got 300K in CO miles banked for future travel - maybe I'm one of the culprits??

Why not eliminate frequent flyer miles?

NEVER!!!!!!! http://www.flyertalk.com/forum/smile.gif

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by SRQ Guy:
Airlines like WN, FL, and B6 will win out totally and 100% if FF mile programs end. http://www.flyertalk.com/forum/smile.gif</font>

Would they? Keep in mind that they don't fly everywhere you want to go.

Also keep in mind that to go coast to coast on Southwest, you have to make a couple of connections, which makes the whole process a royal pain in the butt. Plus, there's the whole cattle box car thing, which I refuse to deal with.

Because then there would be no FlyerTalk. http://www.flyertalk.com/forum/frown.gif

I consider FF miles to be a bonus, not a target. If mileage programs disappeared, I would still fly UA, CO, US, DL, AA, HP, NW (descending order of preference).

I dont think they could/would eliminate the programs at this point.

First of all, they all would have to do it because any airline that did not do it would lose business. If all airlines secertly agreed to do it, they would be accused of collusion.

The airlines make more money off the programs, as had been said, the other companites pay them for the miles and thus they are giving you something that is worth much more to you than them.

Business travellers are a prime case for their benefit - they do not pay for their tickets and often want to stay with the same airline to gain status, etc. I would not want to take a business trip if I could not keep my miles. It is an extra incentive for the employee who has to travel and more loyalty to the airline.

The entire trend in the commercial industry is loyalty programs. The airlines seemed to get the ball rolling, but now the grocery stores have loyalty memberships, hotels, even restaurants like TGIF. Not only do they do it for reasons of maintaining customers, but they use these customers to solicit and advertise to. Every time a FF statement comes to me, it is loaded with ads that make the airlines money.

As far as the value of the miles to a member, .02 is a good indicator. Sure no one normally pays $500 for a domestic ticket, but you do not have to redeem them for domestic tix and also many airlines have off peak 20K domestic rates which are a bit better. One benefit of using miles for the tickets is that you can choose the airports you want, have open jaws, free stopovers, etc. that you would not get with the bottom line priced ticket without paying for it. The cheapest tickets are usually going to hub airports but you can go to whatever one you want without restriction on a FF ticket. You just have to use them wisely.

Three points that immediately come to mind after reading the comments above...

1. You can argue that airlines have "devalued" frequent flyer miles by increasing the amount of miles required for a ticket. At the same time, though, one could counter that this is in effect true ecomonic inflation. Why? Because we are all earning more miles now - back when awards were 20,000 miles, for example, we earned a mile for every mile flown. For the most part, that is it. Now we can earn many more miles, so just like in monetary inflation, more miles to spend means that buying a fixed basket of goods will cost more miles.

2. Frequent flyer programs are designed to motivate behavior. The desired behavior is for consumers who have a choice in the marketplace to behave in a certain way through the use of lucrative incentives. As was pointed out above, discounts may be good incentives for companies, but they have little benefit for individual consumers who often have great control over the choice of how a company dollar may be spent. For that reason, I believe that the current motivational mix of individual rewards (i.e. frequent flyer miles) coupled with company incentives (i.e. volume discounts) will continue to be effective.

3. As September 11 so pointed out, the airline industry is not immune to the laws of market economics. Neither demand nor supply is fixed. The airline industry is heavily influenced by the laws of economics and must be closely managed with sound cost accounting principles. That said, those who survive and thrive will find a way to marry economic behaviors with cost management - that, to me, is the biggest strategic mistake that the airlines have made during this Chicken Little series of cuts and subsequent rewards during the past nine weeks.

(edited because I can't count)


[This message has been edited by techgirl (edited 11-15-2001).]

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by KCFORREAL:
I love this web site - In the past year before joining, I have learned so many useful thigs and seen so many informed opinions - just bought October-issue I-bonds and got MWE miles for them (not the only reason I got them) as a result of reading a topic on this site.

As I said, I was playing Devil's advocate to see the arguments for and against miles. Someone's comment above does make sense - we'd still have to fly even if no miles were given. Someone else says maybe, but a lot of their trips woudln't be taken any more if miles weren't given. Someone else says '... only a fraction of the miles are ever redeemed.' - does anyone have exact figures on that statement if it's true? If it's true, are the miles just piling up in accounts unused? I've got 300K in CO miles banked for future travel - maybe I'm one of the culprits??</font>


I thought I'd read somewhere (maybe on this board?) that the majors, combined, had something on the order of FOUR TRILLION unused frequent-flyer miles sitting in member accounts.

That's 4,000,000,000,000 !!! http://www.flyertalk.com/forum/redface.gif At the "going rate" of $0.02 we typically assign to a FF mile, that would theoretically mean that the airlines had an account payable of around $80 BILLION on their books. Even at a tenth that value (closer to what it costs the airlines), the overhang cost from unused FF miles is greater than the combined market cap of the 6 majors.

Can this possibly be right?

SP

The "going rate" is what partners pay airlines.

The effective cost of mileage based awards like free tickets and upgrades to an airline should be minimal, assuming the airline has its inventory management system working correctly. Most of the costs in operating a flight is fixed, after all.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">What elite status FFer in their right mind would even consider a domestic award other than when it has been discounted to the 15K level? Use of such amounts of miles/points are better made as upgrades on long-haul, discounted coach paid trips, never for a flight that could otherwise be purchased for under $300 with similar restrictions</font>

Yes, but remember the vast majority of FF programme members are not the elite flyers you find here on FT. I know many people who do redeem for a continental US ticket w/ miles and think it's a great deal.

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I Love New York

I'm attempting to use them as fast as I can (even at 25k miles), because I believe that a year from now one or more of the programs will no longer exist.

What's the value of an Ansett Airlines mile? Anyone?