kokonutz

VFTW takes on what it calls "House of Lies'" study and recommendations regarding frequent flyer programs.

I'm torn.

VFTW asserts that

On the one hand, I tend to agree with what VFTW spends a lot of time talking about: Deloitte's justifications for the assertion that FF programs are failing are weak.

But on the other hand, I agree with the Green Dot that frequent flyer programs are failing. But I don't think the study really hit the 'why' factor. The Why imho is devaluation and an increasing lack of faith in the long-term stability of the benefits of elite and/or lifetime status and value of miles or points.

That said, although some of what they recommend is consultant gobbldy-gook, I think that Deloitte has some very interesting ways of reversing that trend. The best imho is 'Refocusing on individual customer preferences.'

I think it would be wonderful if, instead of eliminating or reducing a benefit, a program gave customers options. If upgrades are important to you, then great, you get priority upgrade list. But of miles are important to you, here is a mileage bonus in lieu of your name being on the upgrade list. Forego RDM for an EQM bonus. I would love to see an airline where you can use a pick-and-choose menu to create a custom elite program based on each traveler's personal priorities and preferences.

And this advice from the Deloitte study is one of the smartest things I have read about loyalty programs: "Therefore, airlines with well-run operations and consistency of service are better positioned to strengthen their loyalty programs in a way that engenders emotional loyalty and avoids the deal-seeking transaction-based loyalty typical in the industry today."

VFTW concludes:

I wish that VFTW had focused more on the proposed solutions rather than focusing so much on how Deloitte came to the conclusion that a problem exists, both analyzing Deloitte's proposed recommendations and perhaps using whatever special insight exists at VFTW to come up with better ones.

freeloader

Just as the claim is that deloitte is biased, so is VFTW.

Per Chris guiellebeau's book, the VFTW award booking service alone nets $100k annually. The blog income was not disclosed, but I'm sure it's large as well.

Both parts of the enterprise strongly depend on a gameable system of aspirational travel to make money. No wonder its take on the report is scathing

kokonutz

So you are saying that as much as Deloitte stands to make money by changing/improving the FF programs, VFTW stands to benefit from the status quo? I hadn't thought of it that way, but I suppose you are correct. Except that even with a re-vamped FF program, aspirational travel would still be in the mix...the old dog might have to learn some new tricks, though.

What is this book you speak of, btw?

84fiero

The "House of Lies" title of the VFTW post was childish and unprofessional. Disagree with the methodology and conclusions, fine, but the name calling is ridiculous.

I don't think VFTW's article was any more insightful or helpful than the D&T study. At least D&T has some consumer data to go on, as opposed to one man's opinion. VFTW misstates the D&T paper in some ways, for example

D&T didn't make such a broad conclusion (from what I read) based on the number of program memberships (though they do discuss the number of program memberships). Their survey info is broken down into categories including high-frequency business travelers, so one can and should analyze and debate the particulars.

Check out especially, exhibit 2 of the study. Only 32% of Business Travelers and just over half of High Frequency Business Travelers agreed/strongly agreed that their preferred airline has the best loyalty program. And HFBT are the most desirable market segment. That's just one example but the very broad brush with which VFTW rants against the study makes that post pretty worthless. One wonders why VFTW has such a visceral reaction.

FFPs really don't matter to a lot of people, hard as that is for points bloggers and FTers like us to grasp sometimes. I don't know whether the programs are "failing" or not, though.

One aspect that doesn't get discussed much is travelers, especially many corporate and gov't workers, who often have little to no choice in what airline they fly for a given trip. One person may be "loyal" to AA because that's who their corporate contract is with; another may not get a chance to be loyal because their travel department books solely on who is cheapest for a given trip.

Personally, I would love to see a customized elite program where I could pick a benefit or two to receive, perhaps annually. Maybe one year I know I would get more out of lounge access, another time I might make better use out of generous RDMs instead of EQMs, etc. No idea how many other people would feel that way, but seems worth exploring.

lwildernorva

Yeah, I didn't get his reaction either. There's a backstory there that he's not revealing. I do suspect that his recent ranting about revenue-based programs, something I wouldn't be crazy about either, arises in part from the hit his award booking business would take. Not too many tricks in a revenue-based program that would make his services worthwhile.

And, healthcare plans have moved to a "cafeteria" model. I don't know why airline FF programs couldn't structure their programs so as to make money off them. I just don't know if there's any particular incentive yet for airlines to do so.

artemis

What would REALLY hurt the award booking business would be airlines' significantly improving their websites to make it easy for Joe/Jane Average Person to a) find all available award space for that particular airline and its alliance partners on any particular date and b) allow all awards to be bookable online. Right now booking an award ticket on most airlines is more cumbersome than it has to be.

Maybe the added complexity of administering a cafeteria-style plan has made them hold back for now? A plain-vanilla plan is easier to set up and run, although it might not make the users as happy as a FF plan that could be tailored to reflect individual preferences.

lwildernorva

Although I agree, I'm also not sure there's any current incentive to improve that from the airlines' point of view. This is one of those circumstances where the airlines probably don't care that booking businesses make a little money that doesn't go to the airlines' bottom line because the other side of the scale is that most people just happily book a free flight, even if they're booking at a higher, anytime award amount--or in the case of US, sometimes at a rate that would be highway robbery, except they publicize the possibility that you might have to pay that rate instead of just saying that it's likely you'll pay that rate and unlikely you'll pay the much lower rate.

My last comment is probably more relevant to the AA and US threads about the merger, though. . .

artemis

I suspect you're right, although I understand that UA's website now shows nearly all *A awards, which is a pleasant advance. But overall the airlines are caught in a delicate balancing act: they need their FF programs to be enticing, but not TOO enticing. They'd be in trouble if lots of people actually started redeeming all those points being so freely given out by the affiliated CC companies (especially with flights already running so full - there's not much "wasted" inventory available to give away these days).

kokonutz

Right. They want to make it difficult to redeem awards, especially aspriational ones. So VFTW's award booking business seems safe.

And the software/management for a more complex system appears to be what Deloitte is pitching. @:-)^

Sure, because most HFBTs tend to use the airline that can get them from A to B, and take the FF bennies as a perk rather than as the main attraction. If a HFBT lives in SF or Houston or DC, they are UNITED whether they like it or not (and most these days seem to not! ). Same with Dallas and AA, CLT and US, etc. You may hate the FF program, but you are stuck with the airline. Folks like VFTW can buck that trend and be elite on a 'non-hometown' airline because their priorities are different that the HFBT: they care about the elite perks as much as if not more than getting from A to B.

What this really says is that FF programs only matter marginally, as your highest yield customers are also the ones least concerned about the program. Hence the logical and inevitable move to revenue-based programs. But I don't thing THAT hurts an award booking service, either. Because people with enough high-yield tickets to earn lots of miles in a revenue-based system are either doing it on their employer/client's dime or have their own scratch. Either way, those folks are generally too busy/rich to deal with the complexities of booking aspirational travel, and would prefer to outsource it to a booking service. MY suspicion is that the visceral reaction against the sales pitch is that Deloitte did not bother to ask (nor hire nor pay) any points and miles bloggers what they thought. And since THEY are the true experts on FF programs, the Deloitte pitch must be garbage.



Non-sequitorially, there is an interesting side-story here. Back in 2010 United dumped D&T as its auditor. As a result, Deloitte consulting dumped United as a preferred carrier, bucking the HFBT tendency I describe above. Thousands of 3-4-5 consultants were forced to fly other airlines on non-nonstop routes.

There was quite the hue and cry among the employees as you can imagine, especially those based at SFO, IAD and DEN as they all lost their ability to accumulate and use United miles as well as their ability to get places non-stop. Suddenly many of them realized the importance and value of the MP program they used to take for granted.

There is, naturally, a FlyerTalk thread about it: http://www.flyertalk.com/forum/unite...iscussion.html

lwildernorva

It's worthy of repeating: these loyalty programs have become their own profit center for hotel chains and airlines. Why? Because we all play by house rules, and the house rules can change at any time. And what are the house rules? You don't own your points and we can change the T&Cs of the program any time we want. That's a better situation for the airlines than Vegas. As a result, financial institutions have helped provide a good income flow to airlines through their loyalty programs. So, it's difficult for me to believe that FF programs only matter marginally.

In fact, I doubt that Deloitte would have pitched their proposal if they didn't see a chance to make a difference in something the airlines view as more than marginal.

Revenue-based programs are a two-way street: earning and redemption. You think Gary's business has a lot of folks who participate in Southwest's RR program?

And that's not just because Gary hasn't flown WN in over 20 years (as he likes to mention every week or so even while pumping the Chase CC) without understanding that for a domestic flight, the experience on WN is perfectly fine--mostly because of service and equipment degradation on the legacy carriers during that same time frame rather than because of marked improvements in Southwest's flight experience.

It's because under a revenue-based system, it's an easy conversion from how much a flight costs to how much it takes to redeem--there are no hidden sweet spots, there are no stopover rules, there are no free awards to tack on to the end of an international award. If the redemption ratio is 100 points per dollar for a fare, then a $100 flight costs you 10000 points and a $1000 flight costs you 100,000 points.

Even busy executives can trust their secretaries to take care of booking award flights under those conditions.

kokonutz

Ah, I see your point. I was thinking more along the lines of what some non-US carriers do in terms of a revenue-based system: giving only fractional or no miles at all for deeply discounted tickets, and full miles only on higher fare tickets.

You are absolutely correct that in a revenue-to-discount 'rebate' type system an award booking service would go the way of the buggy-whip.

I also agree with you that anyone who has not learned that the FF game is rigged and a long-term sucker's bet has not been paying attention. People tell me they have millions of miles they are saving for retirement or whatever and I shake my head in pity.

The best advice anyone can give to someone with points or miles is: "Smoke 'em if you got 'em." They will only go down in value over time. And they WILL go down in value.

artemis

Maybe, maybe not. I could see an award booking service still being useful if the airlines switched a revenue-based system without also updating their websites to make actually finding and booking an award ticket in their particular airline alliance easy and straightforward.

I think that's a bit of an exaggeration. Better to say that people need to understand that FF programs (like any merchant's rewards program) are not "something for nothing" deals. If you want aspirational awards, you need to be prepared to either spend a lot of time (playing the manufactured spend/CC churn game) or a lot of money (on airline tickets or CC spend) to get them.

Truer words have not been spoken! Isn't the entire POINT of earning points/miles to spend them? Cash them in at least every two or three years, and get the value out of them while you can!

gpapadop

Used to work for this Final Four firm

Two things for sure: It was overpriced and there was an angle to further pitch for a consulting (or other) engagement.