oliver2002

rcs85551 & I requested M&M to comment in detail on the recently changes announced last month. For this a written list of questions was submitted and reviewed during a two hour telephone interview with Mr Deprosse and Mr Koch of M&M and us on March 23. This was done well before the current excitement in the German press. Below is the summary of the talk.

Note that the content below was approved by Miles & More for use on Flyertalk.com and Vielfliegertreff.de. The use/distribution of the material in the press or any other third party is not permitted.

The interview and subsequent written summary was conducted in German. I have tried to translate it, in case of misunderstanding and/or conflicts of interpretation, the German version is the key document. A copy of the original text can be found here: http://www.vielfliegertreff.de/miles...en-2012-a.html

oliver2002

Miles & More intends to change a number of aspects of its program on Spetember 1, 2012. Status customers as well as passengers travelling in business class with be especially effected by the changes.

Oliver2002 (www.flyertalk.com) and rcs85551 (www.vielfliegertreff.de) conducted a background interview with Harald Deprosse (Vice President Miles & More) and Andreas Koch (Director Miles & More) to take a closer look at the changes and the connected objectives.

The changes to the Miles & More program effective September 1, 2012 are a significant cut for the premium customers of Lufthansa. Is Miles & More a victim of its own success?

Miles & More is certainly very successful, in particular the Senator and HON Circle Status are very popular.

With the HON Circle status the feature of exclusivity is in the foreground: because we want to and can provide the benefits and services associated with this status reliably and continuously to a very limited subset of our customers.
Even though we are happy about the attraction and great interest about the HON Circle status, the number of HON Circle members has increased so much in the last years that an adjustment of the program became necessary. This is the only way we can make sure that out highest value customers get to enjoy the appropriate appreciation. This necessitates an occasional adjustment of the program rules to account for our demand for high quality products and the associated exclusivity.

Regardless of Frequent Traveller, Senator or HON Circle member status, Miles & More is a partnership program in which we aim to realise a long term customer loyalty. That is the reason why we continue to offer a status period of two years, so highs and lows of travel patterns can be evened out easily and status retained during months when the frequency of travel is less intensive.

oliver2002

The criteria for qualifying for HON Circle status has been restricted multiple times since it was created in 2004. Beginning in April 2006 the credit of HON Circle Miles on flights operated by United was stopped, in early 2008 the executive bonus was lowered from 50% to 25%, followed by addition of an increasing number of economy booking classes with lower mileage earning in 2010/11 and now you introduced the booking class P in business this February with lower mileage earning followed by the restriction on the booking class Z which will come into effect by September. Looking closely you observe a 2 year cycle by which the qualification is made tougher. Is there an end in sight for the customer for this downward spiral?

The objective of the HON Circle is and was to create a clearly demarcated status from other members that offers exclusive advantages to a very small and very high value customer group.

The objectives and priorities change with the respective Miles & More status level. While the volume (measured by the number of segments) plays a role for the frequent traveller status, this aspect is moved into the background for the Senator and HON Circle member: here the aspect of an exclusive circle of customer plays a greater role for example.

The previous changes of the qualification criteria were always done under the premise to keep the group of HON Circle members exclusive. So the adjustments served our desired highlighted positioning of the HON Circle status that is also desired by our top customers: otherwise the status would not be worth what it promises.
That is why we will continue to review all parameters of status qualification to ensure that the HON Circle status is reserved for an exclusive group of customers.

oliver2002

The restriction that HON Circle miles are to be credited only for flights taken in business and first class will be especially difficult to explain to your medium sized business customers who have a travel policy that only allows travel in economy class on short trips. A vacation trip in business booked in the new booking class P, priced relatively cheap to a business trip in the flexible booking classes Y, B or M, however will earn HON Circle qualifying miles. Was there no alternative for Lufthansa to find a new alternative to qualify for HON Circle status? The mileage credit is already extremely restricted through the various levels especially in the discounted economy fares.

We simulated a number of scenarios how to construct the status qualification in order to ensure the high level of the HON Circle status in the future. The exclusion of the higher value booking classes in economy was the scenario that effects the profitable and most loyal customers the least in the simulations.
The most of our top customers primarily use our premium products. We will honour this by exclusively crediting HON circle miles. Furthermore it was important for us to find a simple and easily understandable set of rules. A differentiation by class of service in our opinion constitute a easy and comprehensible rule for our customers.
The 600 000 HON Circle Miles as a qualification criteria are an established value that we don't want to question. Possible other additional criteria, like for example a prescribed minimum proportion of business and first class tickets are too complex and not practical in our opinion.

oliver2002

How exactly is the understanding about the transition period for economy tickets? Many HON Circle members use flexible tickets in expensive booking classes - will the original date of purchase count towards the calculation of HON circle miles (ie will the exception remain after a rebooking/reissue of the ticket purchased till April 2012), or is the date of taking the flight the deciding factor?

We consider a partnership customer loyalty to be important. That is the reason we want to offer our customers a kind of guaranteed trust, that will ensure a sensible transition to the new rules.
Especially for HON Circle members the travel dates can change. Hence the date of purchase of the ticket is the deciding factor for us, even if the customer decides to change the ticket after April 2012. On the other hand we will make sure that this exception is not overused.

oliver2002

On September 1, 2011 the terms and conditions of the booking guarantee for HON Circle Members were drastically reduced by removing the booking class D: a step that seems economically feasible if you compare the cost of denied boarding compensation in case of overselling in relation to the prices charged for D class tickets. Which reasoning is behind the recent cut of the booking class C from the guarantee, the prices of which are significantly above those of booking class D?

The purpose of the booking guarantee is to offer our best customers a transportation guarantee in business and economy class while keeping a certain framework in mind. To offer a transportation guarantee for a cheaper ticket on an oversold flight is not economically feasible and never was part of the transportation guarantee.
An analysis of the usage data has shown that the booking guarantee is often see as a combination: a transportation and a price guarantee. This is not the spirit behind it and was intended not to be offered in this form.

oliver2002

We hear rumors that when taking trips in economy class HON Circle members will no longer be allowed access to the First Class Lounges. Rumors, or the next upcoming restriction with Miles & More?

The use of first class lounges in conjunction with economy class tickets was examined. An important cornerstone of the program will remain that our best customers will be able to use all the benefits of the HON Circle status irrespective of the new rules concerning earning of HON Circle miles that are coming effective September 1, 2012. To ensure this for the near future, we have decided to raise the bar for the status qualification.

oliver2002

Which type of customer represents the optimal HON Circle member for Lufthansa?

In principle we are happy for every customer who decides to fly with the Lufthansa group.

From an economic view we have to finance, among other things, the various high investments into our premium products (eg the new first class product, which definitely is one of the top products in the market) as well as the lounge offerings (especially the first class terminal and the first class lounges) using the revenues from our ticket sales.

That our profits on longhaul routes are often significantly higher than on the shorthaul routes is well known: only with the longhaul business we are able to reasonably finance the offered benefits and services as an airline. Hence we want to preferably honor the guests that focus on traveling with us in business and first class on longhaul routes.

oliver2002

So far its been pretty simple as a premium customer of Lufthansa: you could blindly trust to get a uniform mileage credit of a pretty high level that matched the premium product. Why did Miles & More decide to forgo one of the big strengths of the program in the future?

The are various reasons why a ticket is purchased with an airline or not. In the premium cabins the price construction was much simpler previously. In the meantime a very differentiated price structure with a significantly higher bandwidth has developed.

The last major change to the mileage earned was done in 2004: at that time we adjusted the mileage earning in the economy class to the changed economic situation. Since the progressing differentiation is also occurring in business class we cannot avoid to represent the already existing spread of prices in a similar form at Miles & More.
For the price sensitive vacationer, who buys a cheaper business class flight for his travel, the mileage credit as well as the upgrade possibility is ranked below the cheaper price. Here we have to act in line with the market as the price structure has clearly expanded in the past years.
The business traveler, who normally purchases a higher value ticket than the vacationer, also has very clear expectations and wants to see the value of his ticket to be respected.

oliver2002

What was the motivation behind excluding upgrades to first class completely from booking classes P & Z? A respective upgrade requires a pretty high amount of miles in relation to the purchase of an award ticket and with the surcharge for upgrade from booking class Z you had already established a mechanism to compensate for the cheaper price of the ticket.

On analysing numerous Lufthansa flights we discovered that our best customers, who often purchase high fares at short notice, couldn't get any space in business and especially in the first class. We want make sure that with this adjustment of the program we make sure that our high value customers have the opportunity to purchase a seat in the premium classes or use an upgrade to do so.
In order to have the required steering capabilities for this, Lufthansa decided not to offer upgrades into first class from the two cheapest business class booking classes (P and Z) in the future.

oliver2002

For HON Circle members you have a exception, in which economy tickets that were booked will end of April will have a kind of trust protection and will receive a HON circle mileage credit even after September 1, 2012. What will happen to customers, that already purchased a ticket in the booking class P or Z?

In such case the Miles & More members will receive a appropriate partnership treatment. We plan to make similar exceptions on a case to case basis, just like the credit of HON Circle miles.

oliver2002

If you look at the current special offers like the status mile promotion to Asia or the upcoming MyChoice promotion one would expect a clear increase in the number of Senators, especially in combination with the lowering of the qualification criteria to 100000 miles in Germany. A major criticism about the travel experience remains that in spite of the very positively received investments by LH in more and larger lounges the fact remains that the Senator lounges in Frankfurt, Munich as well as Zurich continue to be frequently overloaded during peak times. How does Lufthansa plan to deal with this?

If the demand would spread more evenly over the day it would probably be easier to deal with the situation. During certain peak times we do have an excessive demand that cannot be absorbed due to a lack of usable space. In Frankfurt we expect a noticeable improvement of the situation with the opening of the new A-Plus terminal area. The lounge space and with it the capacities will thus clearly increase at our most important hub.

oliver2002

BA executive club offers full mileage credit on all fares in economy class (which in the case of Miles & More has been discontinued since 2004), AF/KL Flying Blue is more or less on par with the new Miles & More mileage levels, but offers elites and an elite bonus of up to 100%. How does Miles & More compare itself to the competition with the recent changes? One could be of the opinion that Miles & More in particular is falling behind the European competition.

The deciding factor factor is how one can redeem miles. For this the spectrum and availability of the various ways to redeem plays a key role. Only those who can redeem miles as originally desired draw a fitting benefit from the frequent flyer program. Studies show that Lufthansa ranks constantly in the top third with respect to award availability. Supplementing the flights we offer attractive possibilities to redeem with partners on the ground and at the Worldshop.

oliver2002

For may members the redemption of flight awards in the business or first class is an important deciding factor. What does Miles & More do to make sure that its own status customers get the best possible award availability?

Generally the past years an excess demand developed for awards in business and first class which is confronting all airlines, not just Lufthansa. With the introduction of the new Lufthansa first class, a very exclusive and relative to the competition outstanding product, a standardisation of 8 seats per aircraft was also introduced. On routes where previously 16 seats were offered in first class it is now normal that less award seats can be offered than before.

In particular we offer our status customers with Senator or HON Circle status a mechanism via a waiting list with which we release additional award seats after an individual check of the load factors on the particular flights, if the expected passenger numbers permit it.

oliver2002

Phew! Translation finally done, time to go live!