Have YOU Become Irrelevant to Travel Companies?

Airlines would prefer to fill these seats with passengers who contribute to the bottom line as much as possible. Are you one of them? If not, you may be irrelevant if you earn and use frequent travel loyalty program miles and points. Photograph ©2013 by Brian Cohen.

“With the reduction in seats on flights due to downsizing the fleets and the return to higher loads, the airlines are telling us loud and clear, they don’t think they need our business”, Rick Ingersoll of Frugal Travel Guy wrote in an article called Have You Got the Message Yet? “They have successfully raised prices numerous times with fewer fallbacks and we are paying more for much less these days when it comes to air travel.”

If I know one thing about Rick since I first met him years ago, he is usually quite blunt about his thoughts and — in this case — I completely agree with him. In fact, I believe those thoughts should be expanded to include lodging companies and rental car companies — although they are arguably not as egregious about the perception of the lack of value of a segment of their customers as airlines.

That segment is the frequent traveler who is in the “game” — as Rick calls it — of earning and using frequent travel loyalty program miles and points.

Let’s face it — this “game” is not as much fun as it used to be, as a number of FlyerTalk members have posted over the years. Extracting as much value out of frequent travel loyalty program miles and points has generally become more challenging than ever. However, we must take an admittedly cursory look as to what has happened over the years — and much has happened to understand why it seems to be far more difficult to earn and use frequent travel loyalty program miles and points these days.

Consolidation. Airlines — primarily those based in the United States — have significantly consolidated operations. That consolidation will be further strengthened by the recent settlement of the Department of Justice of the United States pertaining to the completion of the merger of US Airways with American Airlines. Gone are the days where you had your choice of such airlines as Eastern Airlines, Continental Airlines, America West Airlines, Northwest Airlines, Trans World Airlines and Pan American Airways — whose long-defunct brand for the most part was purportedly purchased by All Nippon Airways at a price of $139.5 million. There are now only a handful of airlines based in the United States with little competition when you eliminate the overlap of flight routes which include a “hub” or “focus” airport.

Reduction of Capacity. Flights seem to be packed full of passengers more than ever as airlines optimize their schedules. The likelihood of having an empty seat next to you is all but obsolete these days. You may be more likely to have a “passenger of size” or a crying baby seated next to you than an empty seat.

Ancillary Fees. The introduction and proliferation of ancillary fees in recent years has been nothing short of a lucrative “gold rush” for airlines, as they reportedly collected $27.1 billion in fees alone in 2012 — even though the number was originally projected to be $36 billion for airlines worldwide. Although some creative new products and services have been introduced in recent years where many people would not have a problem paying extra for them — such as baggage delivery services, for example — there was a time not too long ago when the thought of paying extra for a meal or a checked bag would have been considered ludicrous. The reality is that passengers are paying ancillary fees for products and services — some of which used to be included in the airfare — and as long as that continues, ancillary fees will never disappear.

More Miles and Points for Fewer Awards. Due to certain strategies — credit card “churning” is only one example — there are apparently more frequent travel loyalty program miles and points floating out there; but with fewer reward opportunities on which they can be redeemed. Inflation of the “currency” occurs as a result — which has led to the seemingly rampant occurrences of perceived devaluations by frequent travel loyalty programs.

Improvement of the Economy. Numerous reports seem to suggest that the overall economy is strengthening — which translates into more people traveling. It was not all that long ago when airlines were hurting and pleading for your support.

In short, I will be so bold as to say that — unless you happen to travel:

  • Frequently in premium class seats on airplanes, lavish hotel suites and luxury vehicles
  • Frequently while paying full fares and rates much of the time
  • As one of the general masses who travel — even if infrequently — but pay ancillary fees for products and services

 

…then you might be considered irrelevant to airlines, lodging companies and rental car companies. Oh, sure — they are more than happy to take your money. However, they are generally tightening up on what is the return on investment on that money which you spend. With minimum spend requirements to be implemented by United Airlines and Delta Air Lines — and look for American Airlines to follow suit after its merger with US Airways — gone will be the days of attaining elite level status and enjoying the perks and benefits which come with it for only a few hundred dollars with a “mileage run.”

FlyerTalk members threaten to leave United Airlines. They question as to whether or not it is time to re-think the American Airlines AAdvantage frequent flier loyalty program. To which airline should a FlyerTalk member be loyal if deciding to leave Delta Air Lines?

Unfortunately — with all of the perceived devaluations announced this year alone by frequent travel loyalty programs — there is nowhere to run and nowhere to hide, to quote Martha Reeves and the Vandellas. Although there are some opportunities which still exist, we must unfortunately currently deal with the current climate of the continuing onslaught of perceived devaluations if we are to stay in the “game.”

I have always said that I believe that things run in cycles — and the frequent travel industry is really no different. However, it is also no different that airlines, lodging companies and rental car companies are in business primarily to profit — something airlines struggled to do not too long ago. The convention then was to foster loyalty to the point where you will choose that particular airline to spend your money — even if it were via a “mileage run” or its hotel equivalent: a “mattress run” — and the airlines would have fostered, enhanced and strengthened that loyalty at almost any cost…

…but supposedly not anymore.

Apparently, certain types of loyalty are no longer all that profitable — or important anymore — to airlines, lodging companies and rental car companies. With a quarterly profit of $1.4 billion recently announced, Delta Air Lines is only one example of an airline proving this despite the recent devaluations as perceived by loyal members of the SkyMiles frequent flier loyalty program. How much of that $1.4 billion do you believe was based upon loyalty?

So what will it take for changes to return in favor of the frequent traveler? Well, there is no easily definitive answer to that question — but one scenario is if the economy suffers again and customers opt not to pay for premium fares and rates or pass on procuring products and services which require the payment of ancillary fees. That could cause airlines, lodging companies and rental car companies to sweeten the deal to those who have — or will — demonstrate their fiercest loyalty to those companies.

Disruptive technology is another possible game changer. While not probable for at least a decade — if ever — there is the possibility of traveling between New York and Beijing in as little as two hours by using an evacuated tube transport system, for example. Currently, airlines are the fastest and most efficient mode of transportation for longer distances — although it can be argued that traveling by car, train or bus can be faster, less expensive, more convenient with fewer hassles, and more efficient for shorter distances.

Disruptive technology which challenges the stronghold airlines have on longer routes — such as transoceanic and transcontinental flights, as two examples — could potentially force the airlines to become more competitive and offer benefits to loyal customers once again. The primary problem with challenging airlines with disruptive technology is difficult barriers of entry due to infrastructure and cost, among other things — so companies would be loathe to clamor and attempt to do battle with airlines anytime soon.

A third possibility is to increase competition from new as well as existing airlines — but government regulations are only one of a number of factors which inhibit that from happening. What is that old saying? The way to make a million dollars in the airline industry is to invest a billion dollars?

Then again, there are the so-called “hassle-free” airlines which have cropped up in recent years that one day could threaten legacy carriers — but due to their small size, that may be highly unlikely anytime within the foreseeable future.

Perhaps it is finally time to purchase shares of stock in an airline — long considered a poor investment?

I will leave it up to the pundits to use facts and figures to prove me wrong and to debate what I have written here in this article. However, as a frequent traveler for greater than 25 years — 11 of them as a FlyerTalk member and 7.5 of them as a “blogger” for The Gate since it was first launched — I am simply iterating my thoughts based on personal experience and observations, keeping in mind that they will not be the same for all frequent travelers…

…and that is where you come in: what are your thoughts about the state of the industry of frequent travel miles and points — and how are you affected? What are your plans for the future?

Comments (Showing 11 of 11)

  • USHPNWDLUA at 6:06am November 16, 2013

    Well, the name of the airline was “America West” (<— there's no "n" in that) and technically, they are still around! America West bought US Air but kept the USAir name.

    I really don't understand this "devaluation" issue. Airlines don't seem to change the award charts that often, and on UA, I seem to have great success getting low-mile award seats with little fuss. We don't seem to complain the same when general prices rise, so why in this case?

    • Brian Cohen at 9:34pm November 16, 2013

      I proofread the article more than once, USHPNWDLUA — and I still did not catch that error. Thank you for catching that and keeping me on my toes.

      By the way, that is why I used the word perceived before the word devaluation — because the recent changes are not devaluations to everyone.

  • BlueEyedDevil at 8:00pm November 16, 2013

    The loyalty game is over. If you can use someone else’s (your employer’s) money to attain status do it. Otherwise just stick with the cheapest airline.

  • oshkrozz at 8:17pm November 16, 2013

    I am not sure I agree with this article. The board of directors at United has seen the effects of elite flyers more over to other airlines. Delta did great … United not so much … and the board is now getting a little upset at that trend.
    For domestic travel you have
    Spirit
    JetBlue
    Virgin America
    Southwest
    and the other 3
    Remember there as a time that PanAM was THE airlines no one could compete and they are gone, no US carrier even wanted to buy them their name was such a PR nightmare. It is possible that one of the 3 airlines will eventually get a CEO that figures out the only difference between Delta and Spirit for most travelers is the color of the seats and will make adjustments. To say there are only 3 airlines is not true at all

    International
    Well there you have much more choice and better airlines people who regularly travel international might end up switching to those carriers for better seats/service. Right now international travel is key for the 3 major airlines in the USA if they end up driving customers to international carriers with better service and perks they will have a very hard time winning them back and they know that … Along with Southwest entering the international market.

    • Brian Cohen at 9:40pm November 16, 2013

      Good points, oshkrozz — but I never said there were only three airlines in the United States. Rather, I wrote handful — and that would also include Alaska Airlines, Sun Country and Allegiant in addition to your list.

  • Tr60 at 1:41am November 17, 2013

    There is no question that consolidation, reduced capacity and better economy are making the travel industry able to increase prices, add fees, and dilute the loyalty programs. But the massive credit card sign up bonuses (even if they are getting lower) are key to the dilution/reduction in capacity. Banks must be getting their miles/points at much lower prices. I will take myself as an example. I earned 685 K points/miles from credit card sign up bonuses only in the first 10 months of the year (I don’t do any manufacturing spending). I spent almost 1.1 M miles/points to travel with my family that I computed to be equivalent to about $25K at the time of bookings (airlines/hotels) (even while trying to get the lowest prices across multiple airlines/hotels) mainly in business class and at premium hotels and suites. How could that be sustainable. There is no free lunch in life. That is what our parents taught us. I don’t think that having excellent credit score justify this. So, I assume that the devaluation will continue :(.
    At least, I hope that the three large airlines will offer us a comparable experience to BA, AF, or EK. If the points are worth much less and loyalty means much less, why in the world would I fly to London, Paris or Dubai (or anywhere else internationally) with the three major US based airlines. Within the US, I will have to stick to the no-frill airlines.

  • RustyC at 11:20am November 17, 2013

    Good article. The minimum spend bit would not be happening without consolidation down to three major airlines, and the bottom line is that they’ve been behaving cartel-like by artificially limiting supply to drive up fares. Nature abhors a vacuum, and this creates an opportunity for budget carriers that can expand to do so without the kind of crushing price wars as in the past. Spirit would be a great example of that now…they’re hardly a white knight and the fees-for-everything bit isn’t great, but they and a few others are very important for disciplining the fares, which is a minimal first step.

    Minimum-spends at the big airlines will have unintended consequences, and airlines have been burned before by not considering those. Remember when airlines drove everyone to the Internet, thinking they’d just buy the same ticket and the airline would save the travel-agent commission? Instead it turned people into hard-nosed comparison shoppers who’d even check other airports, and hammered margins.

    For MQDs/PQDs my question would be, “How do they think this will add extra revenue that they wouldn’t have gotten anyway?” I have a hard time seeing where it does, given the non-discretionary nature of most biz travel and companies aggressively trying to limit it to cut costs. It’s very easy, OTOH, to see how MQDs/PQDs will COST airlines by shattering the flying-for-miles paradigm or the annual year-end runs to get status, or even just to maintain status and maybe take a vacation or two.

    It’s even worse than first advertised, as many alliance tickets that used to count fully toward status with miles will add zilch on the MQDs/PQDs side. That’s a reason I requalified PLATINUM status this year with 80K base miles but had only $1,177 MQDs…at least $1,600 additional was disqualified on the MQD side. I already have Million Miler (silver) status, so unless I spend $5K annually with that airline directly (doubtful) I get no higher status. So there’s effectively no incentive at all to fly with them come 2015. I know that some gold elites on near-Y fares who complain about being shut out of upgrades by people on cheap tickets with higher status will say “too bad,” but are they positioned to fly more to make up for the business lost from me? I don’t think so. (And my batting average on UGs as a PM is terrible this year anyway…that’s not the benefit that matters most to my flying habits (which are tilted toward long-haul).

    Spirit is doing surprisingly well in getting me to try to redeem awards at discounted rates as a cardholder, but for different reasons they’ve also positioned things to where there’s no real incentive to FLY for miles or status. It’s all about the credit card game there.

    For the big picture I think we’re looking at LCCs and ULCCs continuing to grab market share and even trying to expand, like Air Asia X, into longer hauls. If you’re a legacy airline, you can’t CUT YOUR WAY into long-term prosperity. Eventually the economy gets better, demand goes up and someone has to fill it.

  • relangford at 3:25pm November 17, 2013

    Yes, things are getting rosy for the travel companies right now, but I hope that all frequent travelers remember what their airline, hotel, car company, etc. did to them when things get bad again (and they will). Loyalty is a two-way street.

  • thphilly at 6:13am November 18, 2013

    if the future is going to be for all the mileage programs to be fixed value miles, then I think most travelers will become disloyal.

  • capebretonboy at 7:57pm November 18, 2013

    Brian, you have hit the nail right on the head. The days of airlines clamoring for our loyalty are over. I have been Elite on Air Canada for several years and I have never seen such de-valuation as I have in the past few years. You need to pay through the nose now for airlines to recognize your loyalty…it really makes no sense. Air Canada now only gives 50% EQMs for TPAC and TATL for their cheapest fares. This is not right. AC is now charging an outrageous premium in order to earn 100% EQMs. Again, it is simply not right. They are turning this once loyal customer who did not mind paying a small fare premium for 100% mileage accumulation into price conscious customer who will just go with whoever is cheapest.

    However, like you say, I think there is a cycle to everything and right now we are in a bear market in airline loyalty programs; the trough so to speak. Things will one day look up again, I am sure.

  • capebretonboy at 8:01pm November 18, 2013

    Good point, relangford. Here in Canada once WS offers a true alternative to AC in terms of route coverage and a loyalty program (along with a proper premium cabin) I will switch to WS. Why? Because I can bet you dollars to donuts that WS will put forward a very thoughtful and loyalty program, one that rewards FFs at 100% EQM no matter the fare level. Only then will AC respond and provide rightful mileage accumulation to their customers but by then, for me, it will be too late. Buh bye, AC. I won’t forget how you have “rewarded” me.

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