Every change has both positives and negatives. If you look at profitable airlines in the world such as Cathay Pacific (notwithstanding SARS), Singapore Airlines, British Airways, Qantas, their frequent flyer programs seem to put most emphasis on the revenue generated .

It makes sense to create a FF program so that it gives you more business that would otherwise go to somebody else or not there at all. However, I cannot agree with neglecting the cash cows. I think it's very important to look at your bottom-line all the time. Who keeps you flying? Who are your most important customers? If I were an airline, customer A gives me $100,000 business a year VS. customer B gives me $10,000 a year yet they both earn approximatively same amount of miles and same elite status - that is just not right. The problem with this is not that Customer A is being treated unfairly but rather suggest there might be some undesired loopholes in the FF system that some people might take advantage of for the sole purpose of earning miles and enjoying the perks.

One can argue if someone does mileage runs and thus give you a few extra thousands dollars that you would otherwise not earn, what's the harm in that? Well, this type of customers are opportunistic - sure in terms of the bottom-line, you did receive more revenue from them than you would otherwise have BUT this is not what's going to make your airline prosper. Do you want people in your FF programs so that they will do mileage runs or do you want people in your FF programs because you will be their carrier of choice? These 'runs' are not necessarily good or bad for the company but the important thing the airline must be able to limit the impact of opportunity seekers. If someone spends $5000 on 5 trips to earn 80,000 miles and other benefits, you have to make sure the 80,000 miles you gave away doesn't cost you more than the revenue you receive. I think the problem for many North American airlines is that opporunity seekers are so efficient that some companies actually lose money on those clients. I will be the first to admit Hilton probably loses more money on me than I paid them over the last 3 years given that my status with them were all comp one way or the other, and my paid stays with them are low values whereas the awards I claim against them were high values. For example, how many took advantage of the Flamingo Laughlin deals at $20 a night a few years ago to net the 50K or 100K bonus? And how many of those use the points to do a GLON or ALON which would have otherwise cost $1,000+ easily? If that's not enough, my ALON stays in HWV also got me Executive Room upgrade with many free meals and many other free stuff. See my point? So for airline or hotel, it's important for them to minimize loopholes. These are inevitable but they must not be easy to exploit.

I can't totally agree...it might be true in the past but increasingly, this is not applicable anymore. Reason being even the corporate travellers are much more conscious about both price and quality of travel. Without a FF program, or if they are unhappy, the airline might lose them. Remember, the purpose of FF program is also to retain customers, not necessarily increase their spending. Sometimes, it's just as hard to keep the same customers.

Again, that depends... Who do you get rid of in process? Sure you will lose business but whom? Opportunity seekers? or your cash cows? It really depends on what kind of benefits you cut and how you cut them. I think the biggest assumption about the incremental revenue argument is that with a FF program, it will only affect the business in one way and that is adding incremental revenue to the business but everything else unaffected comapred to the absence of a FF program. My view is that this is a very big 'if'. In other words, I dispute this assumption. A FF program is such an integral part of the airline's overall business model that you can't take it away expecting everything else would be unaffected. Let us use an easy example: Business without FF program = 7 Revenue from FF program = 3. Total revenue = Business + FF = 10. However, if you cut in FF such that value for FF is now = 2. Then, your total revenue is not going to be 7 + 2 = 9, it might be 8 because it also affects your business that cannot be directly account for solely by the value of the FF. Likewise, good changes in the the FF [right cuts] may affect the overall revenue in such a way that say the value of FF is now 2 but the business model overall has been strengthen such that itself now generate a value of 9. And the overall value now equals 11, which actually exceeds the value of 10 previously before the cut. I think it's too simple to view FF as incremental revenue because it isn't just that. In fact, I would argue, in the modern era, the incremental revenue function should be left to the yield maangement aspect of the FF only whereas the main focus of a FF should be retaining cash cows and attracting new customers with potential. That's why I really like the British Airways model but that would be another topic.

Bottom-line measurement, while not very advanced, is an old and reliable model. You can't go wrong by measuring how much money you get because it's the thing that matter the most. Like an athlete, it doesn't matter how talentive or how hard you work, if you don't produce results, you will go hungry. You might earn less money, but if you take care of your bottom-line, at least you won't fail. I would argue that the bottom-line should be the focus of 21st century's frequent flyer model and everything else should be build around it to complement the model.

Let's see what other comments we have and we'll go from there.

[This message has been edited by Guava (edited 05-18-2003).]

[This message has been edited by Guava (edited 05-22-2003).]