I know that FF programs are sometimes convenient scape goats, but here's the real problem with airlines right now: deregulation!

Yup, you heard me. The government needs to get more involved, and if nothing else, set minimum prices for airfares. Otherwise Adam Smith's Invisible Keynesian Hand will see one airline after another drop like flies. Sorta like they have been over the last decade.

Here's one of those points that doesn't neatly fit elsewhere, but seems to connect with everything else in this thread. That is, comparing airlines to laudries and donut shops and the like doesn't make any sense primarily for three reasons.

Those reasons are the massive capital requirements required to run an airline, the inability to adjust capacity in the economic short or near term, and the perfect perishability of the product.

If Tim Horton's makes too many donuts one Monday morning a couple of things might happen. First is they might sell them as "day olds" the next day for 50% off. Secondly, on the second day, they might throw some of them out. They'll probably also do something else -- next Monday, they'll make a few less donuts.

Airline's don't enjoy that luxury. Thirty minutes before flight time, that empty J seat might have a value of $10,000 or more. Thirty seconds after pulling the jetway back, that same empty seat now has a value of precisely $0. And there's nothing they can do about it.

They can't reduce the price and resell it tomorrow. And come next Monday, or next month, they can't easily "bake" not-quite-so-many seats. (They might be able to adjust the type of plane, but that has it's own problems, and doesn't work fleet wide.)

So two things happen... the airline loses money, sometimes buckets of money, and then they try to figure out ways to get people into that seat. Frequent flyer programs used to be just one of those ways.

But we're creatures of habit...

As for the subway illustration, did you ever think about taking the "other subway"? What?! There isn't one?! Well, I'll be a monkey's uncle (which is fine for me, but doesn't speak well of my nieces and nephews.)

On the other hand, without differentiating characteristics (i.e. like a FF plan) taking WestJet is pretty much the same as taking Air Canada if your sitting in the back. You still drive to the same airport, you still park in the same lot, you still walk to the same terminal, you still check-in, clear security, go to the gate and walk on the plane. Chances are even the seats have pretty much everything in common between the two airlines.

How many people leave the office everyday at noon to go to the same restaurant week in, week out, where they order the same thing every time? (For me it's the Taco del Mar down the road, Baja Bowl, black beans and ground beef, with the chips and guacamole combo add-on.)

So what happens when you have a customer that flies your airline every week, out of habit. Nothing bad, so long as everything is normal. But the first time you decide to adjust capacity in the face of declining demand perhaps by not flying a given route one or more days a week, that habitual user might suddenly find they are forced to try the methadone, er, WestJet. And they might find it perfectly satisfactory, perhaps to their surprise.

Now you've forced your habituated customer to start breaking their habits.

So in the face of your product being commoditized (primarily due to deregulation) you need to find something else to keep your customers.

On the other hand, if you're a government owned subway monopoly, well, you don't.

And if you're the most convenient laundry, perhaps close to your condo or your office, well, they you have something your competitors don't, at least with regard to this customer -- location, location, location.

And if you bought the same cup of coffee from Tim Horton's every day, then you're already addicted, which easily supercedes "loyalty". Which is were a lot of people get it wrong... loyalty programs don't reward past loyalty -- why would they? It's not like you can take that business away from them.

No, the only thing you can do is to take future business away -- loyalty yet to come. In other words, a well defined loyalty program encourages future loyalty.

Which in a strange way brings us to lifetime status and the fact the even airlines sometimes don't completely understand "loyalty programs," not to mention the passengers. People keep talking about lifetime status as a reward for past loyalty. And it seems that the airline thinks the same way.

Furthermore, the airline always defaults back to "we've already got your money for past loyalty, so scram." If they were smart, they'd be thinking about how a future potential lifetime status award would help generate loyalty in the years to come.

And there are a whole bunch of ways that might happen. First and possibly most important is with the truly high mileage flyer, who on average represents more revenue and more profit than a not-so-high mileage flyer. If that hi-miler feels that there's no appreciable benefit after flying 100K miles (and it would seem that many feel that way) perhaps a lifetime status award might change that feeling.

In another case, perhaps after flying 800K a passenger retires, they still fly a little but not enough to earn status for the year. If there's nothing else for them, they will have no loyalty to anyone. But if they could still slowly work to that lifetime status, they might well be inclined to continue flying the same airline.

Finally, when they do reach that lifetime level, they'll still need to fly the same ariline to actually take advantage of the the lifetime status.

So where do the butcher, the baker, the candlestick maker, and the laundry fit into this scheme? They don't. Why would they? You're still (apparently) giving them 100% of your business. So why would they spend money on you when they know they are already getting maximum value out of you?


Ask not what your frequent flyer program can do for you. Ask what you can do for your frequent flyer program.


And when you've answered that question, you'll understand a great deal more about loyalty programs.