First , I must compliment you for taking the time to write a very well written letter, but it seems to be based on the same myopic thinking that many executives in the airline business have.

They are constantly looking at their perceived value of the product and not looking at what makes some people fly and remain loyal to a certain airline, as well as not focusing on marginal costs and marginal revenue.

Further, even if for the sake of argument, everything you said is correct (which I do not think is the case), some of the same objectives could have been accomplished in a much more customer friendly way that might have had the dual benefit of increasing customer satisfaction (or, as Hippocrates might say, in a way that does no harm (or at least minimizes it) and increases revenue.

I know a lot of thought went into this decision at the top and senior management is willing to take the flack thinking they are right, but they might be wrong. One thing I really do not think they did was talk to frequent flyers and do focus groups to find out how to have a win-win situation or at least not a win-lose (for the customer), which seems to be the goal, but will probably turn out to be lose-lose at the end of the day.

I think the executives went into this thinking solely about increasing revenues (**** the torpedoes) with an inside the beltway (or whatever it is in Houston) mentality that does not understand how the real world lives.

There are some people who travel for business and have to keep to the lowest fare, but maybe their corporate travel policy allows for C class to Asia. Well, that person may only do one flight per year to Asia and the rest at Q/T/S, and that person is probably reasonably profitable for the airline, but if that person does not get elite status under the new rules and the accompanying perks which cost almost nothing incrementally, he/she will have no loyalty to CO and will probably fly Singapore Airlines (or whichever airline) to Asia, as well as a lot more Southwest and JetBlue (love those seats and TV) in the US. Has CO really won here? LOSE-LOSE. Maybe the rules could be tweaked to keep this flyer happy and maybe even gain some revenue.

Now I will just speak briefly about my own patterns, which I know are not the norm, but that is what focus groups are for. I fly 100,000 miles per year—just about all for pleasure (but I too might find I have to take that last minute C trip on business to Asia). I do not need to fly. It is all discretionary and I fly (mostly quick hops across the pond—or long weekends across the dateline) because I hope to have a good time, both over there and on the way there.

Last weekend I took a real short hop to DC and stayed at a Starwood. I paid $200 and was upgraded to a $1,000 suite. Now with your mentality, you might say the hotel could not afford to give me a room worth that much, but if they did not, I probably would have stayed elsewhere (I could have gotten a cheaper room in a top hotel), but I hoped for an upgrade (subject to availability) and got it. The room would have gone empty if I had not stayed there and stayed elsewhere or not even made the trip. But part of the fun of the weekend is getting pampered—incremental revenue at the margin for the hotel. WIN-WIN!

I am planning a long weekend trip to Istanbul the beginning of the year. Starwood does not have a property there so I must admit that I am having fun picking another hotel to stay at (I am partial to Leading Hotels of the World as they treat me well too). There are all these great local properties and some of the world’s great chains, many having great rates. But I must admit if there were a Starwood there I would be there. I mean I must make my 25 stays per year to stay Platinum and I do like being Platinum—WIN-WIN.

In fact why am I going to Istanbul? Well I made my reservation when I thought being Platinum on CO was worth the bother and it was worth racking up the miles. It turns out I was wrong. It turns out that some of the other trips I am contemplating are $500 Q fares to Europe. Well, that just does not satisfy the bean counters in Houston (although it will at continental.com through 2004, subject to change). And an upgrade---I can hear the laughs at CO. Well maybe the value of the seat to a business passenger is $5,000 but if it flies empty or with a NonRev, it is worthless to the airline. Giving it to me on a standby basis would just keep me coming back for more. WIN-WIN.

With the new rules, I may either abandon frequent flyer programs or go for mid-level status on both UA/AA, or just fly less. With OneWorld and Star Alliance, I may not get upgrades either, but I will have many more destinations open to me than the CO/NW/KL/DL route map and can just choose the lowest fare and best schedule or Orbitz. Neutral for me—LOSE for Continental.

I just got an email about a great fare to Moscow and Reykjavik on Icelandair. Before the new rules, I would have ruled out Icelandair, but now I will think about it. In fact, one of the reasons I have never been to Iceland is that it is not on the CO Partner route map. WIN for me—LOSE for CO.

Another thing that does not show up on the CO bean counter radar screen when evaluating my travel patterns is that I have flown friends/family on CO to help them get status or so they could fly with me (and this applies internationally at fares of over $1,000). Now if my loyalty is lost, so is that business—Neutral for me—LOSE for CO.

Now, as they say your mileage might vary, but if CO talked to frequent flyers and did not have this myopic mindset about how much they could “potentially” sell an empty seat for, maybe they would have come up with a WIN-WIN situation.

Frankly there are things CO could have done which might have both made me happy and increased my spend on CO. Instead the way they did it, I am more likely to flee.

It looks like a WN-WN situation. Or maybe I will just stay in NY and enjoy one of our fabulous restaurants—where they recognize loyal customers and treat them very well.

[This message has been edited by Nevsky (edited 09-20-2003).]