NickB

The fact that you need to justify how loyalty can be useful to airlines just demonstrate how so-called 'loyalty' programmes have nothing to do with loyalty as such. You will not find anyone more loyal than the once-a-year deep-discount Y flyer who, for the last 25 years, has religiously flown AF and never set foot in their whole life on another airline. By comparison, the FB ulti who is on a long-distance flight every week in premium class and is on AF for 50% of his/her flights and OW or *A for the remainder is, by comparison, deeply disloyal and promiscuous. Yet, the FFP is designed to reward the latter infinitely more than the former. Trying to draw any consequence from the fact that the term "loyalty" is sometimes used to describe FFPs does not make much sense as those programmes are not designed to reward loyalty as such but rather contribution to the bottom line.

orbitmic

Is it though? I mean, in many ways, I think that FFPs aim to offer different forms of 'loyal customers' what matters to them. In exactly the same way that you are undoubtedly right that the once a year AF flyer who would never consider flying anyone else is, in his/her own way an arch-example of a certain form of loyalty, in my experience, nobody is prouder of their loyalty card than the said once a year flyers who patiently live in hope of getting a free flight one day. Let's put it that way, on the rare occasions I travel with some of my family members, I may well forget my frequent flyer card home (I often do, even on trips where I ultimately know this might deprive me of my entitled access to some lounges) but they never do. The carrot that as long as they fly once every 20 months, those miles do not expire also matters a lot, and when that free flight finally comes, even if taxes etc mean that it has only saved them €20 or so, there is not just a pride, but arguably even a sense of identity which, in my view, often operates.

Loyalty can take many forms (not just in the airline industry) and so can its rewards. I know some couple who live apart 90% of the year but are completely devoted to one another. Heck, I even know couples where someone is cheating on their partner but would give their life for them. And you're right, I might feel more attached to some restaurants where I go once a year than to the supermarket where I shop day in day out which means exactly zero to me.

Loyalty involves emotions, and customer loyalty involves (hard and soft) perks, processes and prioritisation. Both levels (emotional and concrete) matter both at the bottom up level (I'm loyal both because of the emotional value of it and because of the 'perks' I might get, I might lose loyalty both because I lose the emotional connection and because I do not feel I am being treated the way I should be) and at the top down model (the airline designs the perks and processes but for many airline employees, customer loyalty actually means something on an emotional level, I have seen it at play many times). The relationship between those emotional and 'business' levels is what is both difficult and impressionistic in the airline industry as in much of life.

San Gottardo

Revenue maths do. If for Platinum you need 60 segments, and in the past the average segment cost of the lowest fare was 150 EUR, then that was a revenue of EUR 9,000. With roundtrip fares now often at 99 EUR (incl. taxes), the average segment revenue can be 45 EUR - which is a revenue of EUR 2,700, 30% of what it was before. This is revenue. Given that airlines have not decrease their cost by 70% over the same period, the impact on the bottom line is negative compared to before.

This is back of the envelope, but plausible. Of course, not all people qualify through using only lowest fares, but the trend of fare and margin erosion is clearly there, it's just a matter of how big the blow is.

Thus: someone who flies a lot with them (=many segments) is no longer necessarily someone who brings them lots of money. So they stop using segments as a measure of how "worthy" a customer is.

See above.

It doesn't matter how often you fly with others. What matters to them is that flying often *with AFKL* does not translate into the same revenue and profits anymore.

You're right, that's the gamble. But their logic is that they rather put money into giving a superior experience to people who actually contribute to their financial profit - which people that qualify by segments may not always do, as has been shown above. So why spend on them.

I haven't run the maths on marginal profit. Indeed, keeping a customer is less expensive than winning a new one, that is an old marketing wisdom. But as my maths above (which also works for less extreme examples) shows, the "loyal-by-number-of-times " customer is no longer as profitable as he used to be. And since segments are no longer a good proxy for money contribution, let's use another one, revenue.

But as I said: that assumption may be right or wrong (I just knew that guys like you would be lurking around this thread and protected myself with nuancing and qualifying statements ).

I agree!

I think this is how M&M works. Silver can be had by segments I believe, above that only with qualifying miles. No spending requirement (yet?)

+1

skyhighlander

I do struggle with this math. What it basically means is that we are a burden to AFKLM and they would prefer we did not fly with them at all rather than fly under current arrangement.

I think that to say that it does not matter how many times one flies with others is a bold statement to make when talking about this highly competitive market. Every time I choose a different carrier it's because KLM did not meet my expectations, for this reason or another, and as a result they do not make money and some else does. They're are now going to add a number of reasons to this list.

For many, relatively easy qualification requirements are the only positive thing in Flying Blue, people are going to leave, and then AFKLM will really have to go to fare war to win them over each time they fly, which will lower the fares even further. Vicious circle. Complain about low cost carriers taking over for the past 15 years and then push the last remaining group who connects rather take direct towards competition. I question this approach.

Obviously as you say, we'll need to see how big the blow is, how many people it will affect, and how many people are actually going to leave. Which I guess will be unknown until April 2019, or in some cases even 2020 if you'll be able to qualify under the old regime during Jan-March next year.

Being an alliance of leftovers, with a poor loyalty program as it is, new mess with upgrades, only JOON flying between capitals of 2 most powerful countries in Europe, and now these changes ahead they are not making it easy to stay "loyal" these days!

San Gottardo

Not at all what I said/wrong conclusion of what I actually did say.

What I said is the following: an airline makes a calculation, which is that a passenger that contributes x EUR revenue is worth some extra service, because he is a profitable customer and we want to ensure that he comes back and gives us more of that profitability. When fares were higher, flying 60 segments generated that revenue of x EUR, which justified giving him Platinum level services. With fares being lower now there is yield erosion, and the same customer with the *same behaviour* (same routes, *same number of segments* on AFKL planes, same fare buckets) creates *less revenue*, in my example it was only 30% of x - as a response to which the airline says "30% of x no longer justifies Platinum service." And they therefore switch from counting flights - which was an indirect measure and easy to follow for customers - to counting money, which is a more direct measure and IT has made it possible to make spending transparent for customers. Again, I am not saying that is good or bad, but I understand the logic.

On top of the same number of segments contributing less to bottom line than in the past because of yield erosion, airlines have to be more picky on where they spend their money, as had been pointed out by *orbitmic*. Spending money on giving Platinum level service to customers who contribute less than in the past is not something they can afford any more.

Misquote or misunderstanding. I said that in the calculation of your absolute contribution to the bottom line it does not matter how many times you fly with other airlines. If in the past you did 60 segments and generated 9,000 EUR of revenue and now those same 60 segments only generate 2,7000 EUR of revenue then you contribute less and are therefore less worthy of extra services. If on top of that you spend another 2,700 EUR on Ryanair is then irrelevant, because if in the past the Platinum level that you had still left you spending 2,700 on Ryanair why would they keep giving you Platinum status although you (i) now only contribute a fraction of your past contribution (ii) despite Platinum level still spent money elsewhere?

Sure. But they will be less sad about losing someone who qualifies only through segments (=low contribution) and will prefer spending more money on someone who makes a bigger contribution.

For the *vast* majority, what matters is fares and schedules. The FT population is a micro-universe whose behaviours do not at all reflect what drives buying behaviour. And the kind of buying behaviour that you describe - flying an airline at fares that allow qualification for status only with segments - is not the kind of behaviour that airlines find very worthwhile rewarding with a status. They rather spend that money into attracting the vast majority of people who will pick AFKL for fares and schedules.

I don't want to misquote you, so let me therefore ask as a question whether I understood your comment correctly: do you think that the rise of easyjet and Ryanair would have been slower if legacy airlines had been more generous with qualification by segments? If BA Exec Club had given Gold for 60 segments or Lufthansa M&M had given SEN for 60 segments, would they have a higher market share? And: would that market share be profitable for them?

*Now* we agree!!

To be honest, I am primarily an AF user of the AFKL couple and a DL user of their alliance. But my love for AF goes up and down depending on my travel patterns, and for trips in NAM I generally prefer AA to DL (better perks on AA for my OWE status on AA than with SkyTeam E+ on DL). But that is a different story.

Note that the point that I explain above is not my preference or conviction, I just try to explain how the airlines see it, and I can to some extent follow their logic. My own thinking: let's see. I'd be miffed if they took away my LTPE because I may not requalify always and ever. Of course LTPE is against a certain logic as well, but I just happen to benefit from it. But that is the other side of the equation.

orbitmic

Let me try to put things differently. Basically, there are a number of people using an airline like, say, AF.

- There are people who fly AF (even very often) because that's just the only airline for them (exclusive corporate contract, route exclusivity etc)

- There are people who fly AF (even very often) because it 'maximises their utility function' (ie best rate for their trip, best timetable, only nonstop option, etc).

- There are people who would have chosen another airline for their trip but fly AF because it is AF (ie either because of loyalty to the airline or because FFP benefits are tipping the balance in favour of AF).

The three different types represent both different incomes and different FFP 'needs'.

- The first type might represent a lot of income, but in a way they can be taken for granted so no point in wasting resources on them.

- The second type are a category leaning towards you but which you cannot take for granted. You need at least 'defensive' rewards for their loyalty so that they aren't stolen by someone else.

- The third type are the people who are hardest to get because they are leaning towards a competitor by nature. In a way, they could be a great prize but equally they are potentially the most 'expensive' for you to gain because you'll need significant perks to take them away from their default inclination.

So now you are AF and you have limited resources. Where and how (or on whom) do you spend it? In a way of course, you'd like to seduce everyone, but realistically, your resources are finite and if you try to spend them on everyone, then the incentives will be so low that you might not manage to seduce the third or even the second category.

I mean offering lounge access for a member and a guest, priority check in and security, extra checked luggage etc all cost money. Say, maybe €15/per segment. If you reduce the benefits below that level, you'll likely not gain the 3rd category people will not go to you, but if your marginal profit for each of their trip is about €10 per segment (which might be generous already) you are actually making a net loss on each of them. By that I mean that of course you would really like them to fly with you, but at the cost they represent for you to be able to achieve that, they are just not worth it, and quite frankly, that will be the case of many of the segment runners.

Maybe the people of the second category don't need as much spending. Say, even if you did not give them lounge access, priority services and a few soft perks like seat choice might be enough to confirm their preference for AF. If that is the case, well, basically, you might as well lower their perks to silver status at €5/segment as it will be enough to maintain their custom whilst increasing your profit.

With the money you save, what you hope to do is to be able to invest more in keeping or gaining second and third category flyers who bring a lot more profit because they fly, say, expensive premium tickets and as such are more likely to be courted by competitors or harder to gain through FFP perks.

In that sense, the segment flyer is not a passenger AF-KL would actively try to get rid of, but they are a sort which they will likely consider not to be worth the current level of investment.

Xandrios

I feel like one aspect is being missed in this discussion.

While a FF who qualified on miles (rather than segments) probably earns the airline indeed more revenue; that does not mean that a Gold who qualified by 30 segments, flying 99 euro roundtrips, is not valueable at all.

Because there is a reason the airline offers low fares, or even fares below cost. It needs to fill flights. Having 20 pax on board on a 99-euro fare is still better than having 20 empty seats. Because if they could sell those seats for a higher fee, they would have.

So even though they may be losing money on a segment running elite flying 99-euro fares, that elite still fulfils an important role - the role of filling up aircraft. And somebody who does that 30 times per year with AFKL is still more valueable to AFKL than somebody who moves over to the competition. Even if they have to give that pax some lounge and priority privileges.

So in my opinion there are levels to the value that an Elite can have to the airline. That exists now, but even in the future when everybody qualifies for status based on revenue (as is going to be announced this monday) there will still be levels. There will always be people who earn their status easier than others, and there will always be people who 'put in' more than needed. That does not mean that the bottom line is not valueable at all, as in the end - even pax flying cheap promo fares have a function in the airline ecosystem.

San Gottardo

And to add to orbitmic’s very instructive example:

Since the third category also has some people who are big spenders (as in “spend a lot of money on airline tickets”, not in “flies frequently”) the airline wants to make sure they attract only those that are big spenders. How do they do that? They make the amount pax spend a criteria for obtaining status, and they weed out those pax that may fly frequently but don’t spend a lot. Giving them extra services is very costly (the cost to have lounge space, lounge staff, lounge catering, extra luggage, etc is as much for the person departing on a 6,000 EUR CDG-LAX ticket ad it is for the Plat who flies the same route on a 350 EUR promo fare). Therefore the airline stops qualification by segments, because “many segments” does not automatically mean “lots of money for the airline”.

If AFKL makes qualification more difficult but in return offers better status perks that would be a perfect application of the above logic. Unfortunately we must fear that they’ll only apply the first bit, which is to make qualification more difficult.

Masterfrog

It could make my choices much easier if the segments were eliminated from the elite status.
I would just go for the cheapest and the more direct flights in Europe.

I have to see how thoses changes would impact the AF Amex though.
The qualifying flights were their main benefit so I guess there should be some kind of compensation. Besides, the French AF card is already far less generous than the American Delta one. They can't afford to make those AF cards worse.

I also studied the possibility of taking long haul Premium Economy flights. I saw some direct CDG-SGN deals for about 900 euros vith VN which probably would still give a good amount of miles based on distance and not revenue with the new system. I don't see how they could impose a revenue model for partners flights.
The status only gives marginal extra perks for those who already fly in C but for those flying in Y+ the extra perks are more substantial.

skyhighlander

That's a very thorough explanation of how an airline sees its operations! . But in what percentage of high contributing customer you "invest" and where is the line after which there is no longer a need for a loyality scheme?

Yes, for the *vast* majority, what matters are fares and schedules, but isn't that also the case when it comes to high contributing pax? So if we kept bare minimum wouldn't they still travel with us, as the microcosmos of those who base their decisions on FF perks will be even smaller in that group?

In my mind the whole idea behind any loyality programme is to get people to behave a little bit "irrationally" on occassion, stick with the brand and instead they can get something in return. KLM schedule fits me well for my Europe travel, especially in the summer, not so much for west America. But I'll go to Vegas via AMS and MSP rather than one stop at LHR because keeping eggs in one basket does make sense now, and having status it's quite a pleasent journey.

It will now probably stop making sense for a lot of people, and I guess it's down to the number crunchers at AFKLM who have data in front of them to decide at what point they will have to start feeling sorry to see these people go.

Could anyone have stopped the rise of LCC? Absolutely not. But current flagship carriers' actions surely accelerating it now. You have a certain share of the market you're willingly giving out up for grabs because you don't consider these customers worthy enough. Hmm. I don't know. You're just increasing the number of pax you will be fighting for, and surely that's not gonna help with your yield erosion.

Pehaps I'm at an anger stage here, nobody likes rejections! , but if they go overboard here it will greatly contribute to the general demise of FF programmes and will bring an end to the Flying Blue for most of current FF.

I guess we will know exactly what's happening on Monday, so let's enjoy what's left of the weekend!

Goldorak

For instance by giving you more miles if you are booked under AF/KL flight numbers rather than on the partner code, and/or, among alliance partners, by favoring flying on JV partners (DL, VN, I think CZ, etc).

Fabo.sk

Yes, but my understanding is that the original plan was Gold > Gold with rollover miles for easy requal > Gold from the easy requalification.

Now this has been replaced instead by Gold > Platinum with little rollover > Gold from soft landing, so no need to qualify for gold on merit

Still somehow the airlines made the European operations with fare erosure still more profitable than a couple of years ago, with more expensive fares, but still lossmaking.

Revenue means nothing if your margin is negative. Even if it's sooo much easier to calculate.

Meanwhile of course the one flying the 99EUR return is of course not the one making the profit go up up up... but the airlines would hardly sell those 99EUR fares if there was no benefit from selling them.

Still the solution to me seems fairly simple. And some other airlines are already doing it for a long time:

Use multipliers on segments. 99 EUR fare? Well there's half a segment for your trouble.

Hey, it might even help you get those fliers who fly European business class, just not too often. And noone tell me *those* aren't profit making.


Yep. But M&M Silver is somewhere inbetween FB Silver and Gold in utility, and M&M Gold (SEN) is more like FB Plat to achieve.



Problem with the big spenders is that everything you could reasonably give them as an incentive, they already have on account of their big spend. The 6000 EUR CDG-LAX ticket is not an economy ticket. They don't need to think about lounge access, they'll already have lounge access, maybe even La Premiere. They already have an option to choose a seat. They already have 2 or 3 or whatever pieces of luggage.

Of course it makes sense for the airline to give these clients the cards. They have already supported the bottom line quite a bit, and they are unlikely to incur costs on these extra services offered - well except possibly for awards, but that's not a function of status. A 30 segment gold would have, what 6000 miles at his disposal in the worst case? He's gonna have to keep being gold for a lot of years before he can take his wife on a business class flight to the Carribean.

HalconBCN

Waiting with baited breath to hear what will be announced. I believe getting rid of segment qualifying would be a terrible mistake, pissing off many of AF-KLM's most loyal fliers.

travelbits

Nail on the head!

brunos

Absolutely.
I have been travelling on three different airlines last week (including AF) and could not join the interesting discussion.
Clearly posters come with own personal biases regarding segment qualification. But to understand any potential changes, one HAS to look at it from the airline perspective, i.e. contribution to the bottom line.

The economics of the European industry has changed a lot in the past ten years. For example, Irishguy28 posted an interesting article:
Pieter Elbers: KLM's European network now profitable thanks to LCC-inspired changes
On European segments, fares have come down a lot and costs became an obsession.
With 30 segments (FB Gold), some possibly on other ST members, you bring much less revenues than ten years ago but you still add the heavy cost of lounge access and many other costly perks. To balance this loss AFKL needs to bet that "emotions" will induce the flyer to use AFKL occasionally for longhaul. But the majority profile of those flyers is that they will probably book into cheap Y tickets, not premium fares.

The economics have changed drastically and it is hard to see AFKL not changing their rules on segment qualification. Probably nothing drastic, but we will see soon.