Why Miles/Segments Not $$
 

Why do FF programs use miles instead of dollars? I’ve been thinking about this one for a while and can’t come up with an answer other than it sounds cool. I understand why the flyer, not the purchaser gets the miles, (incentives the decision makers) but it doesn’t make sense to prioritize distance/segments over dollars. I fly ORD-CLT-ILM frequently for with $197 going to the airline. After 8 trips I have accumulated 32 segments with $1,576 going to US air. Jonny Doe could fly BOS-LAS on a F fare for $1,826. In one RT he’s produced more revenue and significantly more profit yet I’m Elite and he isn’t. It doesn’t make sense to me. Do you guys have any idea?

**This may have been discussed before, but searches my searches came up empty. I apologize in advanced if I’m being repetitive.

Most of the programs have a parallel, revenue-based way to get elite status as well. Many times (except for CO) it's called Elite Qualifying Points. Premium cabin fares accrue points faster than discount.

For example, a customer flying AA could earn executive platinum by flying only 66k miles on paid first rather than 100k miles on coach fares. First class fares also get additional class of service bonuses. 100% is not uncommon.

The other thing is that the guy in paid first doesn't need elite status, since he's already in paid first and doesn't care about upgrades.

All of the carriers take good care of their big spenders. I'd say 20-30k annually is the price of admission.

Frequent flyer programs do not exist to reward past behavior. They exist to motivate future behavior. People who complain that they're not rewarded enough for something they did in the past often miss this point.

Bottom-feeders are more susceptible to this influence than big spenders. As previously pointed out, big spenders already get many benefits of status. They have less loyalty, because they will get these benefits on any airline. Beyond that, they tend to be less interested in "freebies" since they can generally pay for what they want. Rewards of any type - status, free flights, whatever - don't motivate them as much.

(Do not judge this statement from an FT perspective. FTers are not typical, especially in this regard.)

As a result, while most programs offer some additional benefits to those who pay more, those additional benefits aren't nearly in proportion to the additional revenue. This is a smart business decision based, not on the revenue the airline received in the past from each type, but rather (correctly) on the incremental revenue it expects to get from each type in the future as a result of the program.

That said, there is a difference between typical North American frequent flyer programs and typical European ones. The goal of North American programs is to get people to fly airline A rather than airline B. Most European programs were set up in an era when national loyalty and hub location combined to give airlines a captive customer base. Their goal was therefore to get these captives to pay higher fares. Their reward structures are set up to match, with a higher premium for paying higher fares. While the competitive landscape and the growth of LCCs has changed things since these program began, they still show their heritage.

Some programs do use $.

Eg Virgin Blue velocity earning is directly linked to $ spend and burning is indirectly linked to $ fare cost, Singapore Airlines PPS status earning is directly linked to $ spend on SQ flights in first/business, Air NZ Airpoints earning is indirectly linked to $ spend and burning is directly linked to $ spend.

Right. In terms of my previous post, none of these are North American programs. I didn't want to say anything about Asia/Pacific programs, since I don't have much personal experience with them, but from what little I know they're closer to the European model than the North American in this regard. The motivation is to get customers they view as at least to some extent captive (whether or not they really are) to spend more than they otherwise might.

There is another flip side to this question, which is the redemption rates.
For example, all domestic seats cost the same amount in miles whether you are
flying a ticket which would cost x or 10x in dollars.

The International tickets have a more complicated set of tables, but again there is a correlation with price that often cannot be understood. One time I found availability for family members to accompany me on a trip where the ticket cost me $1400, but couldn't find any award seats on another trip that cost me $800.

Loks like my question had great timing.

Southwest just announced the change this morning.

http://online.wsj.com/article_email/...jIwMDYxWj.html

Virgin America has always been based on dollars spent.

To make noobies think they can actually fly 30,000 miles with their 30,000 miles.

One reason is discretionary travel is more of a price sensitive purchase than essential travel. FF programs are trying to get that extra % of discretionary travel to still be on their airline.

Look over at the red-hot discussion in the Southwest forum re their just-announced shift over to $-based -- and see more of the "pro" side of the argument than you might want to digest at once (or ever) by all of Southwest's various degrees of supporter..........

And, although there have been the news media pick-ups from Southwest's own releases, the discussion is likely to escalate to the broader travel media, where it'll be interesting to see the "take-away" and the pro and con by the talking heads.

OP,

Back when AA created the first FF program, airline fares had just been de-regulated by the gov't. At that time, distance did play (somewhat) into the price of a ticket. Airlines competed on service rather than price.

So if a traveler flew 25,000 miles the amount of money they spent with AA certainly warranted a free domestic R/T ticket.

When the industry was (price) de-regulated the price of a ticket was more based on demand than distance. Newer players are seeing that just because you fly a far distance does not make you the most profitable customer. JetBlue, Virgin America, and now Southwest recognize this and are basing their perks on $ amount spent rather than segments, 1-way flights, or distance flown. There is no such thing as a "mileage run" on B6 or VX. And now this will be history for WN as well.

I suspect most of the legacies wish that the standard for FF programs was not based on distance but money generated from the beginning. But back then (early 80s) distance could be an indication of how much an airline valued your business.

S&H Green Stamps in the 50's were based on $ spent and Americans were fascinated and devoted. Americans are now clearly devoted to frequent flyer credit cards where rewards also are based on $ spent.

In the early days of commercial air, being a "***"-miler meant a lot and it carried a lot of prestige.

But since AA introduced the mile program it's become an institution which captivated Americans (as this site demonstrates) and which people love to figure out ways to "game". It's fun.

Also it requires brand loyalty which marketing is all about.

The new Southwest program is rational but boring. It's just giving back a certain %. Folks fly Southwest (or AirTran) because they're cheap. If they can fly a "brand name" carrier for the same or close price they will. As Southwest's prices go up they'll regret not having established brand loyalty through a popular FF program.

lol
 

I've had 2 people tell me that this week.:D

This is more common than most FTers would think. Even with never ending Amex ads stating "as little as 25,000 miles" there are a WHOLE bunch of people that hear only what they hope to be.

Recently I had the task of explaining to a friend that the 4,000 miles he has earned with his credit card is not going to get him LA and back. He was shocked to hear me say that it will take 25,000 most likely on any legacy airline. He thought that was crazy. Here is how part of the exchange went:

Me: Let's round up. Atlanta is 600 miles from Ft. Lauderdale. How many miles do you think you will earn flying from FLL to ATL?
Him: 600
Me: Okay, correct! And how many back.
Him: 600
Me: Right again! So now you have enough to fly round-trip from FLL to ATL for free?!?!?!
Him: Ummmm, yes (?)
Me: So basically when you buy one plane ticket you expect a free plane ticket thrown in. Two-for-one? Really? You're in the auto biz. How many cars would a customer have to buy from you for you to give them a free car as thanks for being a loyal customer? Two-for-one?
Him: <silence> <light bulb> <facial expression of discover> <facial expression of reality> <facial expression of disappointment>