Joshua

Frequent-flyer programmes seem to be undergoing a transition from "fly to earn", the traditional model pioneered by AAdvantage, to "earn to fly", to quote Air New Zealand's recent investor day presentation.

Part of the transition is airlines shifting their revenue from directly charging the customer to attempting to gain revenue from selling miles or selling ancillary travel benefits (like checked luggage) to a third party, such as a bank, where the customer than provides some non-tangible benefit to the bank, such as using that bank's services to make or finance large purchases.

Another part of the transition is frequent flyer programmes shifting from being very much tied to a specific airline to their management and ownership being somewhat divorced from the parent airline. An example is Aeroplan.

The extreme example is NZ Airpoints' restructuring; while not a revenue based programme, redemptions and benefits are no different if purchased ala carte than if purchased using frequent flyer points. The gain for the airline here appears to be effectively selling NZ gift cards to customers, or getting partners to effectively sell NZ gift cards to customers.

Simultaneously and in contradiction to the above, traditional frequent flyer benefits like space-available upgrades have strongly shifted to hard revenue-based models. UA, CO, and US (and others) dynamically offer upgrades for hard cash to customers when checking in, often to the chagrin of FF elites who can no longer gain complimentary or certificate redemption upgrades.

Meanwhile, credit cards are undergoing significant changes. Credit cards are the major source of FF benefits for us that do not directly cost us money. The trend I foresee is that this will go away; hotels in Australia regularly charge fees to accept credit cards and debit card rewards have mostly ceased to exist in the U.S. Merchants will continue to exert pressure to shift the cost of credit card rewards programmes on to consumers as they did with debit cards. Credit card fees are a major source of revenue for the airlines; the loss of this income stream could mean higher fares in addition to less-generous FF reward programmes for cardholders.

What will this changes mean for us FTers? And will an airline be able to stand out and compete which sticks to a traditional model?

(Mods - please merge with another thread if this is already being actively discussed.)

MTHTravel

Well, that's a good post. I am also thinking about it. But where is this entire FF-thing going? I don't know it. Any thoughts?

stupidzbu

FF miles + bonuses are a bubble much like the US real estate bubble. When there was easy credit, houses were flying off the market at ridiculously inflated prices. That easy credit also played a part in getting CCs and their bonuses.

I believe the credit crunch has not hit the fan yet and will be doing so sometime in 2012. EU is in disarray, US is not that far behind, lower/middle middle class are protesting all over the world.

I would not be surprised if we get some solid offers in the next couple of months, especially from CO/UA post-merger and then AA trying to entice people to stay... and then they will probably disappear.

Inflation is rampant, not just in real world items, but also in FF miles. 50k miles doesn't go that far anymore, especially when you factor in taxes + surcharges.

I would not be surprised if FF bonus offers go extinct for a while near the end of 2012 or drop down so low that they essentially become worthless.

Get it while they're hot. Pretty soon flying will return to be a luxury and much like the way of US banks, some US airlines will kick the bucket (especially US airways ZING!)

I have flown UA/CO since 2000 and recently switched to AA this year. I flew UA to take advantage of LH, I switched to CO before they became *A because of my use of CM, and I switched to AA because I hate UA and their service.

I took my last *A flight on LH, SN, LX using my miles in B. I was blown away by the quality of service, especially with LX. I will return to *A solely because of LX

This rant is to show that US airlines are doing extremely poorly vs their international counterparts and will struggle more and more over the next few years.

Bohemiana

I'm new to this game since this summer after reading a magazine article about how to travel for "free" with sign-up points. And, after reading these boards where it is an obession, and after getting some sign-ups under my belt, I am feeling a pressure that it won't last forever. I know I am trying to get them while they are hot. I would not be surprised if the gravy train stops but I hope to get a nice year or two of travel in before then. I just kick myself for not learning about it sooner. I agree with Stupidzbu that it could be like real estate. I'm in real estate and it hit us so fast our heads spun.

Joshua

Couldn't agree more on that front, and the travel industry can't sustain itself on payments from banks for signing up new credit card customers forever. We have fellow FTers who have wracked up 700k or 2.5M miles. That's 4 - 15 roundtrip F class int'l tickets at capacity controlled award levels, easily worth $5k a piece.

Yes, but European frequent flyer programmes are even less generous than U.S. ones. It's an anomaly that we can book reward tix in F/J on them for relatively cheap (in miles) prices; it's going to become harder and harder to get in those cabins without coughing up a lot of cash to do so.

If anything, I foresee Ryanair/Spirit type travel experiences becoming more common. NZ is pretty much already there for anything other than long haul > 4 hours international.

thetravelabstract

You guys should really listen to this podcast about the airline industry from NPR. I thought it was worth the 13 minutes.

TrueBlueFlyer

I'm currently living in New Zealand and the 75k AA Visa promo couldn't come at a more appropriate time, booked an award flight AKL-NYC a week after the promo miles were deposited into my account. Otherwise it would have been an easily $1,600-$2,300 cash purchase.


Now, I'll probably burn off the remainder of my 50k miles on perhaps NZ-Asia in economy if I can find flights that fit my dates. For an infrequent flyer like me, hanging on to the miles is useless, especially now that the airlines are introducing all sorts of fees for redeeming miles (like British Airways, whose 100k Visa promo miles I used for a round trip NYC-SIN and a one way NYC-AKL via South America)

biggestbopper

There has been lots of discussion along the lines of the FF programs devaluing and/or disappearing for years. The NZ info added by OP is interesting.

But, I suspect that in years to come we will still be flying F or Biz using miles.

The airlines HAVE managed to subsist on selling miles to the banks (okay, maybe they have a few other revenue sources).

Why they are crazy enough to give me free trips to India or France in F is hard to justify on a realistic business analysis. So, I have concluded the whole thing is irrational.

Lotta talk of dropping bonuses, but they seem to be going up. 100K on BA Chase card. 50K on Chase Sapphire Preferred and Ink Bold. Just gone 75K (times three) on AA Citi.

I recall when 25-30K bonus was hot stuff--and it wasn't too long ago.