And, more pointedly, do you know the difference between the two types of points as the program operators see them??



At a recent industry conference I sat in a session where the execs discussed the types of points in their programs and all but split them into "good" points and "bad" points. Well, they did split them, though they used different names to do so. And they really, really, really want to issue more "good" points than not. Which means points from partners, not from air travel.

They also believe that shifting the numbers in this manner leads to better yields within the programs and potentially better rewards and higher valuations on the points. We'll see how that plays out over time. I'm betting yes for everything other than travel awards.

Not particularly groundbreaking information, but it was interesting to see them put the details out so bluntly.

n.b. The link above is to my blog or to one which I am a regular contributor. FT rules require that I disclose that in the post.

because more people getting partner points make poor value redemptions?

or because they are sold?

Nope.

Yup. The above is based only on the liability valuation, not what they are actually redeemed for.

so theyre trying to give people less miles, and sell more miles

They want to shift the proportions involved between the "good" and "bad" points (or, as they call them, Commercial and Program miles). Commercial points are lower cost within their systems so if they distribute more of those their margins against future redemption increase.

"reduce PMs" in photo

although i said "give" - can also "take" via increasing cost of awards etc

Changing the redemption valuations is a whole different topic of discussion. This was all about how they account for the miles distributed via the various channels and what can be done to improve the accounting of them within the programs. PMs are bad and CMs are good. Not a lot of wiggle room in there.

did they say anything about "reduce PMs" ?

or is it simply increasing CMs decreases the proportion of PMs?

DL and UA have already made pretty clear statements on that via program changes.

i guess youre right, any comment would just be for AA to do same

im assuming it was not international? dont think credit cards are anywhere near the same outside US

Yes. This is sort of a version of the old airline hack of wanting to further reduce distribution costs and price discounting/rebates -- since the airline sort of pays for all of that out of its own pockets. And the airlines still want to gorge themselves on money from directly selling miles to partners/clients.

I don't believe this is an accurate statement, CM's and AM's cost the same to distribute, the difference in margins comes from how much revenue the program gets for each type of mile. In the example in the graphic posted the program (note the careful distinction here between program and airline, because in effect the program is a separate business the airline is paying for the miles) gets $.006 per mile for AM's and $.015 per mile for CM's. I believe the program earns little to no margin on AM's while the difference in cost between an AM and CM is almost entirely margin.

I wonder what consultant came up with this. It turns on its head the idea of using loyalty programs to change elasticities of demand of one's customers and fine-tuning loyalty program rules to encourage/reward the customers you want and discourage/fire those you don't.