With the whole AE debacle it got me thinking about this.

The problem is that at its base, a loyalty program trades something with easily quantifiable value (flights, toasters) for your brand loyalty which is damn near impossible to account for. I used to fly TPAC leasiure 5 times/yr to various NA, and would always fly *A, varying dates and destinations to get a deal. Now I don't, and their changes are a big reason for that. But how do you account for that change on a balance sheet? Comparing the cost of the old program (profit from 75k *A flights - rewards) compared to (lost revenue from 60k *A flights that never happened)? Some people quit flying for other reasons, others are going to fly regardless. How do you quantify how much and for whom AE programs are the tipping point for revenue? The downside is one of absence, and if it doesn't happen how do you count it?

And that's the crux. Most programs now are operating on a basis where you need to show dollar for dollar returns. As in, we'll give you lounge access worth maybe $500, but only if you've spent $5000 extra compared to Tango (at 100% margin for us) on premium level fares. Or with Credit cards, we'll charge merchants 3 cents/$, then give you an aeroplan point worth 2 cents, which can be redeemed for something worth 1 cent. Easily quantifiable where the profit is. Straight up cash back is even more transparent.

Loyalty programs are in a sense becoming merely a shell games to inflate prices of things 2-4%, while giving back 1-2%, while a few people profit in the middle, and there is a lot of overhead in the middle.

Ironic that these loyalty programs as a whole make society poorer.

These programs are not about loyalty any more, they're just about having another way to squeeze customers, hopefully convincing them to part with money they wouldn't otherwise, on the promise of giving a few percent of it back.

Do you have to pay more these days if you're a frequent flyer?

If you don't like loyalty programs (which is totally understandable), then just don't use them. These days brand loyalty in commercial aviation is IMO a myth: Most passenger look at the price tag rather than the operating the route.

Absolutely. There are two pricing structures. a) Get the advertised AE benefits and pay 50% more for your fare, b) Don't, and earn 25% non status miles. The thing is too, it's not like the introduced a new lower fare status. They just kept the old prices, and removed perks.

Conversely, even 5 years ago, most fares on most lines earned 100% status miles.

While brand loyalty may be nearly non-existent, alliance loyalty is not. I was a perfect example. Numerous others are too especially if they're not spending their own money. In my case, I had a lot of flexibility with terms of destination and dates, so I could always find something on *A for a reasonable price. At those times, long haul on anything but *A wasn't even an option for me.

While I do think that loyalty programs have largely become garbage, the point is more that there is huge value there, but the problem seems to be how do you quantify it to shareholders? Free internet, a few drinks, snacks and a shower in lounges literally won $10k+/yr worth of travel from me in 2011-14. A bean counter could look at that and say "Look what we wasted on food and drinks!", compared to this year the books would say "Look how much costs for Lounge snacks are down!".

I'm relocating this thread to MilesBuzz, which is a more appropriate forum for broad discussion of loyalty programs.

chgoeditor
Co-moderator, Information Desk

I disagree on that one. Flight cost has gradually decreased in my case over the last decade or so, whereas literally everything else got more expensive. If you look at the general trend, air travel has become a lot more affordable to a greater number of potential customers.

No. Even 5 years ago, it was rather common that you received only little miles in the discounted ticket.

You overestimate the number of frequent flyers. On many routes the occasional flyer is still the bread and butter of the business. And IME these passenger don't care for miles. They simply book with the cheapest airline that fulfils their safety and service expectations.

1. "Loyalty programs" is an industry-standard name for everything from S&H Green Stamps forward. What something is called is not necessarily indicative of what it actually is. You still may "dial" a number on a phone, but where's the dial? The term is historical. A TV "reality show" is again just a name, and please don't expect 100% or even 50% or 25% reality it from it, it's just a term to contrast with 100% scripted shows. Names not being (accurate) descriptions is extremely common, so I don't know why you expect "loyalty programs" to really be just about loyalty.

2. The value of flights is easily quantifiable (ahead of time, without knowing what a given person will redeem for)? I don't understand. In some programs, you can redeem about 50000 miles for any seat on a $100 flight, or you can redeem the same 50000 miles for capacity-controlled one-way business class ticket across an ocean priced in cash at several thousand dollars. How in the world then is the value of that 50000 miles "easily quantifiable"?

3. I can't think of when toasters were given as part of loyalty programs. You're confusing loyalty programs with signup bonuses. Toasters were the "original" signup bonuses (ie, they were given when you joined a bank, as opposed to you getting toasters regularly if you were in some program).

So, yes, your brand loyalty is hard to quantify, I'm sure. It's just that the other side of most loyalty programs is almost as hard to quantify, in my opinion. (I presume straight uncapped consistent no-hoops cashback is the most quantifiable of loyalty programs, but that's not the example you chose to focus on. And, in a sense, straight consistent cashback cards impose your loyalty in that if you don't use them you don't get the cashback. Isn't that more quantifiable than your airline example?)

Ie, at the start, you tried to make your post be all about loyalty programs in general, but status programs and points programs are two very different things. It's status that gives you lounge access, not the point you earn. It's miles/points that give you flights, not status. So while perhaps airline loyalty programs combine two different "currencies" (miles/points and elite status levels), those two things work very differently, and how easy/hard is one to quantify is not necessarily the same as how easy/hard the other is to quantify.

Meh - loyalty programs are profitable and cause many customers to repeatedly come back. Ask the MS folk. But do the banks and carriers appreciate such loyalty - noooo!

What is "the AE debacle"?

I don't see how a loyalty program makes a society richer or poorer.

I have no idea what the "AE" in the OPs posts is supposed stand for, but because of mention like Tango, I presume it relates to Air Canada leaving the stand-alone Aeroplan program and going to have its own program (again?):
However, since AE doesn't seem to be a valid abbreviation for either Air Canada or Aeroplan, I can't be sure.

The real bottom line for the US3 is "We don't have to try so hard to keep you loyal now that it's just three of us." It's like NBC/CBS/ABC or Ford/GM/Chrysler back in the 70s... competition really wasn't as vigorous as advertised and both those oligopolies produced a lot of bad product by today's standards.

In looking at changes in habits since the worst of the changes were put in (i.e. miles determined by fare and not distance), I'd say the biggest hole is the alliance flight on a good fare that also earned a lot of RDMs (and EQMs). A great example was an IAD-CPT RT for $600s on AF/KL a few years ago that returned a lot in DL miles under the old system. Nowadays I'd want an even lower cost or a bullseye hit on some bucket-list place.

Actually, the ultimate power of a loyalty program is that it persuades some customers to spend a tangible currency with understood value (dollars) in pursuit of a stash of an intangible currency with shifting / unknown value (miles). You know what a dollar will buy, but not what a mile will be worth tomorrow or next year.

This trade used to be at least quasi-rational, when the value of miles was at least somewhat predictable. No longer -- not with regular devaluations and some airlines, like Delta, no longer even publishing redemption charts. You wouldn't walk up to a Travelex counter and buy Euro or yen without first learning the exchange rate. Why change flight-buying behavior to earn miles without any real idea of their value? [/QUOTE]

The programs' raison d'etre is to discourage rational behavior, e.g. buying the cheapest direct flight at the best time, whether operated by Airline X, Y, or Z. The Airline X program exists to get you to choose Airline X even when it costs more (in dollars, time, or convenience). The programs reward irrational decisions with status benefits that mostly cost the airline nothing (early boarding, etc.) and miles of unknown value.

That is learned behavior. It's what happens when the public wises up. AAdvantage has about 100 million members, but most don't fly enough to count as frequent flyers -- or realize that the price of chasing "loyalty rewards" usually exceeds the value of said rewards.

Anecdotes are of even lower value than miles ( ) but I'm a fair example; I chased airline status for 25+ years, but given the diluted state of the programs today plus my thankfully reduced business flying, I now buy the lowest-cost, most convenient flights and spread spend across four or five airlines. Unless you are pumping a high level of corporate spending into biz travel, the airlines no longer make a rational case for concentrating your flying dollars with a single carrier or alliance.

I flew TATL on Lufthansa in 2008. Got a whopping 2000+ US miles on a 25% earning cheap fare PDX-FRA-PDX.

Absolutely. A lot of people fly and don't even credit to a FF program...