END FREQUENCY-REWARD PROGRAMS?
 

END FREQUENCY-REWARD PROGRAMS

Don't mindlessly defend frequency-reward programs because you perceive them to be your only perk for a hard, tough life on the road. The truth is that frequent-flyer reward programs depress competition and that is bad for us. Eliminating frequency-reward programs would unleash a torrent of new initiatives aimed at winning the business of business travelers. The price of first- and business-class tickets would plummet, in-flight services would improve and the airlines would start concentrating on tangible benefits like seat comfort, on-time performance and baggage handling. You'd be shocked at how creative the airlines would become if they didn't try to solve all of their problems by throwing miles at us. (By the way, ending the reward programs would force up the airlines to concentrate on recognition plans that offer upgrades and other perks that frequent flyers really want.)

-Joe B.

http://www.zyworld.com/brancatelli/branc.htm

http://www.brancatelli.com

--

NEVER!!! C'mon Joe! http://www.flyertalk.com/forum/wink.gif


[This message has been edited by doc (edited 05-17-2002).]

I doubt it! And I am referring to the part about the airlines becoming "competitive" and "creative" if FF programs were eliminated. Airline senior management, in most of the majors, are dinosaurs. Been that way since the beginning of time. No signs that it is changing. The only breath of fresh air in the industry is with the upstarts.

If FF programs went bye-bye, my view is we would see the same old lackluster service offered now. The only real difference would be that people would buy tickets based strictly on price. The majors lose out big time to SW and JetBlue if that happens.

I agree with the topic title. Airlines have FF programs to discourage people from flying other airlines. If there were no FF programs, airlines would have to be more competitive (cynicism notwithstanding).

I see nothing wrong with people looking only at price, schedule and service instead of FF miles.

I think a good number of people would be willing to pay more for an AA MRTC transcon non-stop than an SWA cattle car making 1 or more stops/plane changes.

For many, price would not be the only factor.

I don't know. I think comapnies can get away with mandating that an employee purchases an ecomomy ticket because they know that if we really want it, we can upgrade. I for one would never agree to fly 200,000 domestic miles a year in coach. So they would be forced to either find someone who would, or pay for First Class tickets for the most frequent FF's. Granted in the current economy, people might be willing to stick it out in coach, but I bet they would bail as soon as things heat up. Then what? Airlines would find a way to offer the cheapest First Class so employers would pick that airline and we are right back where we started with lousy service and poor amenities. Just playing devils advocate.

Me neither. If FF miles aren't important to you feel free to make your air travel selection based on other criteria.

What I don't get is why the programmes should be ended. Can't people decide for themselves what's important to them?

don't underestimate the laziness of the airlines. With a few exceptions, the majors would rather carve the country up into separate fiefdoms--DL in ATL, etc.

As long as I'm stuck in one market, I might as well get the points. Still, I'll fly Airtran and Southwest when it makes sense.

I flew frequently before ff points. It was not uncommon to be upgraded for free then. I was given free breakfast at the Seattle Hilton, before any such program existed.

PSA was great with free stuff, as was AS.

Better? Really depends on too many variables with the competition and what makes "you" happy. I like the points for the "free" trips. These only work IF you fly materially and in concentration. Casual flyers must toil long to get any freebies and were dumped by inactivity in the past. They then were paying for a flight, including ff points that they would not use, so others could have a more valuable set of perks.

Lots of things dictate airlines flown for each category of flyer. Often it is purely the "choice" of the only airline available from point a to point b for them. Price is very important to the payer, but not as meaningful (meaningless?) the employee, nonpayer. Service was way better in the 70's and early 80's. Seats were wider (or was I just thinner, probably both). First class domestic was FIRST class.

I am sure this category will grow plenty for I will sign off here.

I'm not suggesting a government ban on FF programs -- that would be ridiculous.

What I am suggesting is that everyone completely ignore FF programs when choosing an airline. If FF programs do not result in people flying the same airline over and over, the costs of the FF program will exceed its benefits to the airline, and the airline will rescind it. Then we will have greater competition on price and service.

I'm already doing my part. I never choose an airline based on the FF program. I strictly choose based on a combination of price, service and schedule.

While I don't dispute the basic premise concerning competitive forces and potential quality of service improvements in SOME markets, I also willingly admit to loving the game as it is being played right now. The mileage runs, spiffs, upgrades, routing games and all the rest are part of a fun hobby/lifestyle that includes a ready means of keeping score. It will probably have to come to an end at some point -- but in the meantime, it suits me just fine. http://www.flyertalk.com/forum/biggrin.gif

If this is such a good idea, why is it that every business in every industry treats its best customers better in one way or another? Is "Joe B" the only one who really knows what's going on?

I can say that if FF programs were to end-

(1) I'd travel less often. Right now I fly in first whenever I want to; take away FF programs and I'd always be in coach. I'd travel less.

(2) I'd expect to pay less for my tickets. If I'm not getting FF benefits, I'm not paying as much for my ticket.

(3) I'd shop only based on price. "Joe B" thinks that getting rid of FF programs would bring us back to the good old days during government regulation where airlines were offering piano bars and freshly carved prime rib dinners. When frequent flyers aren't "restricted" to flying only airlines they have status on, they're going to look at price primarily. We are loyal to programs we have status or lots of miles in. Regular discount travelers who don't have status or many miles tend to be less concerned with which airline they fly, they just want a good price. So, contrary to the "service war" type scenario "Joe B" suggests would come about, I think it would be a more competitive fare war.

d

Doppy said:

"Right now I fly in first whenever I want to; take away FF programs and I'd always be in coach."

Not necessarily so, Doppy. Before all this mileage and FF programs, each airline had its own way of dealing with its best customers. In the seventies, I was an up-and-down the East Coast steady customer of Eastern Airlines and was given the status of "Executive Traveler." There weren't all that many ET's and I never failed to be upgraded to FC for service that was more like FC service than it is now.
Waitlists? Forget it. All I had to do was show my Brown ET card and I was immediately moved to the front of every line. And every EA employee knew how to treat an ET.

To quote JoeB:

"By the way, ending the reward programs would force up the airlines to concentrate on recognition plans that offer upgrades and other perks that frequent flyers really want."

Joe is right. If we got rid of all this FF program mileage and reward nonsense and let the airline companies concentrate on perks and privileges for their best customers, it would be easier to get the upgrade, the seat on the soldout flight, the complimentary club membership, and the recognition of who you are every step of the way when you walk into the airport.
How many of us who slog around for business really need a free flight as a reward? Better just make sure we get the FC seat on the way home in the evening after a tough day on the job out of town.

jb is an idiot. his writing is from the standpoint of entitlement. ff programs are a competitive edge for the airlines, hotels, car rental companies, etc. they are more than a reward for your loyalty, they are an information gathering tool for them. i have switched carriers several times and now spread my 'loyalty' among several carriers in all categories as do a lot of other people.

The industry obviously has decided that the programs are best for the bottom line. Otherwise, the programs would not exist.

Why would airlines drop the cost of F/C travel dramatically? That's their fattest profit area. People who buy those tickets aren't usually price-sensitive. Airlines would much rather sell those expensive seats, and then upgrade their most frequent travelers (in most cases, high-profit business types as well) to the remaining seats.

As for inflight service, I think most people (and the airlines) have written this off as a relic of the past. I know as a passenger, I don't want a crappy meal if I have to pay even an extra ten bucks for it. I know as a stockholder that I don't want to serve that meal unless I can recoup the costs. Thank Southwest for this: everybody competes with Southwest at some time or another, therefore no recouping costs of meals, therefore the meals are gone. (The exception is Midwest Express - they do a good job of hitting niche markets that LUV doesn't hit, they command higher fares across the board, and they provide a near-first-class experience.)

Joe B's point about not "mindlessly defending ff programs" is well taken. Although I personally hope the programs continue, I think they also have their downside. Airlines may well tend to offer their best customers less, rather than better,service because they feel frequent flyers will not walk easily walk away from their elite status. Indeed, alternative ways of rewarding loyalty may one day come along. This will assuredly be the case if both airlines and frequent flyers reach a point where neither feel this program is meeting their needs of rewarding/recognizing. The programs are moving toward such a point as more and more "miles" are totally unrelated to air travel, and as the "rewards" for mileage are continuously devalued. In this Joe B is right: keep an open mind.

Nonsense? http://www.flyertalk.com/forum/frown.gif

I love the FF programs, despite the difficulties and the devaluation! And I think Joe B is an excellent travel writer.

Yet, as noted, keeping an open mind never hurts! http://www.flyertalk.com/forum/smile.gif

-Mark

I think you are wrong. These programs offer no competitive edge simply because evry carrier has one. NOT having a program would put a carrier at a disadvantage, but having one doesn't help attract NEW customers. If there were no programs, or if all the major carriers offered reciprocity, then everyone would fly on the most advantageous flight to their intended destination regardless of which affinity program they belonged to. That would lead to less connections, less handling, less runway, airspace and terminal congestion, and more effciency
leading to greater profits. Let each carrier recognize the other's elites! Or let each carrier codeshare on each other!

So long as you don't mess with my SPG status and its perqs, you can take the rest of your programs away. Restricted upgrades, high fares, imposssible to use miles... to hell with them.

Please, SW, PLEASE come to MSP. I pledge 50 segments a year!

I would agree that having a FF program does not help with getting new customers and NOT having a FF program would put a carrier at a disadvantage. However, since "...every carrier has one", the airlines could be considered to be at parity with each other right now. Therefore, some of them SHOULD already be doing the things (like competing on service) that Joe B. mentions in his article. But it sure doesn't seem like they are. Why would eliminating FF programs suddenly change this? Fact is, it wouldn't change one thing.

Further, if the FF programs were such a drag on profits, they would be eliminated by each and every airline almost immediately. That isn't happening either so we can conclude one of two things: 1. That FF programs are profitable in their own right for each and every airline and thus eliminating them would reduce profits (AA is the only airline I am aware of who has made a statement to this affect; the others have been mum)
2. That some airlines run a profitable FF progam (i.e. AA) and others do not. If so, this puts the profitable FF progam and thus the airline with the profitable FF program in a much better competitive position. It suggest that a FF program WOULD be a competitive advantage.

It seems clear to me. Although I like and agree with most of what Joe B. writes, he is dead wrong on this one.

The Economist (not the WSJ) recently ran a stat from Randy that if FF programs ended today, it would take 23 years to burn off the outstanding miles assuming current usage rates.

FF programs are brilliant - the airline creates their own currency, and then sets the rules:
- Mostly non-transferable
- Sets capacity controls
- Sets transfer ratios
- Will sell miles directly, but will not buy
- Charging additional fees to use your own miles

A similar example is a casino. You can get all the chips you want, but you can only use them to play that casino's games, by that casino's rules. Now imagine if you had to pay a $75 fee to use the teller window.

As long as the public thinks that miles are worth 2+ cents, the airlines will keep churning them out. It is becoming more obvious by the day that they are worth increasingly less, as airlines add to the restrictions. I have relatives who call me and ask me why they cannot use the miles that they have been saving up for years for their upcoming vacation. They are learning the hard way - it's a one-way scam.

[This message has been edited by Tino (edited 05-22-2002).]

Slightly off-topic, but just to quibble with your example -- the times I've been at casinos in Lake Tahoe, I've had no problems bringing chips from one casino to another one -- they just change them into their own currency right at the table. (maybe they're really alliance partners and I was doing a codeshare, though http://www.flyertalk.com/forum/smile.gif )

(of course, this in no way affects the main argument here...)

Dan

The FFPs all pivot on a key assumption...there are a empty seats going unsold.

Pre-9/11, that seemed a reasonable assumption. But with most carriers having cut back schedules up to 30%, all of a sudden,there is much more parity between supply and demand of revenue seats...hence fewer empty seats left unsold.

If you really think about it, what business PURPOSELY would want to operate at undercapacity? The airlines are belatedly figuring this out!! I can't see any incentive in the forseeable future to significantly increase seat capacity. So, the FFPs will be the first to be short changed in this new environment.

I've been using FF awards for years for family travelling with me, and I cannot recall a flight where volunteers were NOT requested. That is to say, FF award seats do not come out of unsold inventory. That is a myth!

The airline has the option of converting the FF liability to an actual seat liability at its own choosing.

A FF mile deferred forever is not a liability to the airline. They know this as they continue to dole out 5 times the number of usable miles every year.

They could hand out 1,000,000 miles to every passenger this year, maintain the current number of available award seats, and the financial liability would not change!

What about this crazy idea... we've established several probable concepts... FIRST, FF programs do not give any one carrier a competitive advantage since they all have one, but not having one would place a carrier at a major disadvantage.
Second, we all at one time or another go out of our way, taking ineffecient routings or unnecessary connections to saty with our chosen carrier(s).

Now I am a Deltamaniac. Suppposed I wanted to go BOS-DEN. I could take DL via SLC,DFW, ATL or CVG. All rather inconvenient compared to a UA nonstop even though DL would upgrade me to FC. What if the majors all "code-shared" with each other? In other words, DL sends me over to UA for that BOS-DEN flight with my Platinum Medallion perks intact and accruing DL base miles. And the UA maniac that wants to fly from BOS-ATL would take a DL nonstop with his elite privileges being recognized by DL.

Advantage for customers: Quicker, more convenient trips with less connection anxiety and missed connections.

Advantage for airlines: More efficient to handle customer once without connection, costs of misconnects, less runway traffic and less airborne congestion. Airlines would be more efficient and make more $$.

In other words, reciprocal agreements amongst some or all majors to recognize each other's elites and their privileges on their nonstop routings. That would allow FFs to find the most logical routing even when their chosen carrier does not provide direct service. Pretty radical... but I think the concept has merit.

[This message has been edited by RobertS975 (edited 05-22-2002).]

There is an upside limit (in some sense) to the number of award seats someone can use in a year. Most of us do not have unlimited time to spend jetting from place to place. We have jobs that generate the income needed for other costs (hotels, rent/mortgage, food, cell phone bill, etc.) that in most cases can't be paid for with miles. People who do have a significant amount of free time and financial resources probably are not that concerned with FF miles. Thus, doling out more miles is probably not going to drastically alter the award seat supply/demand function since the recipients of the additional miles are likely to be people, myself included, who already have more miles than they can use. Just because I suddenly have another 500K miles doesn't help if I don't have the time or financial resources to take additional trips.

To some extent they are a liability.

If I wanted, I could transfer miles to Hilton, then exchange for merchandise. Granted, some of the exchange rates are pretty poor, but this is how they limit the number of miles exchanged for merchandise - by giving poor conversions.

Otherwise, everyone would be getting tvs and bicycles for their miles, which would cost the airline cash.

Wow, talk about anti-trust problems!

There may be some anti-trust problems, but how did CO/NW arrange their cooperation?
And the DL/UA mileage accrual deal is similar except for one vital element... the DL miles that I earn by flying on UA do not count towards status... that's a deal breaker for most of us.

Just curious: then why do you have almost 3,000 posts on a bulletin board that deals mostly with frequent flyer programs?

http://www.flyertalk.com/forum/wink.gif

Having no so-called FF programmes doesn't mean you couldn't be a premium traveller. In the old days many airlines issued courtesy cards to their best customers - who could then use lounges, be upgraded, etc. without accruing any miles for free tickets. In short, the airlines treated these people very well and there were fewer of them. I'd encourage them to go back to such a system but doubt they ever will.

Because I don't always believe in "if you can't beat 'em, join 'em". http://www.flyertalk.com/forum/smile.gif

FWIW:

... Levine predicted in the future there will be less disparity in the price of tickets in different classes of travel, as prices of the highest priced tickets are reduced. That may mean more large planes, he said, because airlines will need to book more passengers to pay for each flight.

http://biz.yahoo.com/djus/020522/200...2000952_1.html

--

I suspect that these programs are here to stay - thankfully! http://www.flyertalk.com/forum/smile.gif

The undercapacity was due to wanting to provide a desired frequency level. For example, on Delta the PHL-ATL route has about 12 R/T's each day. I guessing that average occupancy is no more than 50%, so let's cut out 6 flights.
Now, instead of a flight about every 90 minutes (from 5:30am thru 8:30pm), it's every 3 hrs. However, most people flying to ATL are doing so to catch a connecting flight. Depending on the connecting flight schedule (remember now it's also be cut in flight frequency), you may have a very long wait until you can catch the next flight.

So, instead of the long layovers on DL flying PHL-ATL-LAX, maybe I should just fly United PHL-LAX nonstop instead?

What Delta (and other airlines) really want to do is to get regional jets involved so they can keep up the frequency of flights, but reduce their costs by not having to operate such large planes. This would seem to make sense, except that many mainline pilots are objecting to it.

Jeff

You are now getting close to the "true market value" of a FF mile. It is a value at which the mile can be readily exchangeable. I would argue that the value for a Hawaii First Class ticket is not applicable, since your miles cannot be readily exchanged for that product.

As alternatives to air flight become more prevalent for awards, you will see what those miles are worth. I continue to hold that the everyday value is about a penny, but more if you are willing or able to find additional award seats (ex. you are elite level).

I have not paid more than $200 for a coach ticket since Sept. 11, so my personal value of miles has declined.

here's my thought on the issue:

For those of us not fortunate enough to afford round-the-world mileage run tickets in first class, or have companies pay for our travel, frequent flier programs seem to be the only way we'll ever know occasional comfort on airlines.

Sure, you could say that travel is rarely a necessity, and that those who want luxury or comfort should pay for it. And I agree it's true that airlines would be forced to improve their products if FF programs were ended. But where would passengers like me end up (fly somewhat frequently, but low fare always)? Stuck in the back, every time, right?

IMO, like it or not we are paying for the FF miles ... some discounted, some ridiculously priced. If the avg price of a coach ticket is now $200 (for example) and one gets 2000 miles for the flight (for example) then about $20 (just a guess) of that fare is 'banked' to cover the miles that are 'given' to you for flying. If the FF programs ended tomorrow, we would surely see reduced fares. Nothing is free, but take the miles and smiles, because you are paying for them regardless.

<<How many of us who slog around for business really need a free flight as a reward? Better just make sure we get the FC seat on the way home in the evening after a tough day on the job out of town. >>

Actually when I travelled a lot for business, I liked the rewards. It enabled us to save a few thousand on a 3 week exotic trip that at the time would not have been possible.

As to FF programs being attributed to the decline in service, I think you can look everywhere in the US at the service industry and while all businesses have toiled endlessly for ways to increase the almighty dollar, they have gradually phased out that better service to increase profits. Maybe it was a way to combat a recession but when the recession ends the service does not return. Airlines make plenty of money from FF programs by selling miles, sending out ads in the FF newsletters, etc. so it makes absolutely no sense to think that service will improve if the airlines eliminate a FF programs which actually are a source of revenue. Also consider that they make the revenue on the miles months if not years before they have to award the flight. Essentially, by the airlines selling miles to partners who award them to customers, the airline is selling a fraction of a ticket far in advance that may not even end up being used if the person does not redeem the miles before they expire.

Also, if a single airline would suddenly end its program, they would probably get blacklisted by many business travellers who would stick with the airlines that give them the miles. So unless the airlines colluded on the matter (which is illegal) it would be pretty difficult to eliminate the programs.

I agree with you on that point. However, airlines could gradually chip away at it until the FF program rewards only those who buy expensive tickets.

An airline could disallow FF miles on the lowest fare class (L and U on Delta, V and W on UA, etc.) I don't see the point in an airline rewarding the same number of miles to someone buying a $200 ticket as someone buying a $1000 ticket for the same flights.

As discussed before, back in the old days, airlines did reward their frequent flyers, although they did so subjectively if that makes any difference. Because the fares were regulated back then, a FF program based on revenue was basically the same as a FF program based on miles flown.

Today's FF programs are based mostly on miles flown rather than revenue, for various reasons. I imagine the airlines would rather reward revenue. After all, the point of the FF program is to keep revenue from going to competing carriers.

[This message has been edited by JS (edited 05-23-2002).]

Some interesting points.

When I used to have to fly ABE-BOS on US : a flight of less than 500 miles, it was often more expensive than an almost 3000 mile flight from ABE-LAX. Basically, the business routes (especially without Sat. night stays) are inflated to gouge the business traveller. I think that is why the airlines will recognize status levels by segments or miles: some business travellers make them a lot of revenue on short segments while getting minimal miles for the trip.

The miles thing has become more appealing to the miles chasers who constantly try to find ways to gain more. If it were solely based on dollars spend, say bye-bye to playing the game and the mileage runs.

It is funny how loyalty programs have become so prevalent even outside the airline industry - everything from Subway cards to those annoying grocery store cards that you have to sign up for just to get the "regular" price.