wanaflyforless

A) What is the better business practice?

B) What do we FTers want our airlines to do?

C) Do we care more about our personal benefits from our FF program in the near term (this year, next year) or the long term ability of our airline to make profit enabling them to keep flying and raise more money to improve the quality of the products they offer us (fleet, safely, customer service, lounges, etc)?
Would we want the airline to be more generous to us for our personal short term benefit even if it means the airline will go bust in the future?

Should a US airline that offers its elite customers complimentary upgrades consider it more important to upgrade person A or person B? There is only one first class seat left, who gets it?

PERSON A) Last minute frequent flyer who buys full fare $1000 economy tickets 10 times a year, earning enough miles to maintain low level (25Kmiles/year) elite status.

Or

PERSON B) Advance purchase value conscious top level elite flyer (125K miles/year) who buys a $350 ticket 50 times a year?

- Total revenue from A is 10 x $1000, so $10,000 total.

- Total revenue from B is 50 x $350, so $17,500 total.

- Most US airlines have an average cost per seat mile in the neighborhood of 15 cents per mile flown

- Person A flew 25,000 miles, costing the airline approximately $3,750 (25,000 x $.15)

- Person B flew 125,000 miles, costing the airline approximately $18750 (125,000 x $.15)

So:
Person A contributed $10,000 and cost about $3,750 (using average seat cost).
Person B contributed $17,500 and cost about $18,750 (using average seat cost).

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Airlines loose money from me.

United Airlines, for example, will upgrade me as a 1K on a $100 ticket before they will upgrade a 2P on a $1000 ticket.

I think United should upgrade that full fare $1000 ticket passenger before me.

Do you agree?

Cholula

This is an excellent topic but since OMNI is, in general, for topics other than miles, points and travel, we're going to move it to TravelBuzz!

Please follow at it's new home.

Thanks.

______________________________

Cholula
OMNI Co-Moderator

baliktad

The entire point of a loyalty program is to drive loyalty (a long-term, profitable relationship), not reward one-time transactional purchases.

If a business traveller knows with a high degree of certainty that he can score an upgrade on any airline with a high-cost, last minute purchase, he is not motivated to stay loyal to any particular airline. This means his purchasing behavior converges on the type that airlines hate the most: lowest cost wins.

Airlines like the last minute fare purchases, but they like long-term loyalty more. If you are loyal to an airline, you become more willing to spend more than the lowest price ticket just to fly on your favored airline ALL the time. This creates a "rising tide lifts all boats" economy where higher fares are more acceptable and avoids the "race to the bottom" that the LCC's are pushing towards.

There's a reason all the big carriers reward status first, then purchase date or fare bucket, and it's because the bean counters in charge of such things have determined that this is most profitable. There's no other explanation.

wanaflyforless

Considering the divide between what the last minute inflexible flyer and advance purchase flexible flyer need to pay for their tickets, could the legacy airlines be wrong?
Yes. But are they achieving their aim? Some frequent flyers are not profitalbe.
AA added legroom to its entire fleet and advertised "More room throughout coach" everywhere. Only to add more seats later, concluding travelers chose their tickets based on cost alone. Over and over again we have heard from our airlines they have to cut X to cut costs because the flying public chooses to pay for their tickets based on cost alone. Have FF programs failed?
Yes.
However, some flexible top tier elite travelers will modify their travel dates or fly an alliance parter rather than pay more.
Looking at the "full service" legacy carriers over the last 10 and 20 years, I see a very clear race to the bottom. Did FF programs fail?
Considering how much money these same airlines have been loosing, I am willing to consider these been counters could be wrong.

Non-NonRev

One thing to factor in is the "instant upgrade" offered by many airlines for passengers buying full (Y and sometimes B) fares.

On routes with a historic high amount of last-minute full-fare purchases, airlines have the option to withhold upgrades until the day of travel - picking one route at random, elite upgrades are hard to get on AA's SFO-DFW flights. The front cabins are often filled with pax booking directly into F or Y/B, and when elite upgrades do happen, they can come just hours before the flight (or even at the gate).

Mr H

In the example you have given, the airline is selling tix to the FF for less money than the seat costs to operate. I don't know many airlines that would allow many passengers to become elite on loss leader fares. Of course, I'm sure it can be done if the circumstances are exactly right but the instances would be few and far between. Most FFs are willing to pay more for their tix than they need to because of the additional benefits they get from status. Airlines price their tix and award status with this in mind.

wanaflyforless

In the US, as full status miles are earned on all fares, earning status on $350 USD (below average cost/seat mile) fares is easy for anyone who can plan ahead and be flexible with dates/times/routing on their airline/alliance of choice.

Airilnes such as QF and NZ or AF and LH make earning status on cheap fares very difficult, as cheap fares do not earn full status miles.

Ocn Vw 1K

Exactly. Legacy airline frequent flyer programs were established and operate as loyalty programs. They incent members to give the airline both their cheap and their walk-up fares.

Over the years, there've been airline studies showing the direct correlation between frequent flyer status and overall revenue generated to the airline.

FlyerTalk may represent an exception to the rule, as FTers have learned how to maximize value of the programs. But FTers are exceptional in the general travel population.

Also, some airlines have been able to offer last-minute or business fares which include F access or which have upgrade access for a nominal amount.

Penbank

The airline has every incentive to make it a pleasant trip for those who pay for the last minute airfare. So if someone has to fly twice a year on a full fare ticket, they should be upgraded. They'll come back for future travel.

On the other hand, the person who flies frequently on discounted fares on weekends and achieves status and can be of benefit to the airline. If airlines treat such person like cattle, they will abandon the airline and look only for price.

I'm sure there are those in New York who frequently fly to Los Angeles every weekend or every other weekend. Or, who knows, weekly between Omaha and Pittsburgh? Occasional upgrades to those passengers will keep their loyalty.

My feeling is that if I pay a high fare and am upgraded, I think I should. If I fly often and get an upgrade, I consider that a gift.

wanaflyforless

So your answer is the high fare person should get the upgrade over the higher level elite flyer?

(That is my position but many on FT disagree.)

rjw242

I think United should do whatever maximizes their profit in this situation. Presumably they have considered these options (as have all other US airlines that follow similar policies), and found that placing elite status first is the optimal strategy.

baliktad

It seems that the core of your position is not really so much that you think the high-fare person should get the upgrade, but rather:

• You like the legacies and their premium cabins, and you don't want them to go bankrupt and be replaced by the likes of WN.
• You believe that the current structuring of the legacies' FF programs is more detrimental to their bottom line than it is beneficial, and that this will eventually cause them to be insolvent.
• You believe that the way to reverse this course is for the legacies to restructure their FF programs in such a way that premium seats are awarded auction-style solely to the travellers who have paid the most for that particular flight.

I don't really believe in this line of thinking, as I think it vastly underestimates the profit attributed to the current format of legacy FF programs. Upsetting the current methodology means that a traveller's confidence he will secure an upgrade will drop dramatically unless he consistently pays more than 90-95% of the other travellers. In this world, now that 90+% of the plane has no real chance of an upgrade, that 90+% now retains no incentive to fly on a particular airline, and will purchase their tickets based on price, schedule, or routing with no regard to marque.

Following this line of thinking a bit, without the premium that elite members are willing to spend to fly their preferred airline, the average seat price will drop. To even maintain the current level of profitability, airlines would have to make up this difference by charging those at the high end even MORE. But in the auction-for-best-seats world, the traveller who desires a premium seat is not motivated to spend more than he currently pays; in fact, once he knows the seats simply go to those that pay the most, he is incented to pay just $1 more than the 90th percentile, and will search for fares that meet this criteria. There really is no incentive to overspend, so the airline ends up losing money from both ends of the spectrum.

I don't necessarily disagree that the legacy carriers are the brink of implosion, but I'm not convinced that converting a loyalty program into a strictly transactional purchase model is the solution.

Ancien Maestro

I would have to agree, although full fare adds to the bottom line, its' the loyalty that drives the bottom line even more. Having said that, I would hope to get a few upgrades as part of the general public, or ffp user, but I don't hold my breath.

Ancien Maestro

I see the logic.. and would be nice to have everyone upgraded.. and I guess Elite Members get their guaranteed upgrades.. so we're talking about out of the blue upgrades, right?

wanaflyforless

Great posts, baliktad.

YES!

EXACTLY RIGHT! ^
That is too extreme, IMO, for the reasons you highlighted in the rest of your posts.
I don't think upgrades should be granted "solely to the travelers who have paid the most for that particular flight."
I do think the airlines need to provide a greater incentive to buy full and high fares.

One change they should make is give all paid first, business, and full fare (published Y and B) economy ticket holder free lounge access, priority security, and priority boarding. When the infrequent flyer pays $1000 for a Y ticket, they shouldn't be asked to pay more to access the lounge. Rather they should be given a lounge pass and told they will get free lounge whenever they buy a Y or B ticket. This makes them feel valued rather than nickel and dimed. It gives them a good feeling about that airline and makes them more likely to remember they like that airline next time they need that last minute ticket.

For upgrades, using United Airlines as an example:

UA's fare hierarchy is: Y, B, M, E, U, H, Q, V, W, S, T, L, K

Perhaps the UA upgrade priority list should look something like this:
1) Any GS regardless of fare paid (GS is United's revenue based top level status)
2) Any elite on a Y or B published fare (prioritized by elite status, then $/mile paid within each status level)
3) Any non-status passenger on a published Y or B fare (prioritized by $/mile paid)
4) Top level elites on M, E, U, H fares (prioritized by $/mile paid).
5) Mid level elites on M, E, U, H fares (prioritized by $/mile paid).
6) Top level elite on Q, V, W, S, T, L, K fares (prioritized by $/mile paid).
7) Low level elites on M, E, U, H fares (prioritized by $/mile paid).
8) Mid level elites on Q, V, W, S, T, L, K fares (prioritized by $/mile paid).
9) Low level elites on Q, V, W, S, T, L, K fares (prioritized by $/mile paid).

This would increase how much the high fare passenger likes their UA experience versus WN and encourage them to buy full fare on UA rather than WN.

The way it is now, as a UA top level flyer on a $100 K fare, I get priority over the UA mid level flyer on a $1000 Y fare. That is what needs to change but not by going to a complete auction style fare paid only upgrade hierarchy.

Elite status should matter a lot, but so should fare paid.

I agree with this statement.

Is modifying the FF program part of the long term solution to the broken legacy business model?

When FF programs were created, the gap between full fare and discounted fares were much much smaller than they are today. Do airlines perhaps feel stuck, cornered into keeping a program that no longer properly rewards their best customers?