FF Programs promote product differentiation, i.e. they provide the opportunity for a producer to compete on some basis other than price. In this manner they avoid their products being a commodity. Some would say from the consumer standpoint that this muddies the water of the marketplace but it is a part of the classical definition of the oligopoly.

Remember several years back when the government increased regulations on credit card transactions/fees?Oh the din and hue from the American banks - "it's bad for banks, it's bad for the consumers, no more credit card goodies". Well the goodies are still here, maybe somewhat diminished, perhaps standards a little tighter.

It will be the same for the FF programs. They will be diminished, benefits will be more associated with higher spend customers, they'll still be around in some form though.

Big difference there... there are a bizallion different CCs and CC offers out there that are easily available. When it comes to airlines, there are a lot less and they have power from the oligopoly.

As the continue to strip away benefits, there is less and less differentiation and so it becomes more visible that it is an entirely commoditized product and they won't be able to command additional price just because they think they're 'better' than the competition.

As I've said in other threads, its coming down to airlines, and especially DL brushing off anyone except for the full fare fliers. Thats apparent with how they reduced earn on M fares to really stick it to pax who use SWUs. Unfortunately I don't see any change in their attitude of acting like the big fat cat in the yard, and its just going to get worse.

Even when the business cycle turns negative again (which is likely sooner than many thing) I don't see the airlines giving away incentives to get pax to fly. They'll just cut more supply and keep fares high which will drive more people to choose the lowest cost regardless of so-called FFPs.

This is an interesting discussion which is not specific to Delta Air Lines or the SkyMiles frequent flier loyalty program.

The new home for this discussion is now the TravelBuzz! forum, where FlyerTalk members who are members of the frequent flier loyalty program of other airlines may opine with their thoughts.

Regards,

Canarsie
Co-Moderator, Delta SkyMiles forum

Actually it is - the criterion for discrimination is in terms of a market characteristic - which is not dissimilar from traditional discrimination experienced in the 50's - the lunch counter, the bus, and the water fountain as examples. The characteristic was race - in the case of airline fares it is conditions of the purchase - i.e. Saturday night stay, direct versus connection, route, etc.

The first is not exactly correct but certainly the second is a bonafide example of price discrimination - remember, the criterion for "effective" discrimination is that the two markets are differentiable and the "product" cannot be moved from one to the other. In the case of the "advanced" purchase, it relates in part to the willingness of a purchaser to assume the risk of travel plan changes. It is only "discrminiatory" in that there are fare buckets and limited availability. Its like shoe sizes and sales only in reverse. You wait until the clearance sale and you may not get your size.

No - this is not price discrimination, this is an example of product differentiation. For example, you have two choices - to buy a ticket with miles for $200 or one without miles for $150. Both give you a seat in Y and both give you a trip from point A to point B. For the extra $50 you get 2000 MQMs and RDMs. You just bought miles plus the ticket as opposed to the ticket alone. Not much different than "supersizing" for a $1 at MickeyDs.

Price discrimination would be the case where you can buy a theatre ticket for Thursday afternoon for $5 but would need to pay $20 for the same seat on Saturday night.

Which is product differentiation - whether it occurs within or between firms is immaterial.

FF programs are not price discriminatory - they are by definition, product differentiators. Examples of price discrimination in the traditional sense are few and far between.

Don't see how this would happen. Airlines make way too much money selling miles to partners like credit cards

Which would be pretty hard to explain that way, as the FF infrastructures are huge moneymakers for the airlines.

So very true and all of the businesses that have sprouted up around the FF programs. The only caution I would have is use your points rapidly as you reach your goals. I use to hoard mine but no more.

Indeed, price discrimination is what airline revenue is all about. The costs of this product are almost entirely fixed as to a given seat on an airplane. Whether it's fares, miles or a combo of both, this is all about getting the most money possible from each customer. Sell cheap to the bargain-hunters (elastic demand); stick it to the gotta-get-there-exactly-then customers (inelastic). There are many shades of grey between the extremes, and mileage programs help add more colors to the price-discriminating palate.

It's called differential pricing based on market segmentation. Price discrimination has a specific legal standard. Some forms are illegal. Some forms of reselling in a legal form of price discrimination are likewise illegal.

Really?

I'd love to hear which benefits European FF programs offer that US ones do not.

You've already mentioned that the three major US programs still offer full qualifying miles and bonus RDMs for even the lowest fares. AA even gives out eight international upgrades that can be used with the lowest fares. AA and UA offer free upgrades on Hawaii routes that can meet or exceed the distance of a TATL. I'm not aware of any 2,500 mile domestic flights in Europe routinely given away as free upgrades often in a premium seat. Many airlines don't even HAVE premium seats intra-Europe.

I do not think it is all doom & gloom, but I do think the airlines have us "by the balls." They will just continue to identify new revenue streams and test the limits that we will tolerate as frequent flyers.

Most of us are somewhat restricted by the airline that has dominance in the city we live in. For me that is United given that I live in Houston. So all United has to do is make sure they have a better offering than their only other real competitor, Southwest.

Think about the benefits that most of us truly appreciate:

• Priority security screening.
• Priority boarding.
• Upgrades to a higher cabin.
• Priority baggage service.
• Seats with additional room.

How much does this really cost the airline? Upgrades to a higher cabin only occur if no one has purchased a ticket in that cabin (lets exclude the economic impact of using banked upgrades or points). Boarding elite passengers also doesn't really cost the airline anything. Pulling your bag off the plane before others doesn't really cost them anything more. That security line is usually just designating a specific line(s) for premier passengers, otherwise they would be used for everyone. Seats with additional room, like United's Economy Plus are usually the last seats left on most flights, thus are where standby passengers usually end up. So if no one buys the seat for the additional cost it isn't like they are losing money by putting someone with status there. I have yet to see a flight where E+ is sold out and E- is open (not saying it couldn't or hasn't occurred).

The miles they toss our way have already been proven countless times to actually work in the favor of the airline, but I would not rule out the likelihood of seeing the bonuses they grant us disappear leaving us with just 100% of the miles.

All in all I think you'll see those core benefits remain as well as be sold off to non-preimer flyers for an additional fee for those willing to pay.

-Nathan

When talking about "the end of FF programs" you have to be more specific. Upgrades during non-peak times, priority security, priority boarding these are things that will never go away because they have virtually zero cost.

But what is likely to happen?
1) A reduction in first class and business class award seats. As airlines get better at nearing 100% occupancy on planes I expect first class to nearly disappear and business class to reduce in size in order to add more economy class seats. If there is an average of 4 paid bus class per flight expect those 12 chairs to be reduced to 4 and for 21 new economy class chairs to be placed in their wake.

2) A devaluation of airlines miles. Airlines will still make all their money by selling miles to credit cards and "having a frequent flyer program" but we will see what Delta is doing right now expand to other carriers. The days of 20,000 miles getting you a flight will go away and it will cost more like 40,000 for an economy seat. This won't happen at once, it will be a measured set up 20% increases over 4-5 years. See: Hotel loyalty program devaluations in 2012 and 2013

good post and I concur . Sadly there are many other there that feel they are "entitled", therefor should always be in FC at coach prices! I see and hear them at the gates constantly.

For me I truly enjoy the "preckeck" line, the early boarding. I happen to purchase the "auto" upgrade fare. Just me and when it's not available I buy the full fare FC ticket. Again, just me. I am in the top 2% on my home carrier AS and they still treat their FF the best! I think it's just their DNA. Unlike some of it's "partners" like Delta. UGH

US centric much?

If the big 3 were to dismantle their FF, I'm sure() they would give advance notice. Pax would begin redeeming miles for free travel to use up miles which will have NO value in the future. In that period the airlines would have little revenue in real $. I don't think that would be a plus for any of the airlines.