Frequent Flyer Miles Ain’t What They Used to Be
Chances are that you spend most of your time on the phone doing something other than talking. Things like texting, checking Facebook, watching YouTube, reading the Rocketrip blog – all activities that would be incomprehensible to Alexander Graham Bell.
Try explaining Snapchat to the inventor of the telephone and you’d be met with a blank stare. Even if he somehow did manage to grasp the essential meaning of a “branded geofilter,” he’d be hard pressed to understand what it has to do with the voice-based communication device he patented in 1876.
“Phone” is just one example of a word outliving its original meaning. Television is another. In the year 2016, television pretty much means Netflix, which, incidentally, is another common use of the modern phone.
Meaning is contextual, lexical relevance fleeting. Every year, more and more words become estranged from the concepts they were originally meant to describe.
Recently, the term “frequent flyer miles” has ceased to be an accurate description of the rewards that airlines give to customers. Changes to airline loyalty programs mean that the number of frequent flyer miles you earn no longer has all that much to do with how frequently or how many miles you fly.
But unlike the evolution from Alexander Bell’s “harmonic telegraph” to the iPhone, what’s happening to frequent flyer miles does not represent progress.
The Golden Era of Frequent Flyer Miles is Over
This spring, thirty-five years after introducing the world’s first major frequent flyer program, American Airlines signaled the unofficial end to the golden era of travel rewards when it because the last of the “big three” legacy carriers to overhaul its loyalty scheme.
AAdvantage, like Delta Skymiles and United MileagePlus before it, has become a revenue-based rewards program, in which passengers earn frequent flyer miles based on how many dollars they spend, rather than how many miles they fly.
Airlines have also changed their rules for rewards redemption, generally moving towards a dynamic pricing model in which the number of frequent flyer miles required to pay for a flight more closely aligns with its price in dollars. These updates make it harder for bargain hunters to earn and leverage their miles, and have been received less-than-enthusiastically by rewards experts.
Indeed, under the new system most travelers will earn fewer rewards. An analysis from Skift compared the rewards travelers would earn under a representative airline’s old and new frequent flyer programs on an average flight from Los Angeles to New York, and found that non-elite passengers would see a 25% reduction in earnings. Passengers who purchased their airfare on sale would do even worse, earning 70% fewer rewards than under the mileage-based system.
Winners and Losers
Not everyone will do worse under a revenue-based rewards program. Though leisure travelers and other bargain-hunters will find it harder to earn free flights, high-spending customers who qualify for elite status will earn rewards at a higher rate. This particularly benefits people who fly frequently, buy full-price airfare, and are loyal to a single airline. In other words, price-insensitive business travelers.
By extension, businesses could find themselves on the losing end if new frequent flyer programs encourage employees to spend more on their trips. Travelers now have a strong disincentive to purchase discounted tickets, or to shop for better fares with a carrier other than the one with which they have elite status.
Companies might respond with restrictive spending guidelines, or even by trying to reclaim the frequent flyer miles employees have received for travel paid for with a corporate card. On the other end of the spectrum, many companies are responding to the problem of high business travel spending with incentive programs that reward employees for saving on their trips.
Why The Change
Last year, low fuel prices helped airlines achieve record profits, despite headwinds that have depressed demand and airfares. The new point of emphasis for airlines is growing revenue without expanding capacity. To increase revenue-per-seat, airlines have introduced more ancillary fees as well as a greater range of premium fares.
They have also redoubled efforts to attract and retain the most profitable customers. On a recent call with investors, United’s CEO indicated that half the airline’s customers fly with United once a year or less. This group accounted for half of the airline’s revenue, meaning that the remaining half of revenue is generated by only 15% of customers.
These high-value customers are the intended beneficiaries of the revamped loyalty programs. Say what you will about the changes, but there’s an undeniable frankness to revenue-based rewards schemes: bring in revenue for an airline, and you will be reward accordingly. That’s a proposition that will please high-spending business travelers, but leave everyone else longing for old days, when frequent flyer miles were still frequent flyer miles.