The end of an era in frequent-flyer programmes

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By: RickFerguson |

Posted on August 2, 2016

Over at Skift, Grant Martin offers a eulogy for US-based legacy carrier loyalty programmes, which have completed the transition from mileage- to revenue-based earning structures. With American, Delta, and United now offering nearly identical earning structures, the programmes have now shifted their focus toward catering to a smaller, lucrative group of elite business travelers.

The last holdout among the Big Three was American Airlines, which has now officially completed its transition to a revenue-based earn model. Base-level members of all three major carrier airline programmes now earn five miles for every dollar spent. The days of racking up miles on short-haul discounted fairs are gone forever, and the mileage hounds over at Flyertalk may be long embittered. Meanwhile, reaching top-tier elite status in these programmes now requires spending around $15,000 per year along with flying at least 100,000 miles.

If you're not already flying at that level, the chances of ever reaching the rarefied heights of Platinum may now be forever out of your reach. Money quote from Grant Martin:

"For many, American's move to the new programme now officially ends the era of traditional airline loyalty as it cedes to the new wave of revenue-centric models. Those with deeper pockets may still find a way to earn and burn miles like yore, but for those who travel on a shoestring, the day of reckoning has arrived."

The question, of course, is how the move to revenue-based earning harms or helps customer loyalty. Those of us in the loyalty industry have long understood that the move to revenue-based earning was overdue; the legacy programmes had grown too massive, and the programme liability too untenable, for the airlines to continue to offer every flyer a mile per mile flown. Loyalty programmes exist to increase retention and yield among best customers - those who mean the most to your bottom line - and rewarding low-spenders for racking up miles on discounted fares has always meant that these programmes weren't structured appropriately to build relationships with the airlines' most valuable customers. Moving to revenue-based earning simply corrects a mistake made by American Airlines when it launched AAdvantage in 1981, a mistake which was then compounded  by the rest of the industry.

Will the airlines now bleed low-value customers to discount airlines? Of course. But that was happening already; a loyalty programme isn't going to insulate a customer relationship when that customer can fly from Cincinnati to Orlando for $200 on Allegiant Air versus $400 on Delta. Rewarding price-driven flyers a mile per mile flown simply adds liability to the airline's books with no opportunity to convert those flyers to high-value customers.

What the earning shift allows the airlines to do is reward those customers who are motivated by factors beyond price: customers who can be encouraged to stay or to switch with a flawless customer experience, with the right bonus offer to snag that one extra flight that would otherwise have gone to the competition, or who will be receptive to a personalised, relevant offer that forestalls giving that competing low-cast carrier a try.

If the move to revenue-based earning results in frequent-flyer programmes that are smaller, leaner, and more effectively focused on developing profitable customer relationships, then the transition will have been a successful one. The move will ensure that these programmes remain healthy, delivering benefit to the airlines and their best customers alike. That's a long-term vision of success.

Read the full Skift article here.

-Rick Ferguson



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