Why Legacy Airlines Should Not Switch to a Revenue-Based System
A change is inevitably on its way to legacy US carriers (American, Delta, United, US Airways) and that isn’t necessarily a good thing for frequent fliers, or anyone earning and burning miles for that matter.
According to a USA Today travel article, change is in the air for these airlines to switch to a revenue-based model:“I would suggest by this time next year there’ll be at least one, if not more, of the major carriers that have adopted this kind of new normal among frequent-flier programs,” says Randy Petersen, publisher of Inside Flyer magazine, which closely follows loyalty programs. “I think in five years we will have forgotten about the old system.”
While all loyalty programs are all about rewarding customers for their loyalty, how they choose to do so varies.
Currently, the legacy carriers operate on a principle of fixed or full transparency. That is, they offer the same benefits to anyone who is able to reach a certain level. But this principle is limited in rewarding a program’s best customers. Say for example, one elite member on an airline flies 100,000 miles per year, while another flies 200,000 miles per year? The paradox is that in a fixed model they earn the same elite level, and there is no reward for flyer 2 traveling twice as much.
Other programs, like Virgin American, SouthWest, Jet Blue and namely the Starwood Preferred Guest hotel program operate on a principle of controlled or intimate transparency. That is, the programs provide a more personal experience, by tailoring their rewards based on the amount of business generated. While intending to be more customer-centric, this approach has some negative ramifications.
As I shared in my response to these rumors back in March, this hits the hardest as a passenger. Your value as a passenger, and by extension, your elite status, becomes defined by your fare.
Not to mention that a large number of frequent fliers on an airline don’t fly out of choice, but because their company has a contract to fly with that entity for business travel, as Gary notes. “You want to reward people who are choosing to shift their business … and that might not be the person giving you the most absolute dollars.”
Plus, this devalues miles where I think they are most useful-aspirational travel. The amount of mileage required for award redemptions would be based on the cost, and thus would become an inappropriate and (cheap) replacement for replacement for money.
Furthermore, it would be a risky move at that, as SouthWest Airlines changeover proved:“It took Southwest more than three years to transition from a flight-based to a fare-based program in March 2011, says Jonathan Clarkson, director of the airline’s loyalty program known as Rapid Rewards. When it announced the change, 60 days before it began, the carrier got an earful from some fliers.”
What scares me, is that Delta’s Jeff Robertson is at least willing to comment on it:“We’re always anticipating the future” says Robertson. “But the reality of that is, that type of change is massive. … It has massive implications, and it requires massive analysis and would not be something we’d do without a lot of analysis and prep work.”
While you certainly want to award business, it would not seem prudent to be disingenuous the source of over 50% of an airlines revenue—their frequent fliers.
Tip of the Hat to Mr. Gary.