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Topic: Why FF Programs Don't Work
Username: delta2ual
Posted 2013-02-16 11:13:25 and read 9262 times.

Interesting article on Forbes:
http://www.forbes.com/sites/larryolm...-and-what-delta-is-doing-about-it/

I've always thought WN's recent(ish) program changes made the most sense: reward the people who spend the most money.
DL's new system is a step in the right direction, but they should go further. I hope UA follows suit.

From the article: "Imagine a bank credit card that rewarded you based on how often you charged things rather than how much you spent. It’s a ridiculous concept bankers would never go for – but airlines almost all think this way."

Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

Topic: RE: Why FF Programs Don't Work
Username: FWAERJ
Posted 2013-02-16 11:18:20 and read 9231 times.

Quoting delta2ual (Thread starter):
I hope UA follows suit.

I think AA will also follow suit with the post-merger 2014 AAdvantage (or whatever they want to call the new FFP) program.

Topic: RE: Why FF Programs Don't Work
Username: by738
Posted 2013-02-16 11:23:34 and read 9207 times.

I don't really understand the argument. Im not sure you can compare banks, debt and credit with full fare paying income

Topic: RE: Why FF Programs Don't Work
Username: FWAERJ
Posted 2013-02-16 12:08:49 and read 9057 times.

Quoting delta2ual (Thread starter):
magine a bank credit card that rewarded you based on how often you charged things rather than how much you spent. It’s a ridiculous concept bankers would never go for

One of the biggest banks here in FWA (iAB Financial) has a checking account that rewards you a flat rate per debit card transaction based on how often you use your debit card: 5 cents per swipe for 1-9 Visa Debit purchases and 10 cents per swipe for 10 or more.

Link: http://www.iabfinancial.com/personal-banking/checking#plastic

[Edited 2013-02-16 12:10:30]

Topic: RE: Why FF Programs Don't Work
Username: AA737-823
Posted 2013-02-16 13:09:29 and read 8825 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

Because a person who took ONE expensive trip is NOT a loyal customer; a person who took eighteen cheap trips wholly within the state of California or Texas or on the eastern seaboard where there is COMPETITION..... is a loyal customer.

NOT EVERYONE is a full-fare passenger, traveling for business, with his/her company footing the bill.

Most such passengers don't actually choose the carrier- their company's travel representative does that, or, the company has a pre-negotiated travel contract with a carrier or carriers. Also not much loyalty on the part of the individual.

Topic: RE: Why FF Programs Don't Work
Username: nycdave
Posted 2013-02-16 13:19:52 and read 8774 times.

It's a loyalty program, not a rewards program. That's the key argument in favor of the mileage/segments structure.

But, but, but... I don't know that you could make a good financial argument saying "we'd make more money getting a paying customer in that coach seat from PHL-ROC a few more times, than getting one J class customer flying PHL-FRA"

I think the payment-based system is the wave of the future, but I kind of hate it. Rich people already get plenty of benefits in this world of ours... That, and I used my UA miles to buy everyone presents for xmas this year...  

Topic: RE: Why FF Programs Don't Work
Username: ORDBOSEWR
Posted 2013-02-16 13:26:16 and read 8738 times.

Or one could have a company that has agreements with every airline and tells its employees you are to select the airline that is the cheapest regardless of ff. Which is my company.
or you could live in a city that has a fortress hub and you really do not have to many options

Topic: RE: Why FF Programs Don't Work
Username: LHRFlyer
Posted 2013-02-16 13:30:56 and read 8714 times.

I don't think it's true at all to say frequent flyer programmes don't work. They are an absolutely integral part of the marketing/customer relationship management strategy of most airlines. This is why most airlines have resisted the temptation to sell off their programmes.

Whilst Delta is changing their system to recognise money spent more than simply miles accrued, this doesn't mean the whole system is flawed. And a key point about frequent flyer programmes is that they're not only there to reward revenue you would receive anyway (ie from large corporate customers) but also to encourage extra revenue which you may not ordinarily have received (ie discretionary leisure passengers).

To be honest, I think that those that game the system by taking unnecessary trips are very much in the minority and most regular flyers would balk at taking unecessary flights/more complicated routings to earn status.

Topic: RE: Why FF Programs Don't Work
Username: AndyEastMids
Posted 2013-02-16 14:06:11 and read 8574 times.

The thing that's missing from the story is that most frequent flyer programs are profitable for the airlines that operate them - they may not always target the right customer, but they tend to be profit centres, not loss-leaders. Several airlines have monetarised their programs by floating them as stand alone companies, and others are considering it. Where programs have been monetarised, the separate company has tended to be profitable (and in one case the frequent flyer program had a higher market cap than the airline it operates on behalf of).

And in case, if anyone is wondering why the programs tend to be profitable... Changes to accounting rules in many countries have resulted in many airlines having to represent their frequent flyer liabilities on their balance sheets. As customers travel on different partner airlines, there is a cashflow from the airline carrying the passenger (the airline that recieves the revenue) to the airline with whom the frequent flyer is a member (the airline that carries the liability for the points / miles earned). Add to this the revenue airlines make from selling points / miles to none air partners such as credit cards, supermarkets, etc. and the income that a popular frequent flyer program generates can be significant. OK, so there's a coat to proving awards, but those costs tend to be low if the airline has its revenue management right as most awards tend to go into expected unsold inventory - that's why awards that guarantee a seat on any available flight cost a lot more points / miles than "saver" awards that book into unsold inventory. Anyway, the cost of an award is typically low, whilst the airline can be earning quite a lot of money from points members accrued with airline and other partners. Add to this the fact that some members never redeem their points / miles, and many points / miles expire and are lost - in these cases the liability gets dropped and any liability on the balance sheet can be converted into profit.

BTW, the above is why few airlines are likely to drop frequent flyer programs...

Now, returning to the issue of whether they target the right customers, we used to use a quadrant that essentially divided members of the frequent flyer program into several groups - frequent (F) or infrequent (I) travellers, profitable (P) or unprofitable (U). We then aimed to assign each customer to one of four categories - frequent/profitable(FP), infrequent/profitable(IP), infrequent/unprofitable(IU), frequent/unprofitable(FU). Having worked out whether a member was FP, IP, IU or FU, then broadly it was possible to devise a strategy for the members in each of these four groups:

FP - Frequent, Profitable
Do everything you can to retain these customers, these are your ideal customers
Objective - retain, grow

IP - Infrequent, Profitable
Nurture these customers, don't upset them as they may start travelling more regularly
Objective - retain, move to FP (e.g. incentivise them to travel more)

IU - Infrequent, Unprofitable
Let these customers be as they're not doing you much harm, but don't do much for them as you don't really need them and they're not doing much for you
Objective - develop, aim to increase revenue (e.g. incentivise them to higher spend and move to IP)

FU - Frequent, Unprofitable
FU says it all, you don't need these customers
Objective - move to another airline / exclude from the program (e.g put obstacles in place to discourage their use of the program)

Clearly, this is a fairly simplistic model and more sophisticated member categorisation went on, but it points to the general direction we (and other airlines) were moving.

We also debated whether it was important to have each loyal customer in the program, or whether it wasn't too important if customers who were loyal anyway didn't join. The theory postulated was that a loyal customer outside of the program cost nothing whereas a loyal customer in the program did carry some cost associated with servicing their membership. The conclusion was that it was most important to track each loyal customer's travel and spend, to be able to communicate with them, and offer them incentives to remain loyal even if there was some cost associated with doing do.

Andy

Topic: RE: Why FF Programs Don't Work
Username: BMI727
Posted 2013-02-16 14:14:22 and read 8512 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

Because they're stupid.

Quoting AA737-823 (Reply 4):
Because a person who took ONE expensive trip is NOT a loyal customer; a person who took eighteen cheap trips wholly within the state of California or Texas or on the eastern seaboard where there is COMPETITION..... is a loyal customer.

It's not loyalty, it's the bottom line that counts. Quarterly results don't count how many repeat customers you have, they count profit and loss. You could have the most loyal customers on the planet, but if it doesn't translate to money it doesn't help you a bit.

Topic: RE: Why FF Programs Don't Work
Username: AeroWesty
Posted 2013-02-16 14:34:10 and read 8438 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

Because you have to go back to the very beginning of FF plans to understand them. FF plans were based upon no elite levels at all, and there wasn't the huge gulf between the lowest and highest fares as we have today.

The first awards were for either free First Class tickets or % off Coach. Upgrades were available for 12,000 miles, which WAS revenue-based to a degree. It was set at that level by AA so that their longest route travelers at the time, LAX-BOS, had to fly at least the same number of trips as other transcon flyers in order to earn a free upgrade.

Lots more info here: http://www.insideflyer.com/articles/article.php?key=2926

There's also some element of revenue qualification in the FF plans—if you have a high enough elite level, some airlines will automatically book you into First with a high enough Coach fare.

They've a long way to go to be truly equitable in rewarding volume of dollars spent vs. miles flown, but some of these discrepancies have been addressed, meekly, admittedly, over the years. It's not as if the airlines are totally blind to the problems in rewarding their HVCs appropriately.

Topic: RE: Why FF Programs Don't Work
Username: AA737-823
Posted 2013-02-16 14:42:06 and read 8386 times.

Quoting BMI727 (Reply 9):
It's not loyalty, it's the bottom line that counts. Quarterly results don't count how many repeat customers you have, they count profit and loss. You could have the most loyal customers on the planet, but if it doesn't translate to money it doesn't help you a bit.

Sure, but none of that has anything to do with the frequent flyer program. If the carrier isn't charging enough to earn money on their basic routes, that's their problem, not mine.
If you want to reward passengers in higher classes more (like carriers already do- 150% bonus miles in J on UA, for example, et cetera), then go for it.
A loss making airline with your so-called "most loyal customers on the planet" is not a malfunction of the loyalty program; indeed, it indicates that the program is performing its de facto function!

Topic: RE: Why FF Programs Don't Work
Username: DTWHKG
Posted 2013-02-16 14:47:44 and read 8367 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

Very simple - "high value customers" are usually in one of the two categories:

- those that don't have a choice of carrier (because they want non-stop flights and there's only one carrier that offers non-stop to where they travel). These guys don't need to be rewarded. They will continue to fly that carrier even without a frequent flyer program.

- those that are rich enough that they usually pay for premium cabins and thus don't need the perks of the frequent flyer program.

On the other hand, many "low-value customers" do have a choice of carrier when they travel. Although they pay discounted fare, airlines need them to fill the plane (which is why airlines offer the discounted fare in the first place), so it makes sense to give them incentives to fly with a certain carrier.

Topic: RE: Why FF Programs Don't Work
Username: DTWHKG
Posted 2013-02-16 14:52:41 and read 8335 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

Another point - Loyalty is NOT defined as paying $1000 for DTW-MSP when the lowest fare is $1000. Yes, it is a very profitable fare, but one pays it not because he is 'loyal' to the airline, but because he failed to plan his trip in advance, or there's only one carrier flying DTW-MSP nonstop, etc.

Loyalty is paying $330 for JFK-LAX when another airline is offering a fare of $300.

Topic: RE: Why FF Programs Don't Work
Username: BMI727
Posted 2013-02-16 15:00:15 and read 8292 times.

Quoting AA737-823 (Reply 11):
If the carrier isn't charging enough to earn money on their basic routes, that's their problem, not mine.

Why should they reward you more if you only ever buy the cheapest product they have?

Quoting AA737-823 (Reply 11):
If you want to reward passengers in higher classes more (like carriers already do- 150% bonus miles in J on UA, for example, et cetera), then go for it.

Why bother with that when you could just do away with miles for the most part and do it by revenue?

Quoting AA737-823 (Reply 11):
A loss making airline with your so-called "most loyal customers on the planet" is not a malfunction of the loyalty program; indeed, it indicates that the program is performing its de facto function!

Not if it isn't helping profitability. The point is that loyalty in and of itself doesn't help you if it doesn't translate to the bottom line. Frequent flier programs are, at the core of it, a quid pro quo with the airline. It's only fair that airlines give more reward to those who do the most for them, which means those who spend the most money.

Topic: RE: Why FF Programs Don't Work
Username: jedward
Posted 2013-02-16 16:40:34 and read 8039 times.

Why Frequent Flyer Programs Do Work

1. Airlines *already* reward the customer who spend more by fare class bonuses and I would wager this trend would continue. Case and point: the proposed DL changes for the 2014-2015 year and the recent UA M+ changes to have a COS bonus on B+ fares. Expect to see more of the same going forward where carriers bonus based on fare class *and* the revenue picture becomes more prominent in how elite status is achieved.

Moreover, a correlation exists between the price of the ticket and distance flown (a IAH > DXB ticket will cost more than an IAH > LAX ticket in the corresponding class and fare restrictions) which does relate to revenue, and when factored into the COS bonus, there *already* is a signifanct correlation between $'s spent and points earned.

2. Selling those opaque points to partners is a billion - yes, that's a "B" - business for the carriers *and* consumers are willing to pay more to the partners for cobranded products. (For example, a customer may pay a higher annual fee or APR on their co-branded airline credit card than they would on another card.) As long as companies are willing to pony up hard cash to the carriers for the loyalty point, the carriers would be foolish to do anything that might kill their golden goose.

Case and point of this is how DL is exempting customers who spend more than $25,000 on a co-branded AX from the upcoming MQD (revenue) requirement for medallion status. DL and the others make real cash from the selling of their points and the fact that their allowing a "backdoor" into medallion status via spend on a partner product is quite telling.

3. The value of a point is opaque (it's hard to *directly* and *clearly* say 1 point equates to $0.xx). It is in both the airlines' and the consumers' best interest to keep this opacity intact for a plethora of reasons but mainly because of...

4. Tax implications. Bottom line is the IRS has deemed FFPs awarded to the traveler when someone else, like an employer, foots the bill could be taxable. However, as it stands now attempting to figure out a way to economically tax this benefit outweigh the gains from doing so, and as such, all those points - those thankfully opaque points! - business travelers earn whilst someone else pays for their expensive tickets are safe from the wandering eyes of the taxing authorities.

Should a direct correlation become the standard (e.g. the WN/VA/B6), a major roadblock to the possibility of taxation is removed. For example, if $1 spent = 1 point that can be used for a $0.01 discount on future travel (or hotels, gift cards, etc.) it would be much easier to calculate the economic benefit compensated to the account holder. And once that number can be consistently, easily, and clearly derived a major roadblock to any tax scheme against FFPs would be removed.

Topic: RE: Why FF Programs Don't Work
Username: DesertAir
Posted 2013-02-16 17:10:44 and read 7935 times.

I think alot depends on the frequency of travel. I am a Southwest Rapid Rewards Member. I fly SAN-SMF once a month for family reasons. I have their Signature Credit Card, use their rental car partner Budget and stay at La Quinta their hotel partner. I receive double points for WN, Budget and LQ. I convert LQ points into WN miles, and recieve 600 points for every Budget rental. I end of paying for a one way flight each month. It works for me.

Topic: RE: Why FF Programs Don't Work
Username: rwessel
Posted 2013-02-17 01:24:14 and read 6978 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

But they don't ignore the big spenders. Consider United:

http://www.united.com/CMS/en-US/Mark...tComm/Promotions/Pages/united.aspx

Basically anyone traveling in any of the full fare classes will earn 125-250% of the nominal mileage. And a 50% bonus towards premier status.

Topic: RE: Why FF Programs Don't Work
Username: ClassicLover
Posted 2013-02-17 01:56:00 and read 6770 times.

Quoting DTWHKG (Reply 13):
Loyalty is paying $330 for JFK-LAX when another airline is offering a fare of $300.

Hear, hear!

A lot of times I have been able to travel from point A to point B using a low cost carrier. Instead, I stick with paying a little extra with a oneworld alliance airline - I get points, lounge access and treated nice and pay a bit extra for the privilege.

Now, FF programmes are profitable. The Qantas programme has been the most profitable segment of the company after the domestic network for several years.

At the 2 November 2012 AGM, the CEO stated -

"Qantas Frequent Flyer returned Normalised Underlying EBIT of $231 million, a record result."

$231 million in earnings before interest and tax. When you do it right, you can make a bundle of money off frequent flyer alone. Qantas also have a structure in their programme no different from other carriers - 5 tiers (Bronze entry level, Silver, Gold, Platinum - and now Platinum One for the very highest), an invite only lounge (Chairman's Lounge) for politicians, CEOs and big spenders... and they are part of an alliance.

I think what needs to be looked at is why other programmes are not profitable. One thing US carriers do which I think is pretty bad is that they give far too many elite status upgrades. On other airlines, you usually have to cash in miles for an upgrade - end of story.

Topic: RE: Why FF Programs Don't Work
Username: FlyDeltaJets
Posted 2013-02-17 02:52:11 and read 6463 times.

What works for 1 industry doesn't always work for another. Miles are to reward loyalty in an area where there is a vast choice. Banking is not really set up like that. Once you choose a bank you have technically already made your choice going forward. If airlines were like banks you would have chosen to fly a certain airline for most of your trips in advance. If banking was like airlines every time you wanted to deposit money you would search for banks on line or go to a banking agency to see what bank was offering the best rates or incentives and deposit money in possibly a different bank every time. So to relate accrual of miles to banking is a correlation that has a very loose connection.

Topic: RE: Why FF Programs Don't Work
Username: AlwaysOnAPlane
Posted 2013-02-17 03:49:44 and read 6139 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?

The person flying one business class trip a year at $8,000 would have no real need for FFP perks, pretty much everything is included in that fare that is a perk for a Y passenger with with status.

Topic: RE: Why FF Programs Don't Work
Username: mcdu
Posted 2013-02-17 03:56:05 and read 6095 times.

Quoting delta2ual (Thread starter):
I hope UA follows suit.

UA does reward for money spent. The highest revenue passengers are given Global Service level of reward. This is the highest reward level available at UA and it is a dollar threshold that gets you to this elite service.

Topic: RE: Why FF Programs Don't Work
Username: vegas005
Posted 2013-02-17 03:58:22 and read 6086 times.

FF programs make wads of cash for the airlines and allow folks the perks that come with being loyal.

I have been Star Alliance Senator and One World Platinum for some time. Recently I took a Southwest flight and was not happy with the rude agent who sort of checked me in, the cattle call boarding and the overall quality of the service. Fact is I have been spoiled by first class check-in (regardless of ticket purchased), priority security line, lounge access and priority boarding. Yep ... I'll pay the extra dollars to fly on the airline that gives me the benefits.

Topic: RE: Why FF Programs Don't Work
Username: CXfirst
Posted 2013-02-17 04:34:55 and read 5859 times.

Quoting vegas005 (Reply 22):
... I'll pay the extra dollars to fly on the airline that gives me the benefits.

Same applies to me. I'm Star Gold, but don't have any other high level status. I've since gotten used to premium check-in and lounge access, therefore, lately, I've almost exclusively flown Singapore Airlines or Thai to Europe, either direct to OSL, or if to another city, then flown SK or LH to OSL, from PER, simply because in a multi-segment journey, lounge access has become such a huge benefit for me.

Therefore, due to FF programs, I've flown SQ or TG, when cheaper, and sometimes faster options have been available.

This summer is the first time I've travelling back not 100% on Star Alliance for quite some time (CX to HKG from PER), but from HKG I'm travelling on TK. Star Alliance, yet again.

-CXfirst

Topic: RE: Why FF Programs Don't Work
Username: xdlx
Posted 2013-02-17 07:05:58 and read 4983 times.

Simply amazing.... only a few readers here will remember but DL FF program was revenue driven before Skymiles.

About 30yrs or so ago the program inception was simple... Regular FF PAID to UPGRADE only from Y/Y06/YN6 fares
according to milage of the segment: Get this: $15 under 500m / $30 500-1500m / $45 1500m+.

In other words they HAD to buy a Y/Y06/YN6 fare to be ELEGIBLE for the upgrade offer.
This rewarded the traveler that had spent more to begin with, and minimized ques for STBY ETC ETC ETC.
But after seeing 30 years of FF programs, in my opinion this was the fairest and most revenue oriented program of its kind.

First of all it forced those that WANTED to UPGRADE to PAY for IT !!! not get it because they flew ATL-MCO-ATL56 times last year for $169RT each time.

Go back to basics ..... it always works !

Topic: RE: Why FF Programs Don't Work
Username: cschleic
Posted 2013-02-17 07:39:16 and read 4841 times.

Quoting delta2ual (Thread starter):
Why do many airlines continue to give perks to someone who flew 25,000 miles, but may have spent $3,000 while ignoring those who flew one business class trip at $8,000 but only 10,000 miles?
Quoting rwessel (Reply 17):
Basically anyone traveling in any of the full fare classes will earn 125-250% of the nominal mileage. And a 50% bonus towards premier status.

Exactly. Many offer more miles/points for full fare, first, business, etc. There is some difference based on how much you pay.

Topic: RE: Why FF Programs Don't Work
Username: jayunited
Posted 2013-02-17 07:45:16 and read 4798 times.

I think FF programs serve their purpose which is to keep customers flying with either a particular airline or with that airlines alliance group i.e. STAR, ONE, SKY. If you are a frequent flier of lets say Delta you would think twice maybe three times before you buy a ticket on American or United even if American and United are cheaper because in your mind you are thinking you are thinking these miles could be the difference between me staying at gold status or moving up to platinum status or you are thinking that these miles could add up and help you go first class to HNL or upgrade to business class on that European vacation your taking in the summer.

FF programs work for the airlines because instead of flying the competition who clearly had a cheaper ticket you chose to stay with your airline of choice and pay the higher fare.

Someone who flies once or twice a year in most cases has no airline that they are loyal too they are only looking for the the airline that can get them to their destination the fastest while offering the cheapest fare, even if they did pay $8000 dollars for that business class seat I can almost promise you that it was the cheapest ticket that they could find at the time.

Most people when they attain status with an airline especially once they get to gold or higher tend to stick with that airline or its alliance despite the cost of the ticket because they are hoping that they can use those miles that they earned on their next business trip or for a family vacation. It is a give and take relationship between the FF and the airline and most times it works.

Topic: RE: Why FF Programs Don't Work
Username: cosyr
Posted 2013-02-17 08:20:15 and read 4582 times.

FFP's are different things to different people. I am a lowely Silver on UA, which I work very hard to be. I do not fly for work, and no one else pays for my tickets. Despite this, I do not shop around for the cheapest tickets, I go straight to UA.com and pay what they ask for the ticket. In my opinion, I am the kind of loyal traveler that these programs were designed for.

It bothers many travelers that airlines seem to reward the travelers who spend lots of their company's money flying multiple airlines a lot, and have no loyalty at all, but higher status than me. That doesn't bother me, because airlines are in business to make money, not just to build loyalty, but don't forget about me, who is flying UA by choice. (and this goes for any airline, because someone else is flying DL or AA by choice.)

For other people, those precious miles for their free trip to HNL is all they care about. My brother may not be the most loyal person to UA, but he has their credit card and tries to fly them more often so he can get the miles for his next vacation. That is more revenue that UA is making off someone who does not fly often, and in exchange they give him a seat that would have been empty anyway for free.

It scares me that airlines are trying to drive me out, because I am truely loyal, and I don't ask for much. I don't expect upgrades, I'm grateful when I get them, and I just want to speak to an American (rather than India) and I don't want to have to wait on hold. I love the way UA treats me with special lines and other perks. But I have spent thousands of dollars with UA, that could have been to their competitors instead, because of FFP's. That is not failing if UA wants me to fly them instead of their competitor.

Topic: RE: Why FF Programs Don't Work
Username: 777STL
Posted 2013-02-17 08:30:06 and read 4486 times.

Quoting AA737-823 (Reply 4):
Because a person who took ONE expensive trip is NOT a loyal customer; a person who took eighteen cheap trips wholly within the state of California or Texas or on the eastern seaboard where there is COMPETITION..... is a loyal customer.

There's two sides to that though. A customer who flew on one $25k international F ticket has generated much more for the bottom line than someone who took 18 $300 domestic RTs.

Quoting nycdave (Reply 5):
But, but, but... I don't know that you could make a good financial argument saying "we'd make more money getting a paying customer in that coach seat from PHL-ROC a few more times, than getting one J class customer flying PHL-FRA"

Exactly my point.

Quoting mcdu (Reply 21):
UA does reward for money spent. The highest revenue passengers are given Global Service level of reward. This is the highest reward level available at UA and it is a dollar threshold that gets you to this elite service.

That's a very extreme example though. DL's new model is incorporating revenue minimums at *every* elite level, not just the highest. In practice, it seems it should rarely be an issue - DL's minimums are rather low, IMO.

Topic: RE: Why FF Programs Don't Work
Username: cosyr
Posted 2013-02-17 08:39:44 and read 4388 times.

Quoting 777STL (Reply 28):

But as they are set up now, they can reward both the loyal lower revenue customers and the one time business class customer. Why throw out people that fly 18 $300 trips to ROC. Airlines want them too.

The person who flies one J class international trip, didn't buy their ticket because of the FFP, and they won't make their decision to fly with the airline again because of the FFP. They will choose based on the quality of the service/on board product.

By putting the dollar minimums on FFP, you hurt some people without gaining the loyalty of the others. That person in J is already getting the same perks that Silver or even Gold elites get and more (lounge access and the J class product)

Topic: RE: Why FF Programs Don't Work
Username: 777STL
Posted 2013-02-17 08:53:06 and read 4275 times.

Quoting cosyr (Reply 29):
But as they are set up now, they can reward both the loyal lower revenue customers and the one time business class customer. Why throw out people that fly 18 $300 trips to ROC. Airlines want them too.

The idea is to weed those people out because they just aren't valuable. If you read the article, that's DL's stated intent, and in doing so, they're increasing the value of their elite status for their legit elites as it's less to compete with. I had status for several years with AA via gaming the system and I can completely see where DL is coming from with this because I was one of those people. They want to eliminate "fake" elites, i.e. elites that are of no value.

Quoting cosyr (Reply 29):
The person who flies one J class international trip, didn't buy their ticket because of the FFP, and they won't make their decision to fly with the airline again because of the FFP. They will choose based on the quality of the service/on board product.

That's rather irrelevant, DL isn't in the business of questioning their customer's motives. All they know is that the person sitting in 2A is much more valuable than the schmuck in 34D that flies monthly on the cheapest fare possible. Why or how they got there isn't their concern.

Quoting cosyr (Reply 29):
By putting the dollar minimums on FFP, you hurt some people without gaining the loyalty of the others.

Though, again, you're not hurting anyone of value.

Topic: RE: Why FF Programs Don't Work
Username: EIDL
Posted 2013-02-17 09:02:37 and read 4191 times.

Airlines should really just move to what most hotel programmes have done for years - work entirely on cash spent or do it so that status comes from flights (nights/stays in hotel systems) but rewards/redemptions come from what's spent.

I generally use Carlson Rezidor hotels because they're the only chain with any decent coverage of the country (99% of my work travelling is domestic these days) and while a few high spend stays can lead to free nights, it takes 75 nights to get to full Elite. So both the irregular high spender who is giving the company a lot of cash and the very regular low spender who you still want to ensure doesn't go to the competition get rewarded, without giving both the same.

Topic: RE: Why FF Programs Don't Work
Username: Pu
Posted 2013-02-17 10:10:14 and read 3701 times.

.
.
As Jedward intimated, what Forbes and most of you are missing is that even if SkyMiles or AAdvantage or MileagePlus earned the repeat business of not one single passenger these products most impressively earn -in Delta's case- a billion dollars a year from the fees American Express (and Citi and Chase) pay to acquire the miles used to award their credit card customers who hold a Delta Amex card or Citi AAdvantage card or Chase MileagePlus card. This info is in their annual reports.

Well managed airlines are building income streams well beyond ticket revenue, and I think (if I am reading correctly), in Delta's case their CASM actually exceeds their RASM, but they are set to have close to a $2 billion dollar profit this year because they make big bucks selling SkyMiles, chartering jets, lifting cargo and other ventures.

I have contemplated that a viable approach might be to operate the passenger airline only towards a break-even goal so as to concentrate on ancillary revenue programs like selling miles to credit card companies. . It may even be right to say that the real product of airlines is its FF miles or the miles credit card, with actual seat selling just a side business of little profitability.



Pu

Topic: RE: Why FF Programs Don't Work
Username: Fallap
Posted 2013-02-17 11:48:16 and read 3204 times.

I've given up on Loyalty Programs recently, I tried to gamble and use Flying Blue, because I was tempted by the fact that your miles never expire (as long as you fly every 3 years or so) and the fact that you can advance to a higher level, with the number of flights. (15 flights will get you from Ivory to Silver and so on)

But apart from gaining acces to lounges, earning a bit more miles and being able to check-in at business/first class...

... Then it's just not worth it, I would rather save money on flying with the cheapest airline (or the one that provides the best options in terms of departure times etc.) than wasting excessive amounts of money on a specific alliance.

Ex: I would like to book an economy class ticket from CPH - AMS/CDG/SVO - NRT.

The cost of that would be: 80,000 award miles AND (And this is the obscure part ) a fee of ~ 450€.

450€ plus your hard earned miles! Thats almost criminal, I can buy a ticket on coach to NRT for just a few hundred € more. So why poor tens of thousands of miles down the drain? :-/

I'm still gonna keep using Skyteam now and then (When it makes sense) and then use the miles on buying stuff in their miles-shop  Smile

[Edited 2013-02-17 11:51:44]

Topic: RE: Why FF Programs Don't Work
Username: Cubsrule
Posted 2013-02-17 13:28:14 and read 3024 times.

Quoting cosyr (Reply 29):
The person who flies one J class international trip, didn't buy their ticket because of the FFP, and they won't make their decision to fly with the airline again because of the FFP. They will choose based on the quality of the service/on board product.

I have some experience being one of those passengers. What you have said is more or less true for buying the international J ticket. But most years, if I buy a J ticket to Asia on AA, DL or UA, I'll have enough other, shorter flights on that carrier to have status for the next year. And in the next year, I might prefer the carrier on whom I have status. (BNA-XXX-NRT in J or C is about 21,000 EQMs on most carriers); in J, it'll be 28,000 miles--enough for silver by itself--on DL starting on March 1.

Quoting DTWHKG (Reply 12):
Very simple - "high value customers" are usually in one of the two categories:

In a hub city, those categories work, but what about in a place like New York, Chicago or L.A. where multiple carriers have similar schedules? Then, high value customers can't just pick based on who has a nonstop and have to pick based on something else. That something else might be--but does not have to be--the frequent flier program. When I'm picking between UA, AA and DL, the frequent flier program typically has almost nothing to do with the selection. Rather, it's about schedule, onboard service and avoiding certain hubs (e.g. ATL).

Topic: RE: Why FF Programs Don't Work
Username: lightsaber
Posted 2013-02-17 13:35:52 and read 2991 times.

FWIW, the FF programs keep certain customers loyal. That works. Everything else is keeping expenses below costs and since:

Quoting AndyEastMids (Reply 8):
The thing that's missing from the story is that most frequent flyer programs are profitable for the airlines that operate them - they may not always target the right customer, but they tend to be profit centres, not loss-leaders.

  

Quoting Fallap (Reply 33):
I would rather save money on flying with the cheapest airline (or the one that provides the best options in terms of departure times etc.) than wasting excessive amounts of money on a specific alliance.

I fall into that camp. I'm able to get 'status' at hotels, but not on airlnes as I'll switch for the upfront $$$.


But overall, I've seen FF work, so there is value. If *everyone* dropped their FF airlines would probably do better. But there is no way *every* airline will drop their FF program. So they are a needed service.

Lightsaber

Topic: RE: Why FF Programs Don't Work
Username: DTWHKG
Posted 2013-02-17 14:19:14 and read 2890 times.

Quoting Cubsrule (Reply 34):
In a hub city, those categories work, but what about in a place like New York, Chicago or L.A. where multiple carriers have similar schedules? Then, high value customers can't just pick based on who has a nonstop and have to pick based on something else. That something else might be--but does not have to be--the frequent flier program.

But who would pick a pure fare-based FFP, where one would need an arm and a leg to redeem for premium cabin awards?

If one consistently pays high fare, then domestic upgrade shouldn't be a problem. International upgrades and usability of miles would become important factors, and the current FFP model is much more appealing than a fare-based FFP. Nobody can refuse a free flight on CX First class.

Topic: RE: Why FF Programs Don't Work
Username: Gonzalo
Posted 2013-02-17 14:20:23 and read 2883 times.

I guess the main focus in this thread and the Forbes article is about FF programs of US based airlines .

The FF program I know better ( LAN ) is a mix between revenue and loyalty, and it works perfectly for both the airline and the customer. They develop a loyal customer base with frequent low fare promotions that are communicated ( via e-mail ) to the FF affiliates, JV with banks and Credit Cards, and other stuff like rewarding online booking ( I was indeed rewarded two times with free round trips for the same flight I was booking when I won ). Other important way to get loyaty is that you can ACTUALLY USE your miles for flights when you need ( I used my miles at least four times without any problem ever ) .
But the system is also based on revenue, since you earn miles depending on the fare you are paying. If I pay the lowest fare for a ANF-SCL sector I get 208 kmts. ( 25 % of the real distance ), and for the same flight paying a higher fare I could get the full 1.106 kmts.


Rgds.
G.

[Edited 2013-02-17 14:24:47]

Topic: RE: Why FF Programs Don't Work
Username: spacecadet
Posted 2013-02-17 14:24:43 and read 2859 times.

Quoting Fallap (Reply 33):
Ex: I would like to book an economy class ticket from CPH - AMS/CDG/SVO - NRT.

The cost of that would be: 80,000 award miles AND (And this is the obscure part ) a fee of ~ 450€.

But that's not where the value is for a points-based ticket. I'll bet if you checked, you could have gotten a business class seat for only a few more miles. This is a win-win for both airlines and customers, because on many routes airlines are just going to use those business class seats for upgrades anyway, if they fill them at all. So they take more of your miles, they take the fee (which is better than nothing) and they really don't give up much of anything other than the cost of the extra fuel for carrying you. Meanwhile, you get what may be an $8,000 seat for $500.

In contrast, economy cabins are almost always 100% full these days, so it actually costs them more to give you a free ticket because they're probably giving up a paying customer in compensation. That's also why it's gotten so hard to get award tickets at all on some airlines - I remember when I first tried to get an economy ticket on Delta, I was more or less told to forget it without status, regardless of the number of miles I had.

I've found that FF programs are really structured these days such that newbies find it really hard to penetrate the system and just take advantage of a free flight here and there. You really need to work at it, which is kind of the point. It's true that it's gotten a lot easier to *get* miles and points than it used to be, but it's become much harder to actually spend them in such a way that actually seems worth doing. You have to know all the little tricks, you have to get status, etc. I'm not very good at it myself but I did score a business class trip JFK-NRT on ANA this April for something like 90,000 miles plus the fee (it still ended up being a discount of about $6,000 per person from the regular price). It was kind of an ordeal getting it, though - lots of calls to ANA booking (which cost me $25), standby, seating changes, etc. But I got it. My brother has top tier status on both Alaska and Delta and and he knows the ins and outs of the system and the benefits he gets for that are incredible - basically guaranteed automatic upgrades, priority boarding, free bags, free hotel stays, of course lounge access, etc.

Airlines have had many years to refine their programs and make them seem really enticing without making it as easy as it initially seems to take advantage of the system. They have a huge number of ways to make money off their FF programs, and customers that aren't really loyal fliers don't have a lot of obvious or easy ways to spend their miles - or at least not ways that would actually cost the airline anything.

Topic: RE: Why FF Programs Don't Work
Username: Cubsrule
Posted 2013-02-17 14:26:18 and read 2863 times.

Quoting DTWHKG (Reply 36):
But who would pick a pure fare-based FFP, where one would need an arm and a leg to redeem for premium cabin awards?

My point is different. I don't necessarily look at the frequent flier program when picking a carrier. It's more about other things, like schedule.

Topic: RE: Why FF Programs Don't Work
Username: FWAERJ
Posted 2013-02-17 15:39:21 and read 2769 times.

Quoting Pu (Reply 32):
As Jedward intimated, what Forbes and most of you are missing is that even if SkyMiles or AAdvantage or MileagePlus earned the repeat business of not one single passenger these products most impressively earn -in Delta's case- a billion dollars a year from the fees American Express (and Citi and Chase) pay to acquire the miles used to award their credit card customers who hold a Delta Amex card or Citi AAdvantage card or Chase MileagePlus card. This info is in their annual reports.
Quoting Pu (Reply 32):
I have contemplated that a viable approach might be to operate the passenger airline only towards a break-even goal so as to concentrate on ancillary revenue programs like selling miles to credit card companies. . It may even be right to say that the real product of airlines is its FF miles or the miles credit card, with actual seat selling just a side business of little profitability.

Exactly. One of my friends, a former UA exec, said that PMUA ran MileagePlus as its own business unit, and I'm sure that's even more the case today.

Topic: RE: Why FF Programs Don't Work
Username: Viscount724
Posted 2013-02-17 16:30:37 and read 2669 times.

Quoting Fallap (Reply 33):
.. Then it's just not worth it, I would rather save money on flying with the cheapest airline (or the one that provides the best options in terms of departure times etc.) than wasting excessive amounts of money on a specific alliance.

Ex: I would like to book an economy class ticket from CPH - AMS/CDG/SVO - NRT.

The cost of that would be: 80,000 award miles AND (And this is the obscure part ) a fee of ~ 450€.

450€ plus your hard earned miles! Thats almost criminal, I can buy a ticket on coach to NRT for just a few hundred € more. So why poor tens of thousands of miles down the drain? :-/

KL/AF Flying Blue has recently stopped charging the fuel surcharge but only on flights within Europe. They still charge the fuel surcharge in addition to government and airport taxes/fees for longhaul redemption bookings. Within Europe the charges are now much lower than previously as they now only collect government/airport taxes/fees.

In many cases, as mentioned, redeeming miles for longhaul travel only makes sense in business or first class (if you have enough miles) as that's still a major saving, but if you're using the lowest Y class fare it's rarely worth burning the miles.

Topic: RE: Why FF Programs Don't Work
Username: cosyr
Posted 2013-02-17 18:06:37 and read 2517 times.

Quoting 777STL (Reply 30):
The idea is to weed those people out because they just aren't valuable.

When airlines have as much trouble making money as they do, I would hope they're not trying to weed out anyone that doesn't lose them money. Silver Elites may not bring in the money that Plats do, but they still make the money, just like the airline needs the revenue from Y, even if J/F is more valuable. The only people you can accuse the airline of wanting to "weed out" are priceline/hotwire passengers, but even then, if the airlines didn't want them, they would just stop selling there.

Quoting 777STL (Reply 30):
DL isn't in the business of questioning their customer's motives.

I should hope they are! If they don't understand why their customers do the things they do, they can't offer them what they want. I guarantee that DL spends millions of dollars trying to understand what their customer's motives are.

Quoting 777STL (Reply 30):
Though, again, you're not hurting anyone of value.

Again, if they're not of value, they don't have to sell tickets to those lowly cheap flyers. I think all the all J Class transatlantic airlines that no longer exist would argue with the value in other passengers.

Topic: RE: Why FF Programs Don't Work
Username: Cubsrule
Posted 2013-02-17 19:17:34 and read 2419 times.

Quoting cosyr (Reply 42):
Silver Elites may not bring in the money that Plats do, but they still make the money, just like the airline needs the revenue from Y, even if J/F is more valuable. The

How do you know that all silvers are profitable?

Topic: RE: Why FF Programs Don't Work
Username: lightsaber
Posted 2013-02-18 00:21:34 and read 2223 times.

Quoting cosyr (Reply 42):
The only people you can accuse the airline of wanting to "weed out" are priceline/hotwire passengers, but even then, if the airlines didn't want them, they would just stop selling there.

The airlines use FF programs to try and have fewer of those sales.

Quoting cosyr (Reply 42):
I think all the all J Class transatlantic airlines that no longer exist would argue with the value in other passengers.

I believe those flights failed as they didn't have the loyal customer base that FF generate.

Quoting Cubsrule (Reply 43):
How do you know that all silvers are profitable?

That isn't the question. Is the overall body of silvers profitable and are they more profitable because of the status? I believe so as I've seen more than a few FF members stick to their airline to 'earn status.' Otherwise they would have gone to WN or B6.

Lightsaber

Topic: RE: Why FF Programs Don't Work
Username: chieft
Posted 2013-02-18 04:24:43 and read 1978 times.

I miss one point in this very interesting discussion:

A lot of people here talk about "what the customer pays" and " the customer pay more for loyalty reasons".

My point is: Who pays the bill in reality? Are we talking about individuals, which can decide freely, or do we talk about the business traveller of a company, where the company pays the bill and the employee gets the advantage?

I doubt, that companies are happy to pay more than necessary in order to by loyal to an airline. Doesn't this booking behaviour change? Isn't it the case, that more and more companies claim the points, miles etc back in order to keep their costs down?

Aren't the most travellers people, which travel for business? Possibly a bit OT, but a point not to forget in any consideration if we talk about loyalty programs and being loyal by paying higher fares than necessary.

Topic: RE: Why FF Programs Don't Work
Username: Cubsrule
Posted 2013-02-18 06:08:34 and read 1831 times.

Quoting lightsaber (Reply 44):
That isn't the question. Is the overall body of silvers profitable and are they more profitable because of the status?

That is, indeed, the correct question, but in your answer, remember that more loyal doesn't necessarily mean more profitable.

Topic: RE: Why FF Programs Don't Work
Username: spacecadet
Posted 2013-02-18 07:55:34 and read 1693 times.

Quoting chieft (Reply 45):
Isn't it the case, that more and more companies claim the points, miles etc back in order to keep their costs down?

My brother flies for his business and they let him fly whoever he wants and he keeps the miles. I think that's common at most companies, at least for senior employees. It's a perk, because positions requiring heavy travel often aren't very desirable positions, so one way to hire and keep good employees in those positions is to allow them to build up their FF miles and status so that the travel they have to do for the company is more pleasant.

Nobody's going to want to work in a position where they have to fly 40 round trips per year and they need to take the cheapest flight and sit in the cheapest seat every time. I mean I'm sure some people are in that situation, but I doubt they're happy about it and I'm sure there's a lot of turnover at companies that require that. A smart company would realize the FF program usage is a competitive perk just like health insurance or 401(k) matching or anything else.

Topic: RE: Why FF Programs Don't Work
Username: cosyr
Posted 2013-02-18 08:06:24 and read 1651 times.

Quoting Cubsrule (Reply 46):
That is, indeed, the correct question, but in your answer, remember that more loyal doesn't necessarily mean more profitable.

With the razor thin margins that airlines have, every dollar of revenue counts. Some of the benefits airlines offer Silvers cost next to nothing (opportunity cost with bag fees waived, cost of food when an empty seat in F is given for free.) Most other benefits cost them nothing at all (priority boarding, check-in, etc.) Since they are now willing to give some of those things to credit card holders with no status, I think it is a very cheap way for airlines to buy loyalty from that extra group of elites. Airlines are one of the hardest industries to determine the profitability of one individual. A cheap coach ticket on a 100 seat plane paid less than 1/100th of the cost to fly the plane, but it is necessary, because the overall revenue of the cheap seats and expensive seats cover the costs collectively. If they want to throw out all the Silvers, they will still make 80% of their revenue from higher dollar flyers, its true. But covering 80% of your costs is still losing money.

So yes, airlines need silvers. What Delta is doing is trying to see exactly how little free stuff they can give Silvers without driving them out the door. Delicate game to play.

Topic: RE: Why FF Programs Don't Work
Username: Cubsrule
Posted 2013-02-18 08:09:34 and read 1647 times.

Quoting cosyr (Reply 48):
With the razor thin margins that airlines have, every dollar of revenue counts.

Yes and no. With load factors as high as they are, selling a cheap seat has a definite opportunity cost in that that seat cannot be filled with a passenger paying a higher fare.

Quoting cosyr (Reply 48):
So yes, airlines need silvers.

Airlines need passengers. Airlines don't need silvers (or any other level of elites).

Topic: RE: Why FF Programs Don't Work
Username: lightsaber
Posted 2013-02-18 12:56:19 and read 1426 times.

Quoting Cubsrule (Reply 46):
that more loyal doesn't necessarily mean more profitable.

But more loyal means not switching airlines for a slight cost savings. I'll use one relative who used to fly AS to 'keep status.' But she fell of the status at the end of 2012. So this year she saw that B6 was a cheaper flight and tried it (and really liked it). Was she a high profit customer? Oh, back in 2006 though 2008 yes! Now?    But lack of status meant she was no longer willing to pay $25 to $50 more for a flight due to club access.

Quoting Cubsrule (Reply 49):
selling a cheap seat has a definite opportunity cost in that that seat cannot be filled with a passenger paying a higher fare.

I assume airlines are competent with their yield management. If they could sell fares for more, they would. I believe that having some status (including silvers) boosted their revenue. Its better to sell a seat for $25 more with $12 more cost than just go priceline.

Quoting cosyr (Reply 48):
What Delta is doing is trying to see exactly how little free stuff they can give Silvers without driving them out the door. Delicate game to play.

DL seems to be doing it well. I've seen some crazy routings by coworkers to fly DL so they could keep 'status.' I personally value my time more, so I never get status as I'm always switching airline to airline. I've almost had status on UA and AA... but almost never counts.   Instead I went for the best timed flights.

Quoting cosyr (Reply 48):
But covering 80% of your costs is still losing money.

I agree with your analysis but would also like to point out that keeping silvers and other status members is a *very* low cost of advertising. Without the status, airlines would have to convince those passengers not to try other airlines and when they do there is a chance they would prefer. IMHO, without 'status', the legacy airlines would be done. 'Status' has done more to slow B6 and limit their profits than anything else. It is a very effective part of the competition. The same could be said versus WN/FL too.

It seems like less of an advantage as we've dropped down to four major airlines:
1. AA/US
2. DL (with the ghost of NW)
3. UA/CO
4. WN

With a small number of interlopers. Status keeps frequent business travelers loyal.

I am of this opinion for I am in two different markets when I travel between business (somebody else pays) and leisure (I pay). For business what I care about is far different than leisure (the later has more bags). If I can make either better, than pursuing status is of value. But as the service level drops... status doesn't offer enough to motivate. Partially as Amex, Carlson-Wagonlit, and Travelocity now impose software that forces employees to pick the cheapest flight instead of remaining loyal. That is the the newest battle FF programs have to face.

Lightsaber

Topic: RE: Why FF Programs Don't Work
Username: Cubsrule
Posted 2013-02-18 13:09:53 and read 1402 times.

Quoting lightsaber (Reply 50):
But more loyal means not switching airlines for a slight cost savings.

Except for those who don't value their time at all (e.g. students), there aren't many times that the schedules are close enough that it's all about price. It often happens in a market like ORD-LGA, but the majority of passengers are not flying in those types of markets.

Quoting lightsaber (Reply 50):
I assume airlines are competent with their yield management. If they could sell fares for more, they would.

The fact that WN sells significantly more full fare tickets than the legacies suggests that this is not the case for legacies. Indeed, AA has gone to a very WN-like pricing model for its domestic tickets..


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