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A Possible Solution To US Airlines Financial...

Thu Aug 15, 2002 10:15 am

Ok, if this has been discussed before, sorry, but driving home from work I came up with an idea that may solve the cash crunch at the US airlines.

Charge members for belonging to the FF programs.

I am going to use UA as an example. I read somewhere that UA Mileage Plus has around 22 million members. UA does not charge a fee to belong to Mileage Plus. If memory serves me right, a lot of other airlines charge for their FF programs, I know that QF does, AN used to, and I am sure others do, but I am not positive on that. Now for my example

Let's assume that UA charges $100 per year to belong to Mileage Plus. 22 million members equals $2.2 Billion extra revenue. Now assuming that half of the members balk at $100, you still end up with an extra billion in revenue.
I believe that AAdvantage is even bigger, so AA would reap even more from this plan. That in itself would take care of most of the financial problems, provided everyone paid the annual fee.

Of course this extra revenue, cannot be counted on, and the airlines must not go spending this money on expansion or wasted projects, e.g. Avalor. Also the airlines might want to give a year's membership in the FF if you are a member of the airline club. (those go for $400 a year anyway). Maybe also let you buy the membership with miles.

Now I know that this wouldn't be popular with the leisure passenger, but I for one wouldn't mind coughing up $100/year for a FF membership, if it meant I could get the Award seats when I wanted them. My guess is that the number of people trying to get award seats would go down, as people dropped out of the program. Plus this would probably help offset the costs of administering the program, and help control those of us with over 1million miles in our accounts, who never get to use them. I guess I would leave it up to the business types to figure out how much to charge for the FF program.

So here is my question to you. How much would you be willing to pay for a FF membership? and Do you think this would work in the US?

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RE: A Possible Solution To US Airlines Financial...

Thu Aug 15, 2002 10:34 am

Charging for FF programs could be a lucrative way to generate revenue for business passengers, but you'd have to dangle a carrot for people to bite.

You'd have to lower award levels or give free passes to clubs or something for anyone to even consider it.

Plus, there's the fact that there will always be one carrier who will balk at it, probably Delta or Northwest.

I don't see it as a likely development...
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RE: A Possible Solution To US Airlines Financial..

Thu Aug 15, 2002 1:14 pm

QF doesn't charge an annual fee for its FF programme (if it does, I don't know anything about it, and I should, because I am a member). There is a of course a joining fee, but I was under the impression this was common practice already.

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RE: A Possible Solution To US Airlines Financial...

Thu Aug 15, 2002 1:23 pm

I think that a good solution would be charging just a little bit, say $5-$10/year. It would give people who used FF programs to keep them, but it would cause 50% not to have them.

Example: I have a FF account on most majors I've flown(HP, CO, AA, UA, US). I currently have about 5000 HP miles from going to Montrose, CO in the spring. Now that HP isn't flying there anymore, I have almost no chance of getting more miles on them in the future(I usually don't go to the left coast). While it may seem insignifigant, those 5000 HP miles are a liability to the company, and I believe that it is considered one on the balance sheet, or there are talks to add it(along with stock options). I'm not using the miles, and that's about a $100 liability the company has with me. Now, multiply that by 500,000 pax who are in a similar situation(just flew once, leisure flyer), and all of a sudden there is millions in liabilities that are owed. By having a small annual fee, I wouldn't have joined the program, and my miles wouldn't be there, along with many other people's.
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RE: A Possible Solution To US Airlines Financial...

Thu Aug 15, 2002 1:37 pm

Some FF programs, when first introduced in the ealy 1980's, required a fee. According to a 1987 Pan Am WorldPass "application" the fee was $25.
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RE: A Possible Solution To US Airlines Financial...

Thu Aug 15, 2002 1:46 pm

Plus, there's the fact that there will always be one carrier who will balk at it, probably Delta or Northwest.

I like the idea in the first post, but the above statement is the the crux. who knows which airline(s) would be the spoiler, but this would work in a similar way to the airfare structure. We have seen several attempts to raise fares only to have them fail because at least one major would not go along with it. I think that the FF programs would work in the same way. If one or majors holds out, then they could steal major market share from the other carriers. Besides, as stated, this will not help the liesure traveller much who is earning that "free" ticket over time. Only a very frequent flyer could benefit from a fee structured program.
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RE: A Possible Solution To US Airlines Financial...

Thu Aug 15, 2002 3:12 pm

Sorry folks. I think the long term damage to customer loyalty more than offsets any gains made by charging a fee. Remember that business travelers are spending someone else's money on airfare. Most are willing to spend an extra $100 - $200 on a ticket to get the mileage perks, etc. I am guilty just this week. Would I spend $100/year to belong to a FF program? It would take at least 25K miles/year to make it worth the cost, in my view. Most employers of the rank and file business types like me don't pick up the cost of annual 'club' memberships, but they don't usually notice an extra hundred or two in airfare going out the door.

The "free" reward tickets aren't worth the same as real tickets because you can 't use them any time you like, so I place a reduced value on them as a perk. United gets back in loyalty much more than it costs them to offer the program for free. Rest assured the bean counters have already considered this possibility from all directions.

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RE: A Possible Solution To US Airlines Financial...

Fri Aug 16, 2002 1:37 am

I kind of like the idea.

Although I'd ballpark $50 and $25 as more reasonable figures. It is such a small amount to pay for potentially rewarding benefits, that most people who care about their miles would pay for it.

Remember, most passengers -even elite customers- fly an airline based on a mix of schedule and price (if the airline doesn't fly there, it has no schedule... if the airline has awful times, it has a bad schedule...).

Rarely do people care about what hubs they connect through, and they will go out of their geographical way if it saves them time, money, or both.

The number of pax -even those truly loyalist elites who stick by United in its small markets- who go OUT of their way to fly United -costing them time, money, or both- is very small. This segment is very rare. And though you might alienate them with a fee, well if they're crazy enough to stick with United where it doesn't make the most logical sense anyhow, they might just be crazy enough to pay the fee.

Also, for the people who really value United's mileage program, much of them value it for the destination possibilities it provides. United has, after all, the most far-flung international network. True Freqent Flyers will not ditch because of a fee since no other US airline can offer as easy mileage access to destinations such as Australia.

I have been working as a gate agent for the better part of the last year. Let me tell you, most Premiers and above don't choose United, but out of necessity, corporate discount, or the overall opportunities to earn/redeem miles and fly in United's worldwide route network.

Most leisure pax (90%) wouldn't pay a significantly higher fare to fly United just because of Mileage Plus. To most that I've encountered, earning miles is just a "freebie" and not any sign of loyalty... they only fly United -again- because of a mix of price and schedule. To the leisure travelers whom the miles REALLY matter (those saving up for Australia), I think they would chip in even though over a period of 5 years, the cost of membership in M+ would be $125 to $250. And for the ones who don't really value their miles that much (view it only as freebies)... by far most will continue to fly United based on a mix of price/schedule.

Another way to look at this would be to charge "award redemption" fees, which could be more variable on the type of award ticketed.
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RE: A Possible Solution To US Airlines Financial...

Fri Aug 16, 2002 1:43 am

Business pax already pay more, you start charging them futher for their perks and they will simply go low cost.
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RE: A Possible Solution To US Airlines Financial...

Fri Aug 16, 2002 1:48 am

In today's environment, airlines have to look at "how much they can get away with" without alienating customers.

I believe one airline could get away with these MODEST fees even if most did not go along with it.

American has charged $75 expedite fees on its award tickets for years, and requires you to have an actual award certificate (which takes some time to receive) before being able to ticket an award without the fee.
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