In 2003, U.S. air carriers doled out more than a trillion and a half frequent-flier miles–a record number in the 22-year history of these programs, according to Randy Petersen, editor of InsideFlyer. At the same time, U.S. travelers redeemed an estimated 18.5 million awards, mostly in the form of free tickets and upgrades. That was down from 2002, primarily because of the war in Iraq earlier in the year.
In 2004, the airlines are continuing to use frequent-flier miles to lure customers. Several weeks ago, for example, United (quickly followed by American) launched three different mileage bonus offers to spur travel in the first three months of the year. Fly 10,000 “paid, qualifying” miles between Jan. 1 and March 31, for example, and you’ll receive 5,000 bonus miles.
But don’t get your hopes up too high. The first quarter of each year traditionally is the slowest period for air travel, and the airlines are just trying to fill their seats. In fact, the giddy days of carriers pumping vast amounts of miles into millions of frequent-flier accounts could be slowing down. While American and United (which dominate the Chicago market) have made only minimal changes thus far, several major carriers have recently gotten stingier with their miles.
Why? All carriers’ programs are struggling with a familiar problem of their own creation: too many miles chasing too few awards. The imbalance between supply and demand was exacerbated in the past few years because the carriers released an endless torrent of miles to keep passengers flying after 9/11 and during a longer-than-expected recession. At the same time, many carriers cut back on their capacity–i.e., dropped routes from their schedules or replaced large planes with small ones–which meant fewer award seats were available, so fewer miles were redeemed.
Another problem is the incredible disparity in Coach fares. The basic program rule states that every Coach ticket (no matter what it costs) earns one point (or mile) for each flight mile.
When frequent-flier programs were founded in the early 1980s, the difference in price between the cheapest and most expensive Coach tickets was relatively modest. Today, however, thanks to the availability of extra-cheap tickets sold on the Internet, a businessperson sometimes spends six, seven, even eight times more for his ticket than the bargain hunter in the next seat. Yet, under the long-standing program rules, both passengers typically earn the same mileage for the flight.
The airlines are partially alleviating the problem of too many miles chasing too few seats with the familiar “capacity controls” strategy. They are allocating a limited number of free seats and upgrades on each flight, based on sophisticated computer projections of how many seats will be sold and how many seats would be empty at takeoff.
The airlines have also raised the “cost” of some popular awards, like tickets to sought-after Hawaiian destinations, and made other “price” increases based on an improved product, such as the new international Business and First Class seats that fold into flat beds.
More importantly, after suffering record losses in the last few years, airlines now want to give an increasing share of their frequent-flier perks, particularly upgrades, to the passengers who generate the greatest revenues, not simply to those who fly the most miles. So, look for less generous benefits for those passengers who purchase the cheapest tickets, with the greatest rewards going to those passengers who buy the most expensive tickets, such as the high-cost, unrestricted Coach fares usually purchased by business travelers who make or plan trips at the last minute.
For several years, many carriers have forbidden the use of miles to upgrade the cheapest Coach tickets on domestic and international flights. Now, more and more carriers are refusing to award miles on super-discounted Coach tickets purchased from consolidators or at bargain-basement Web sites like Priceline and Hotwire.
Some carriers are giving only partial mileage now on most of their Coach tickets, no matter where they were purchased. Since July 1, 2003, discounted (i.e., not “full-fare”) Coach tickets on British Airways have earned only one-fourth of a BA Mile for each mile flown.
Other carriers are limiting their bonus mileage offers to certain fares. Read the fine print of American and United’s current bonus offers for flying 10,000 “paid qualifying” miles between Jan. 1 and March 31. United excludes super-cheap W, S, and I booking classes from its bonus. American excludes L and N class fares.
How upset should occasional leisure travelers get over these changes to frequent-flier programs? Not that much.
The average leisure traveler who makes three or four round-trip flights a year will probably earn more miles from program partners (like credit card companies and long-distance carriers) than from those actual trips. What’s more, the $100 that you might save by buying a ticket from a bargain-basement Web site is far more valuable than the 1,000 or 2,000 miles you might earn from flight-based mileage.
The recent changes, however, do hurt–and are meant to affect the ticket-buying behavior of–the frequent business travelers who have historically accounted for most airline profits because they purchase those last-minute, flexible, high-cost Coach tickets. Since the onset of the recession, however, more and more companies have been buying the highly restricted and discounted Coach tickets for their road warriors. If an employee had to reschedule a trip, it was cheaper, the companies reasoned, to pay the $100 change fee than to purchase a sky-high unrestricted Coach ticket.
This shift in business travel policies has cost U.S. carriers hundreds of millions of dollars in revenues. Meanwhile, these same business travelers, who are contributing less and less to the airlines’ bottom lines, are still flying enough miles to earn elite status (such as American AAdvantage Gold or Platinum, and United Mileage Plus Premier or Executive Premier) in the frequent-flier programs. With elite status, these passengers gain costly perks like special check-in lines, bonus mileage on all flights and low-cost upgrades.
To reduce the flow of perks and increase revenues from these business travelers, therefore, Continental and Delta award only 0.5 miles toward elite status for each flown mile on discounted Coach tickets. Those same cheap tickets will earn a full 1.0 miles for those members’ regular mileage accounts, directly penalizing business travelers who buy cheap seats.
When such “program enhancements” were announced, the howls of protest were immediate. Continental backtracked, a little, by announcing that discounted Coach tickets purchased at its Web site would still earn 1.0 miles toward elite status in 2004. The following year, the discounted ticket would earn only 0.5 miles for elite standing.
How are these changes affecting Chicago leisure and business travelers? “Chicagoans should be quite pleased,” says Matt Bennett, publisher of www.firstclassflyer.com. “American and United, which dominate the local market, offer good programs, and they are essentially staying put for 2004.”
What happens next yearwith frequent-flier programs, of course, is anyone’s guess. One thing is certain: In the past few years, many frequent-flier programs became virtual carbon copies of each other. That’s no longer the case. Some real differences now distinguish the various carriers, including the growing importance of passengers’ fares, not just their flown mileage. The new crop of discount carriers, which are pressuring the major airlines in more and more markets, are offering their own programs too.
In addition, the growing market share of discount carriers discourages traditional airlines from tightening their frequent-flier programs too much. “If you compare traditional carriers with the better discount airlines,” says Bennett, “they only have two distinct advantages: First Class cabins on most domestic flights and frequent-flier programs with worldwide reach. If the traditional airlines cut back the frequent-flier programs too much, they’ll lose one of their few remaining competitive advantages.”
With frequent-flier programs entering a period of flux, more than ever it pays to read the fine print carefully and select a frequent-flier program that offers you the best deal over the long-term.
