LOYALTY PROGRAMMES BY GARY NOAKES
IN THE LAST YEAR OR SO, it’s almost as if Chancellor George Osborne has taken over the running of some of the world’s major airlines, looked at the perks of the frequent flyer and decided that having a lot of freeloaders jetting around at someone else’s expense is just jolly well unfair. Austerity thinking doesn’t really fit with
traditional airline loyalty schemes, which, as benefits go, take some beating where business travel is concerned. Think about it: someone else buys you an expensive ticket and as a reward for his or her largesse, you get what is ef- fectively free money poured into a virtual account for you – not them – to spend as you please. Upgrading the family holiday from Malaga to Miami, for example. Around the world, however, change is afoot, because the number of airlines taking the austerity axe to their frequent flyer programmes (FFPs) is growing, with British Airways making radical changes to its Avios redemption in April, follow- ing Delta, United and Emirates. In the good old days it was simple: generally, the further you went, the more points you got. Now it’s increasingly down to spend, which is bad news for many business trav- ellers forced to endure economy travel on more occasions than in the past. Earning fewer points means fewer tier points, which, in turn, means that sweetening the economy flight with a few hours in the lounge courtesy of a Silver card may no longer be an option. A brief examination of some changes made by major airlines gives an idea of the revolution underway.
GOOD NEWS, BAD NEWS First, the good news – if you are lucky enough to always fly up front, things haven’t changed too much; in fact, in many cases, they have got better. Under Delta’s new scheme, introduced on January 1, a US$5,000 business class return ticket from London to New York now earns a bottom tier member 25,000 Sky Miles, compared to 6,904 before, when it was based on the distance flown. Now the bad news: drop the price to a budget economy fare of, say, US$600 and while you would previously have earned 6,904 points, you now get only 3,000. There are several sweeteners to soften this bump, accord-
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Austerity thinking doesn’t really fit with traditional airline loyalty schemes
ing to Delta. For example, Sky Miles can now be redeemed for one-way travel and there are no blackout dates; plus a calendar shows the lowest redemption price for dates selected.
When it comes to tier points, these continue to be based on distance or segments flown, with 25,000 miles or 30 segments being the minimum for Delta’s Silver status, one of four bands, with the other tiers set at 50,000, 75,000 and 125,000 miles. Another new require- ment however, for US-based members, is minimum annual spend, with Silver needing at least US$3,000 and Diamond, the top tier, US$15,000.
Delta is honest in its description of the
changes, saying that miles “are now earned based on ticket price to better reward customers who spend more”. It’s becoming a popular concept, with
British Airways among the converts. In April, BA told its customers that buying the cheapest of cheap seats – classes O, G and Q – would earn them only a quarter of the Avios points per mile they were used to. Most economy fares now earn only 50 per cent of the points previously awarded, while those buying flexible economy fares (Y, B and H classes) see no change. Premium economy passen- gers saw a small reduction in rewards in the lowest fare categories, but like Delta’s scheme, many business and all first class passengers saw their awards increase. United adds another twist in that its spend-based rewards differ according to tier status. An entry-level Mileage Plus member earns 2,500 miles for a US$500 spend, while top-of-the-tree Premier 1K cardholders receive 5,500. United CEO Jeff Smisek sums up the
new creed: “If you go into a department store, they very rarely reward you for the number of times you’ve been in the store.
That’s what the old mileage programmes were doing, because that was how tech- nology allowed you to track it in the 1960s and ’70s when they started. “The world has changed. We think we should reward the high-value customer – and so do many other airlines. If I’m at the back of the plane on the cheapest possible fare, I’m nowhere near as valuable as the customer at the front.” He accepts there are critics, but adds:
“People who were over-compensated previously are unhappy – but people who were under-compensated before are delighted.”
When it comes to tier points, those as-
pirational young executives might also get a bit huffy with BA’s scheme. The lowest economy fares now earn 25 per cent of tier points, instead of 50 per cent, while extra points gained for flying London City-New York are a thing of the past.
Small- and medium-sized enterprises (SMEs) have been affected, too, as BA’s SME scheme, On Business, now has its own tier points system, with yearly total spend taken into account. Many small firms will struggle to get beyond Tier 1, with a spend of up to £29,999, which earns one point per £1 and even those reaching Tier 3, with a spend ten times this, earn only 1.5 points per £1. On the plus side, upgrades are now open to more booking categories than before and the SME scheme does have the attraction that points are collected for the company as a whole and are transferable between staff. As for redemption, points don’t neces- sarily mean prizes. All BA customers will find they need 50 per cent more points to travel in business at peak times than before, and 25 per cent more at other times. The cheap seats are cheaper, however, with BA saying these need an average 26 per cent fewer Avios off peak. In BA’s case, all redemption fares quoted are now minus taxes and fees, another cost increase.
A QUESTION OF LOYALTY Changes like these, needless to say, have their critics. Rob Burgess, editor of frequent flyer website Head For Points, believes the big carriers have got it wrong by increasing the rewards to the very customers who walk away when times are hard – big corporates. This 20 per cent or so of an airline’s revenue has no real loyalty, he
BBT SEPTEMBER/OCTOBER 2015 69
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