Frequent Flyer Programs in Crisis

Frequent Flyer Programs in Crisis

Recent events have impacted the airline industry like never before. And the industry has responded like never before, utilizing the strength of its frequent flyer programs to lead the charge. We tell you how rumors, facts, and changes affect every frequent flyer in the future.

Earlier this year we celebrated the 20th anniversary of frequent flyer programs – with bells and whistles, and enough celebration miles given away to fund a new generation of members. Over the past 20 years, we’ve enjoyed feting the highs and lows these programs have faced. But now, for the first time ever, these programs are being tested to their limits.

Can there possibly be enough strength in these programs to do what must be done to save the future of airlines as we know them?” If not, more metal will be added to the scrap heap, joining other victims such as Pan Am, Midway Airlines and Eastern Airlines.

A Tale of Two Perspectives
After the events of September 11, 2001, the early attention focused, quite appropriately, on the safety of the skies. As days mourned by, media and analysts turned their attention to the financial condition of airlines and began debating how the impact of the terrorist attacks would change the airline industry. Initially, they discussed bankruptcies, smaller route systems and the idea that the industry might have to address the difference between business travelers and leisure travelers. As conditions began climbing back to normalcy, the discussions turned inexorably to the topic of frequent flyer programs.

The first insidious rumor to make its way into the public forum was that the airlines, in an attempt to right the sinking stock of the industry, would soon throw off the frequent flyer programs, casting them aside as so much dead weight in a stormy sea of red ink. Then, as the programs introduced their first responses to the crisis, talk turned to whether these changes would lead to permanent changes. Finally, there was growing speculation among the frequent flying public that the dire financial condition of the airline industry in general would lead to more expensive awards and more restrictions on the availability of awards.

At the same time, a far different discussion was being held in airline and hotel program offices around the United States. Rather than looking at how they could diminish their frequent flyer programs, executives were busy deciding how they could leverage one of their best assets in an effort to restore travel – and save their businesses?

Debunking A Frequent Flyer Urban Legend
But before we get into specifics about how the programs are responding to the new world order, we’d like to address, and put to rest, a popular myth that has sprouted from all of this.

As the news of airline financial peril dominated the headlines, Peter Greenberg, erstwhile travel correspondent for NBC and The Today Show, was one of the many correspondents who espoused on the challenges that the travel industry would face as a result of 9/11. Apparently, during one of his commentaries, Greenberg opined that, given the serious problems facing airlines, many cutbacks would need to be made, and these included airline routes, services, employees and (gasp) frequent flyer programs.

We’re sure that Peter didn’t actually mean these programs would be eliminated, rather they may face an uncertain future. But many of those frequent flyers listening took this to mean programs would be ended and thus started a variation of the frequent flyer urban legend.

While these programs have faced cutbacks in staff and other areas related to the financial conditions of the airlines, there is absolutely no truth to the rumor that any airline will elect to shutter its frequent flyer program in the foreseeable future. A program or two may disappear, but only as a result of that particular airline no longer being in business. In fact, common sense says that without these programs, airlines would have been powerless to communicate with their best customers in this time of crisis. Minus frequent flyer programs, the airlines would have been relegated to responding by lowering airfares and would lose what perhaps is the only bright part of the airline industry – the profit of miles. These programs will prove over the next few months to be the most valuable asset airlines possess today and you can bet that the airlines aren’t ending them anytime soon. Trust us on this one.

Caught In The Headlights
“What should we do now?” That was the question being asked in every frequent flyer program in the country after Sep. 11.

Most programs immediately pulled back their newsletters and cancelled their drop dates for the most immediate activity statements. These actions were taken for two reasons: first, many programs decided to curtail bold bonus initiatives, sensing that new directives (not yet decided upon) would be key for the months ahead. And secondly, the newsletters would have to be re-edited to remove images of the World Trade Centers, etc.

These decisions were being made extremely rapidly, and under the pressures of communicating in a prompt, honest, informative and concerned manner. It was never more evident that in this time of crisis that frequent flyer programs have truly become the mouthpiece for the entire the airline. So if not prompt, then rumor and innuendo fill the void, especially given all the rumors of financial peril. If not honest, intrigues will be uncovered and circulated rapidly in our Internet society, and will cause confusion and panic among members of such programs. If not enough information is provided, the members and the media will push for more. And, if a sense of concern is not expressed, members of these programs assume a lack of caring and will feel as if their opinions and needs aren’t important.

Being caught in the headlights was a new experience for the marketing executives at these programs and most of them reacted with a watch and wait approach. Most programs had some ideas of what they should do, but as we look back it is apparent that two programs made the decisions for all the others to follow.

Rising To The Occasion
As the days crept by after 9/11, we here at InsideFlyer waited to see which of the airlines would make that first move and what the move would be. Would airlines lead with the anticipated air fare sales to get Americans traveling again or would they leverage their frequent flyer programs as they did in 1991 when the Gulf War provided similar elements of challenge? The pressure to observe a mourning period was intense and none of the airlines wanted to appear unsympathetic to the situation.

It was Delta Air Lines which ultimately rose to the occasion in a manner rarely seen in the airline industry. Rather than utilize full-page ads urging America to fly again, the executives at Delta realized they had to do more than urge – they had convince people that is was worth their while to fly again.

Air fare sales were seen as too messy a campaign. Instead, Delta management decided that their SkyMiles program would play the lead role in their attempt to get back to normal. This set in motion all the announcements that soon followed.

While it was a given that someone had to make the first move, the way that Delta took the lead and kept the lead was refreshing and inspirational to the industry. And, while others were concentrating on the travel aspect of their frequent flyer programs, SkyMiles embraced their most valuable partner, the American Express credit card relationship. This unique and inspired approach not only got SkyMiles members traveling again, but it also encouraged them to spend money with an aggressive double miles for credit card use.

But Delta wasn’t the only program to respond to the challenges facing the industry. Now, with the benefit of a couple of months of hindsight, we can look back and see how those efforts are taking shape. To date, the responses have fallen into three general categories.

Response One: Safe To Travel
In perhaps the most dramatic example of how airlines can use frequent flyer programs, all major programs followed the lead of Delta SkyMiles and introduced a month long period in which domestic award levels would be lowered from the standard 25,000 miles to only 15,000 miles – a decrease of nearly 40%. Never in the 20 years of these programs had any airline ever done such a thing, now they were all doing it.

What was particularly interesting about this move by SkyMiles was that, generally, these programs don’t compete on who has the lowest award schedule. Common theory suggests that, as a competitive tactic, matching a short-term award sale is unnecessary because most members would not opt to change their choice of frequent flyer programs to chase a limited award sale being offered by another program. But in this case, the programs were not thinking competitively. Rather, the industry was looking for ideas from all of their competitors on the best way to leverage their own program.

The fact is that the idea to launch a full-scale award sale domestically was not being considered by most programs. Only the American AAdvantage program had plotted out a solution similar to Delta, and it is not certain that they would have lead with that response had Delta not set the standard. AAdvantage, however, did move beyond the domestic sector and expanded the award sale to later dates and more regions around the world.

As is known now, all other major programs followed with the exception of the Southwest Rapid Rewards program (with their popular double credit for Internet booking, their awards were already at half-price and they simply could not afford to make an enhancement on that). Perhaps the other programs could have avoided matching Delta SkyMiles in this area, but it does show that even award redemption is considered an asset with these programs – and it is estimated that 37% more flyers redeemed and used awards during the period between October 15 – November 15 than did the previous year.

Delta SkyMiles certainly deserves kudos for this “Play Of The Day.”

Response Two: Incentives
With award sales underway and seemingly successful in convincing passengers that it was safe to fly again, frequent flyer programs now needed to stimulate the revenue passenger. Double miles became the standard among mileage-based programs. This came as a surprise since the last major double or triple mile promotion for all members was back in 1988. Since that time, frequent flyer programs have been far more interested in offering up these types of promotions on a segmented basis, with only small numbers of members eligible.

So far, at least, this response appears to have been limited in its effectiveness. The quick decision by Delta SkyMiles to extend the dates of the double miles promotion signals that it wasn’t working as expected. And, with the holidays quickly approaching, it made sense to extend this promotion while they worked on a better promotion that would hopefully convince business travelers to fly despite the decisions of corporate America to throttle back travel. Other airlines again followed suit -extending their double miles promotions as well. As we all know, with the right promotion, travel budgets and other excuses will be dammed.

We thought that the AirTran A-Plus Rewards program had the right approach to all this when they introduced their 1, 2, 3, Fly! promotion. Essentially it was a “fly three – get one free” promotion. Double miles are fine but they don’t provide the impetus to fly more than once, or twice to most members. The AirTran promotion does, since you’d be missing something if you decided to quit flying at two roundtrips.

It’s important to understand that, while airlines have offered up these systemwide double miles promotions, they are not without the fine print. Most require pre-registration to qualify, and if you haven’t done so yet, your next frequent flyer statement will be a little short of miles you might have earned. As for the New Year, we expect that the catch phrase in the frequent flyer world may be “Operation Enduring Bonuses.”

Response Three: The Worried Elite
Even prior to 9/11, the topic of how to re-qualify for elite was beginning to worry the most frequent of flyers. For months leading up to mid-September we had fielded emails and calls from frequent flyers as to what strategy they should be using to make sure they could again keep a gold or platinum card in their wallets during the coming year. Business travel was on a downturn and within the walls of the frequent flyer programs there were talks about what they might offer to those members whose travel was being curtailed beyond their powers.

In years past, some programs have offered extended periods to earn the miles necessary to qualify, and have even offered up special promotions that required a number of flights in a confined time period to make up for missing miles. While it was expected this would be more prevalent this year due to the faltering economy, 9/11 proved to be even more elusive to solutions. The continuing problem of business travel related to an economy slow down and was now accentuated by the fear of flying.

Each program started to work on “the numbers” of what made sense for their own situation. But with some ideas in hand, almost all of them waited to see what the competition would do before making any decision. The most surprising move in the industry was by American AAdvantage, who announced an extension into 2003 of their elite level benefits for members with no re-qualification necessary. This was surprising because AAdvantage is known as a frequent flyer program that really likes to stretch their members. Every other program had plans for addressing the concerns of their elite members but none of them had considered simply giving a free year away.

Our guess is that there might have been more to this decision than what appears to the naked eye. By extending elite benefits for an additional year with no re-qualification, AAdvantage could possibly get away with not having to re-issue elite member packages to those who would have re-qualified under a changed tier status.

As we all now know, other programs opted to include double bonus miles toward elite re-qualification and still others lowered the re-qualification level. Mysteriously missing from all this is the United Mileage Plus program, which was the sole major program not to announce any public changes to their Premier program. Given that United made corrections to their Premier program last year because of the summer schedule disruption, it was probably to their best interests to stay the course this year, thus dropping off anyone who was able to sneak in under the relaxed tiers of last year.

The Future
What frequent flyer programs have learned over the past 20 years is that it is extremely difficult to make positive temporary changes without upping the permanent expectations of their members. Every exception or extension of a favor offered to members is followed closely by a member service nightmare. Regardless, you should not expect the recent changes to be indicative of permanent change. Rather, they are an example of the temporary lengths that airlines and their frequent flyer programs will use to right the airline business.

So, what’s ahead for these programs? Well, at the risk of sounding boring, it’s back to normal. Every single new partnership, segment promotion, or new wrinkle in these programs have been pushed off to 2002. For the balance of 2001 the focus will be on holiday travel and, historically, that is when these programs take a nap. The airlines know that business travel is never prevalent in November and December, so they are under no pressure to make any additional concessions. With decisions already made on the status of their elite members for the following year, these programs will return to normal.

In the coming year, you will not see continued systemwide award sales like the 15,000-mile awards, nor will you see another pass on your elite re-qualification levels. What you will see are some unique efforts and offers to stimulate additional business travel. And, because the double miles offer isn’t working the way it was hoped, we’re likely to see something new and original to start the new year – something intended to make flying worth our while again. You can be sure that, whatever the approach, the frequent flyer programs will be leading the way.

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