Opening Remarks – August, 20 2002

Opening Remarks – August, 20 2002

As another year draws to a close, I am struck by a recent program change that went relatively unnoticed, but might serve as a keyhole through which we can glimpse the future of our miles and points.

The change I’m referring to involves the American Express Membership Rewards program in Canada. Recently, the Canadian program announced that the conversion rate at which members can redeem Membership Rewards points to Delta SkyMiles and Continental Onepass miles will change as of Dec. 15. In the past, 1,000 Membership Rewards points could be redeemed for 1,000 frequent flyer miles, with a minimum requirement of 10,000 points for each transfer. Under the new exchange rate, 1,000 Membership Rewards points will earn only 750 frequent flyer miles — a change in value of some 25%.

Of course, programs have the right to make these types of changes, and we as members are basically obliged to grin and bear it. Sure, I would have liked to see the program give a proper six-month change notice, rather than announcing the change one month prior to implementation, but I’m not bringing this up to pick on Membership Rewards in Canada. In fact, given what I know of why and how the change came about, I’m sure that I would have done the same thing (though with more notice).

The wheels of change were set in motion when the contracts that bound Delta, Continental and Membership Rewards in Canada ended. I believe that, during the renegotiations, Delta and Continental upped the cost per mileage transaction, as airline frequent flyer programs have done with many other programs. The fact is, these frequent flyer programs are teetering on the edge of a pricing precipice that will force the program partners to either change the value proposition at which they can offer miles, such as Membership Rewards in Canada has done, or drop miles as a membership incentive.

In this case, with few major Canadian airline carriers still in operation (Canada 3000 has grounded itself), the Membership Rewards program is severely limited in the options it can offer members who covet their frequent flyer miles. It is interesting to note that the Canadian Membership Rewards program, just like the U.S. version, does not partner with the major frequent flyer program (Air Canada Aeroplan).

Membership Rewards in Canada faces another challenge in that, the program’s cost is built around the Canadian dollar while Delta and Continental’s costs are built around the U.S. dollar. Given the recent changes in exchange rates, it’s no wonder that things have gotten out of hand for Membership Rewards. And this challenge is not unique to Membership Rewards in Canada. Any non-U.S. based partner whose native currency is not tied to the U.S. dollar will likely face the same types of problems. Imagine having no control of the cost of your rewards program?

The bottom line: frequent buyers can probably expect to see a decrease in the number of miles earned from partner activity as airlines continue to raise the price of a mile. Need another example? Look at how many miles you earned for your last car rental. Need I say more.

What else does the future hold? In years past, I’ve had fun predicting the future of these programs, and I am fortunate to claim an accuracy rate in the high 90-percent range. But forecasting the future of miles and points in 2002 is a rather complicated mess. Will there be much change? Probably not. But I do see an attempt at legal “pooling” of miles or points in at least two or three different programs. To date, the word “pooling” has been restricted to the mutual accounts of spouses with Hilton HHonors and Starwood Preferred Guest, as well as the family accounts with British Airways Executive Club. The term “pooling” in 2002 will likely go in a different direction — and be more related to frequent flyer programs than it ever has before.

And finally, Peace on Earth Goodwill to Miles

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