Time Flies Forward

Time Flies Forward

Last month while you were decking the halls, making a list, counting down the twelve days ’til Christmas, and enjoying being home for the holidays, you will be pleased to know that the Grinch did not steal any more of your favorite frequent flyer programs. It appears, for now at least, that the majority of programs have elected to leave their elite qualifying criteria untouched (you can go ahead and exhale now, unless of course you’re a member of the SkyMiles or OnePass programs), and, although some changes with regard to claiming upgrades were announced, most members will feel little, if any, effect.

So as the Christmas bills pour in and you vow, once again, to be as diligent in managing your finances as you are in tracking your miles, we’d like to offer some predictions on what members and the programs can expect to see in the New Year.

Predictions are a bit like the people who make them: no two are the same, some are fantastic, others mundane. Good predictions can serve as a roadmap; bad ones can serve as a source of humor years down the road.

A few years into the third decade of frequent flyer programs, we asked ourselves; what will things look like this year? Will miles lose their value and go the way of Confederate dollars or trading stamps? How will programs differentiate those who actually fly and stay the most from those who earn most of their miles and points from partners? Will spam (unsolicited email) kill the one-to-one communication channel of email, and force programs to replace this form of communication with individualized publications distributed through the Internet, or some other form of yet unknown technology? Will consumers tire of the fine print and the fight for seats to prime destinations and revolt by leaving the programs in droves, or by filing class-action lawsuits against the airlines?

While we offer some predictions of our own for the upcoming year below, we also thought it might be interesting to find out what the executives who manage these programs foresee with regard to the critical issues facing them and their members. Just what does it mean to have an “elite retention strategy” these days? What new ideas might programs be prepared to introduce? How do these programs aim to attract and retain the full-fare flyer in a brutal business climate? We put forth these questions and many others, and the comments and predictions we received in return are at once enlightening and hopeful.

Click here to read their predictions.

And now to our own Top Ten predictions for the New Year:

  1. While business travel has tailed off, the allure and marketing of a full-blown travel rewards program to the masses is still the fastest growing segment in the industry and we see nothing but positive growth here. Exclusive is only for those with “Elite” status.
  2. Growth won’t be limited to membership, as more and more partners will be added to the program mix. The trend continues with the “malling” of these programs as we highlighted in our December issue. If members think they have had problems keeping track of the car rental partners, try keeping track of the retail partners.
  3. Demand for non-air redemption options will continue to rise internationally and will even have limited success in the United States, where such rewards are fairly rare. These types of awards offer the right combination of utility and glamour.
  4. Almost every program will re-launch its Web site in 2004. Among the changes we see are friendlier booking options for awards, complete award availability online (including international, upgrade and partner awards), the harvesting of award data which will lead to the realization of long-promised seamless alliance relationships (whichever program first introduces this and makes it work gets our vote for Program of the Year) and interactive features that will improve real-time member communications (such as itinerary calendars and email alert features that will automatically notify you when award availability opens up). In fact, if there is one thing this industry should do, it should hire someone from Expedia or Travelocity to upgrade the pro-active technology for travel bookers.
  5. Gift mile programs become even more popular as a stress-free gift solution members can use without having to leave their computer.
  6. Low-cost carriers will realize that loyalty programs are a profit center. While darling JetBlue has kept its eye on service (and we applaud them for it), it won’t be long before it and other low-cost airlines make high-cost rewards available to members.
  7. Expect to see increased demand for points exchange opportunities to rescue orphan miles and other currencies. While the meltdown of the Hilton Rewards Exchange has dismayed some, many believe that 2004 will be the year that points.com really comes into its own, and also gets some serious competition. Why? Airlines will wake up to the fact that their mileage currencies are most valuable to them when they are constantly in motion. Dead miles equal a dead member.
  8. Programs will begin to realize that you can’t buy loyalty with miles alone — customer commitment depends on showing trust, respect, care and developing a dialogue. After what seems like years of distraction, it won’t just be the full-fare member that gets the red carpet treatment. Competition returns and it has respect written all over it.
  9. With consolidation still a possible prospect in the industry, don’t be surprised by the merging of some currencies. An example of that will come in 2004 when SWISS merges its TravelClub into British Airways Executive Club program, but yet maintains its SWISS airline identity.
  10. Other topics and trends: Even more fees. Imagine paying a fee when claiming an award for someone other than yourself? Redemption news. Who ever said that awards need to be capacity controlled? We believe there is a chance for some programs to do something different here to move member share. Remember when Starwood rocked the hotel programs with no capacity/blackout dates?

Predicting the Future Value of a Mile
There’s no doubt about it, miles are a popular form of currency, second only to the dollar. When American Airlines started its AAdvantage program in 1981, few predicted how powerful the incentive of miles would be.

The airlines have taken full advantage of this love of miles by creating a profitable secondary industry in which they sell miles to just about any partner who wants to use them as a marketing tool. Now, program members can earn miles for just about anything, from the obvious methods of staying in a hotel or renting a car, to the uncommon: giving blood, gambling and even buying frozen dinners. We call those who fly infrequently but continue to rack up miles by doing business with airline partners frequent buyers. The airlines call them valuable assets.

Today, frequent buyers represent the largest growth market in the frequent flyer world. Given that this is a way in which airlines can effectively pre-sell their seats, there is no hypothetical limit to the number of miles/points that these programs can sell — and there doesn’t appear to be any self-limitation on the horizon. In fact, a few years ago the then-President of the American AAdvantage program, Bruce Chemel stated, “Who are we to deny our customers the right to earn miles where they might want to earn them?”

Basic economic theory would seem to dictate that the more miles in circulation, the less value those miles have, and that is the crux of a popular conspiracy theory filtering among many members of programs today. But several statistics seem to dispute this theory. For example, the percentage of miles earned from non-transportation continues to grow, thus offsetting the increased redemption costs of awards. As well, fares, when indexed against inflation, are cheaper than at any time in the past, allowing members to accumulate more miles at a reduced per mile cost. And as the industry has shown, the supply and demand of awards is extremely liquid. In 2002, for example, despite smaller route systems and other problems facing the industry, the airlines redeemed a record number of awards.

From an observational perspective, the theory also seems to meet with significant resistance. On the popular Internet bulletin board site, FlyerTalk.com, those who post about their difficulties in redeeming for awards often receive dozens and even hundreds of responses from other members stating they have never had a problem getting the awards they want. It would appear then that the idea no member can ever get the awards they want may be more emotional wive’s tale than fact.

But perception is everything, and the programs are well aware of the general perception that free seats are too hard to get. Some, like South African Airways Voyager, have taken drastic steps to alter the public’s outlook. This past holiday season, Voyager literally leased planes and flew special award-only flights to several popular destinations, with 100 percent of the passengers on awards. Will this kind of action change member opinion? Probably not. Truth is, the subject of the devaluation of miles has been hotly debated for the past 20 years, and, given the fact that the airlines fully intend to continue selling miles to non-air partners, there is little that can be done to alleviate member concerns.

In the near future, it’s a good bet that some programs will re-launch with a more general approach to the public — similar to Air Miles in Canada and other countries. For years, members of these programs have felt a sort of eliteness to being a member of a frequent flyer program. In the future, as you chat miles with the check-out person at Safeway who also has a United Mileage Plus credit card, you might find yourself adjusting from “Joe Millionaire” to “Average Joe.”

Resolve Needed By the Airlines
The ongoing debate over the value of a mile isn’t the only challenge the programs will face in 2004. Quite the contrary. Below we examine some of the most visible topics we expect programs will be forced to contend with in the very near future.

Free Agents — In ever increasing numbers, members are declaring themselves free agents when program changes rub them the wrong way. They aren’t pushing away from the frequent travel program table entirely, simply selecting from a different menu. And to a large extent, the programs have been complicit in this trend by recently enacting numerous changes that have worked as loyalty disincentives to thousands of long-standing members.

The Internet as an Agent of Change — For years, program executives looked to the Internet as a means to lower distribution costs and better communicate with members (not to mention, better market to members). Along the way, the members found they could gain other benefits through the use of the Internet, benefits that were never on the radarscope of most program managers. The Internet has become an ideal medium for member-to-member communication, and has allowed travelers the world over to spread both the good and bad about what programs are doing right or wrong. Though the Internet is no longer new, it’s still an agent of change for these programs.

Many-to-One Marketing — The concept of one-to-one marketing is still alive and well. But even with today’s technology, it’s a difficult concept to manage. Invariably, some of us are left standing confused, as if waiting outside a popular night club, wondering what we’ve done wrong. Don’t we look right? Aren’t we fashionably dressed? As for many-to-one marketing; You have probably noticed that most of the marketing messages you get today from your favorite frequent flyer/frequent guest program are all about the partners — the many of them. And if you’re like many other frequent travelers, you might be turned off by all of these semi-solicited messages. The time is quickly arriving for programs to decide where the breaking point should be placed between appeasing partners and ticking off members.

Consumer Militancy — Some call it being radical, some call it tough love? If a consumer militant group hasn’t already formed to rail against your program of choice, chances are one will be formed soon. Say what you will, but members don’t want to change … and they don’t want their programs to change either.

Lifestage Marketing — The mantra espoused from frequent travel executive offices everywhere after 9/11 went something like, “These are tough times, please hang in there with us and things will get better.” Yet when the roles are reversed, programs have been historically insensitive to travelers who, for whatever reason, are unable to maintain a certain level of patronage. How is it that a program cannot understand that someone with 4 million miles in their account, but who hasn’t flown much in the last two years and is now asking for a comp to retain their old elite status because they got a job again and will soon be back in the air is not a bum asking for a handout? Why is it ok for a program to ask for patience in lean times, but a member isn’t given the same courtesy? Changing employment patterns and struggling economies are forcing the programs to rethink the way they view long-term members. This should be the first year in which these programs finally get a clue and begin to understand that a member cannot always be defined by his most recent mileage statement.

Ego-nomics — Speaking of mantra’s, here are a couple you might have heard while standing in any elite line; “I am one of your best customers,” or “What part of ‘100 percent of my business’ don’t you understand?” How much is a member of a frequent flyer program worth to an airline? In 2004, you’ll finally find the answer, as airlines fine tune the programs to more accurately met out benefits to their “best” customers.

Sharp Value Detectors — Members can smell a rat. There has never been in the history of these programs a more defined time when members argue and sense the “value” of their miles and points. Is the economy causing us all to magnify our “assets” and what they are worth to us? If so, programs would be well served to calm down and let this period pass before engaging in anything more that requires the “smell” test.

Relationship Changes — The seven-year itch is not just a marital concept, it also comes into play among members of various frequent traveler programs. Peer pressure and other factors, such as a “better looking” or “younger” frequent flyer program offered by an existing airline or a young and restless low-cost carrier may lead to intensive therapy sessions for members, as well as program executives.

The Outlook For 2004
By the time the last miles and points are tallied for 2003, frequent traveler programs are likely to have given away just under 20 million free awards (not counting upgrades) and awarded to their members some 2.55 trillion something miles, credits, points and other related currencies of the realm.

All that adds up to a lot of happy members.

Though many like to compare frequent travel programs to other types of loyalty programs past and present, there’s really never been anything like them. Over their 22 plus year lifespan, these programs have evolved and withstood enormous pressures from opponents and supporters alike, and have emerged the stronger for it. Even today, many Wall Street analyst are still scratching their heads, wondering if the industry would be better off if the 7.3 percent of the population flying these days were forced to buy their tickets — if even on Priceline — rather than to earn them one mile at a time.

And by all accounts, it looks as if frequent travel programs will continue to enjoy success this year, only more of it. As of now, with most program changes for the upcoming year already announced, it’s reasonable to assume that an improving economy and better promotional efforts by programs will result in a record year for these loyalty currencies.

What could go wrong? Well, it’s possible that everyone who wants more miles has enough. It’s possible conflict in the world will dampen both the incentive to earn miles as well as the pleasure to use them. It’s possible that low-cost carriers will add first-class upgrades in an effort to compete more readily with the larger carriers, which don’t seem to be caving in as quickly as “the experts” predicted (witness JetBlue’s speedy exit from Atlanta).

Anything is possible, but as of now, none of that seems likely. Mileage lust is still with us and, while premium awards are pushing 60,000 miles, there’s no indication they will go any higher.

In short, all the indicators are pointing to a banner year for frequent travel programs, as well as their members.

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