Last year at this time, the conventional wisdom coloring 2004 frequent flyer predictions was “cautious optimism.” The phrase hinted at a return to the basics of these programs — focusing on the elite flyer — while maintaining a kind of “let’s not jinx anything” ethos of conservatism around both the future of travel and the legacy of the Big Six airlines.

Thanks for joining us in looking forward to yet another year of miles, points and, unfortunately, the unknown. In years past we could fly from year to year with a high degree of expectations regarding our elite and other benefits, as well as a fairly comfortable assurance that our choice of frequent flyer program was something we did not need to leave to a New Years’ resolution to change. But time and money (the low-cost type) have changed that easy feeling for the time being.

What’s all the “Back to the Future” stuff? Beyond being a term used by many to indicate a return to “the basics,” there’s probably some validity in taking a few moments of your time to allow us to peek ahead. When we started thinking of this month’s story, we envisioned chatting with dozens of those actually running programs today. But over time we came to realize that many are paranoid that they might trip up on their next five-year marketing plan or were speaking with such a tight PR noose that we figured we’d be better off going it alone. The crystal ball offers up tips for your new year, as well as an understanding that nearly 24 years after the advent of miles for loyalty, not much can be radically new but a whole lot can be tweaked like crazy. Frankly, that’s the purpose of publishing InsideFlyer month after month, not just once a year: The better you know the nuances of a program, the more value you can reap from memberships.

In predicting what’s ahead in 2005, the editors of InsideFlyer want to borrow a phrase often heard in amateur sports circles: “learning to lose.” In today’s world of frequent flyer programs, that refers to the major airlines’ worry of low-cost carriers stealing passengers and thus, members of their more established frequent flyer programs. We might suggest that in 2005, the industry will fast forward itself and “learn to win.” It’s true that some programs have lost members to some of the low-cost carriers, but most of those members are still fair game to return to the majors’ mileage fold. A case in point is the way that the hotel programs have been able to leverage their multiple brands to keep members of their programs from all sleeping at Motel 6. One secret is simplicity.

InsideFlyer Top 10 Predictions
2005
(Plus a Bonus Prediction)

1. Simplify, Simplify, Simplify

The title of this trend may well be the mantra of Delta SkyMiles. After 23 years of adding layer upon layer of complexity to these programs, it was inevitable that an intervention of some sort would be necessary. Many months ago, the CEO of Delta Air Lines told the financial community that one of his goals was to offer a simple frequent flyer program. He and the entire team at SkyMiles have just delivered what is arguably one of the most significant steps toward starting that trend. The trend is simple — simple programs, simple rules and simple (common) sense. We think that there will be other players in the later months of 2005 that will reintroduce their programs with fewer rules and fees, thus simplicity. But we also think that some of the newer programs offered by low-cost carriers will actually become more complicated as they start to add layer upon layer. Ah, the perils of growth. While we don’t think that 2005 will herald the dawn of simplified award redemption rules and availability, the year will set 2006 up for a banner year on that topic.

2. Members in Control

While the SaveSkyMiles movement is the best-known example of the member in control, it set in motion the idea of icon toppling among members of these programs. No more would members fly to earn miles with a quiet sense of trust. While changes the last few years have been more accelerated than in prior years, none were groundbreakingly unique in the industry. But try to make that point to members whose benefits have, in their mind, become “devalued.” In 2005, we believe there will be another uprising of radicalism. Which program change will members band together to protest? Even we don’t know. But we have a sense that the edge to which members (and legislators) are willing to be put up against is nearing the breaking point once more.

3. Experiment and Innovate

Most programs have accepted the inevitable obsolescence of the old model of operating. The question now is whether they’re building new models. We see a return to marketing and some risks being taken, replacing some of the mass marketing of program benefits with short-term “exclusive” offers. Larger programs will find the “add water and stir” nature of programs irresistible, but the adoration of JetBlue and even its frequent flyer program wasn’t about adding water. Granted, some programs will embrace (or in some cases, begrudgingly capitulate to) something new, something blue. Programs will seek every conceivable hook to nurture loyalty, and members love a hero. Mark our words, the same will happen in 2005.

4. The Role of Community Takes Center Stage

While it might be that FlyerTalk taught the industry that there is something to be said for “community,” we expect in 2005 that dozens of programs will establish ways in which their members become more “sticky” to the program. There’s the idea of bulletin boards for members of a particular program, of ‘blogs’ and specialized “MyMiles” types of communication. Primarily this is now being lead by hotel programs, and in particular InterContinental Hotel Group’s Priority Club with its new blog, but we do believe that there will be “local” competition to FlyerTalk. “Local” being programs themselves. Why? Community influences decisions by members and serves as “listening posts” for customer service as well as sounding boards for the future — all in real time. Among those candidates who would be well positioned to pull this off? United Mileage Plus and Starwood Preferred Guest. Both programs have a higher-than-average emotional attachment among their members.

5. Taking Web Sites Seriously, Programs Begin to “Super-Size”

Here’s a quiz. What is the one and only reason you visit the Web site of your particular frequent traveler program? You’ve only got a moment to answer this… time’s up. If you could not think of an answer that was more than “checking my balance” or “redeeming my awards,” your program is in trouble. Web sites these days are the one and only conduit for communication with members. And frankly, after years of failure to understand what the replacement is for the printed newsletter, we believe that in 2005 several programs will introduce super-sized program Web sites. What is “super-sized” to the frequent flyer? Well, it might be in the form of bonus content, interactive games and tools to help the member maximize partner use and elite status. This is not to be confused with “community,” which is a member-to-member initiative. The super-sizing of program Web sites is purely program-to-member. Remember the old dot-com adage, “Content is King?” We do.

6. A Return to Value

If President George W. Bush can win reelection based upon “values,” then so can frequent traveler programs. The hand-wringing about the declining “value” of these programs will start to subside, and there will be a return to a focus on getting it right. The negative impact of airfares on program benefits and awards will become past tense, and once again members will see that despite the sense of “devaluation,” there are still hundreds of reasons to play the mileage game.

7. Programs Battle to Control Offers, Which Tip Toward More Individuality

There’s bad news here. In looking at the backgrounds of executives with most major frequent flyer programs (not hotel), you notice one clear denominator: Most came from the revenue/yield management side of the airline business. Who would have ever thought that the ticket to “brand” was not in the Steve Jobs- style of building relationships, but in tweaking pennies contributed to the front office? Well, this is where trendy and trends part ways.

It was trendy to move all major marketing to one-to-one. Being trendy denotes passing fancy. But a trend it something that lives a long shelf life and in 2005 you can expect more promotions for which you will not be qualified. The difference in this trend from previous years is that these programs now have the technology to prevent members who were not targeted for a particular promotion from registering for them. Bummer. Even those in the know will now be shut out.

8. Spam Spares Miles No Longer

We’ve written about this before in InsideFlyer and always thought that it fell on deaf ears in the industry. Considering that the line of communication (email) to members is at an all-time low read factor because of the deliverability of the medium and the spam factor, we think 2005 will be a breakout year for programs to act upon recommendations from experts in the field. By the end of the year, you may be getting your email newsletters in your inbox 80 percent of the time, up from about 30 percent before. Spam filters have been the problem as well as the dynamic way in which email was pushed to members with changing IP addresses and “from’s.”

9. The Battle for Members Moves from the Program to the Partners

We would think that if we lined up the marketing manager of every single program in the world and asked them where the growth of members is, they would all answer in unison: the infrequent flyer. But what does an airline know about enticing these “everyday” people to acquire a mileage earning credit card or put on the feedbag at a mileage-earning restaurant? Uh, not much, other than realizing that building a coalition of other partners will help. Why? These “everyday” people are more likely the target of the low-cost carrier, and if allowed to build a “relationship” with that type of carrier, it could be a tough gamble later on to move them into a full-service frequent flyer program. The last example of this ended badly: AOL AAdvantage. The market is wiser and more humble, and the timing is perhaps better than ever. Could a “partner of the year” award be in the offering?

10. Five Programs to Watch in 2005

You can bet on some innovations from this group. Here at InsideFlyer, we love to speculate on who the rising stars in programs will be. But the real question is which program will introduce the next big thing. Despite popular wisdom that breakthroughs are achieved only by the smaller loyalty programs, we think that in 2005 these advances will come from some of the larger players. That said, here are our five programs to watch in 2005: Delta SkyMiles, Hyatt Gold Passport, America West FlightFund, Southwest Rapid Rewards and Citibank.
* Delta SkyMiles. Their new decision to simplify the SkyMiles program will inspire to others to follow. Just how far they will push the button to reinvent things is still up in the air.
* Hyatt Gold Passport. Even as a smaller program, they have recently introduced promotions that have caused quite a stir. As they grow bigger they will likely have to adopt more traditional approaches to their program and partnerships. Let’s see if they stay traditional or take the road less traveled. While Marriott and Starwood have their hands full with the growth of InterContinental Hotels Group Priority Club, they just might have to swivel their heads to keep tabs on this one.
* America West FlightFund. Even the little guys need friends. After feeling hurt by a failed relationship with Continental and deciding not to pursue the assets of ATA, this mid-level airline now finds itself lonely, and may have to grow its frequent flyer program relations to ensure they don’t become just another low-cost carrier. Among the major airlines, they are alone with no alliances or codeshare relations. More partners equals more value to existing members.
* Southwest Rapid Rewards. The day that they admitted they might start to look at reserve seating was the day we knew that with the possible acquisition of ATA assets and the continued growth of smaller carriers such as AirTran and JetBlue, that this program is facing success but at what cost? Segments are simple, but miles are king, and so are partners. Might Hawaii and international destinations be in their future?
* Citibank. We think this credit card company may make news in 2005 with the aggressive move of issuing American Express credit cards. Sure, American Express recently issued cards through MBNA, but Citibank still has the alliance with American Airlines AAdvantage, and maybe 2005 will get the two “A’s” back together.

Bonus Prediction

11. Program Consolidation Continues as Competition Heats Up

The industry finally has arrived at another inflection point. At least one additional consolidation will occur among programs in the United States in 2005. In days gone by, Pan Am gave up its program to be run by American Airlines. Hint, hint.

If we’re wrong, forgive us. If we’re right, please don’t shoot the messenger. The good news: Things will improve relative to 2004.