The Interview Issue – July, 26 2005

The Interview Issue – July, 26 2005

Delta SkyMiles

InsideFlyer
What are the first two things that pop into your head when you think “SkyMiles.”
Jeff Robertson
1) Customer concerns. What we tried to do, is make sure that whatever we have to trim or cut are the things customers care about least. And if I’m going to give things back to them it’s going to be the things they care about most. I would say the number one concern from our customer today is concerns over Delta’s financial state. What’s great about these customers is they’re almost as passionate as the employees are. The employees that are left working here are so passionate about being here and wanting the company to survive; the same goes for those customers. The customers are so ingrained in the program they’ve got millions of miles; they don’t want to see us go under. The things we’re going to do are trimming back in the areas that we think we can trim back, and giving back to customers what they’ve asked us to give back to them. We’re trying hard to address customers concerns.

2) We’re looking into other ways to use miles. We’re looking at doing some things more broadly than just airline travel for awards.

IF
Do you see this as a trend?
Jeff
Yes. I want to do what is right for Delta; the time has come where airlines need to consider these large non-transportation revenue generators-from the credit cards to the selling of miles. The value proposition for customers has gotten to a point where we’re getting beaten up so much from a market perspective. We need to do something, and it will require us to invest in the program. When you look back five to seven years, most of the investments have been, find more ways for customers to accrue. All of the investments have been wins for Delta. We’re going to have to invest something back in the customers to be able to get the programs to continue to grow at the rate they’re growing.

IF
What I’m hearing is that they want other things because they can’t use their miles for awards. Where is that positioning Delta?
Jeff
It’s a tricky scenario. You open up more award seats and you impact your transportation revenue. Now what we’re trying to convince leadership is that in some cases the non-transportation revenue pays more for seats than what the transportation does.

IF
What else is happening at SkyMiles?
Jeff
I really think that what you’re going to hear from us over the next couple of months is relatively quiet, a period of optimizing what we have today, because what we’re basically doing is planning the next big thing. We’re basically beginning to execute some of these big things, the approval process is on its way, the execution will take place and it will depend on whether we announce things early, or we wait until the technology is done. But there is some stuff which I think for our SkyMiles customers will be a big deal.

When I think about where we might be a year from now, I think even in a better position. We’ll be simpler, we will have opportunities for our customers to be able to use their SkyMiles for other things, and I think they will be able to use their elite status on other airlines.

IF
Other airlines?
Jeff
Yes.

IF
You have a co-partner that isn’t doing you any favors.
Jeff
Who’s that?

IF
Air France, and KLM. I’ve never seen a major partner block out peak travel like this.
Jeff
My best response to that is, “no comment.”

IF
I understand. Anything else you want to chat about?
Jeff
Like I said, a year from now you will see some big changes.

I was very happy that we’re heading in the direction of looking at other things. Other alternatives to use your miles. I feel like we’re a step ahead.

Flying Blue

InsideFlyer
How’s it going with Air France?
Marc Jansz
Great. It’s very exciting to have marketing with two major airlines. For European standards it’s extensive.

The good news is we’re far ahead of the game in keeping our standards. The Flying Dutchman team can be happy with what has been brought to the market right now.
We call it a “Happy Funeral.”

IF
What are the main parts of Flying Blue that really come from the roots of Flying Dutchman?
Marc
If you look at the Web site for Flying Dutchman and Flying Blue, you can see a lot of similarities. I think this is one of the bigger areas that we’ve really added value to in the bigger combination.

IF
A few of your members are disappointed, particularly the Platinum members seeing the 125 percent bonus down to 100 percent. Was this to make it work with all the alliances?
Marc
What we did for all those items, we made decisions on each individual item. We not only looked at the amount of miles you earned but we took the whole picture including redemption scheme and put it into a combination with the new award scheme that we have put in place. Overall it is on the same level or lower than we had in Flying Dutchman; that means you look at buying power as the same, or even more buying power, for our members.

IF
Since the June 6 automatic merging of accounts, a lot of people would have several different addresses and account numbers between the two programs. What’s the process now?
Marc
We’ve decided not to merge these accounts, because for the bigger part of these members it’s not that interesting to combine. There is nothing to gain. So we’ve chosen to make it customer proactive. If you choose to combine them you can let us know and we will combine them. It only makes sense to combine them if you have enough levers in the award miles to do it. It’s to protect the customer.

IF
Award redemption-how has that changed in Flying Blue?
Marc
The policy itself has not changed so much. The number of miles that you need to redeem has changed. Sometimes they stay the same. There are a few instances that it increased, but overall it has decreased.

Due to the fact that we have merged all commercial partners and all airline partners of the two former programs, that means that there are a lot more opportunities to burn your miles.

IF
Are you comfortable with the number of seats being made available?
Marc
Yes, we have not changed our policy. We added Open Miles so you can virtually always get a seat. By merging benefits from Air France and KLM, there are new benefits. Now we have e-tickets for awards.

IF
Can you buy miles?
Marc
That is on our list for the future.

IF
If Platinum does not re-qualify, are they downgraded to Gold or do they go to Ivory?
Marc
If they have one flight activity they go down one level. If they have no activity, they go to the base level, Ivory.

IF
Does the Platinum-level member still receive the baggage allowance of 20kgs?
Marc
Yes, 20kgs.

IF
Are all elite members granted priority boarding?
Marc
That is correct.

IF
Change fees: how does the merge affect these?
Marc
We’ve chosen to apply the new rules for change fees.

IF
Anything else?
Marc
I would like to stress that it has become easier to reach elite levels. We have reduced the threshold both in the number of flights taken and in the amount of miles required.

IF
Is KLM discontinuing their relationship with Alaska Airlines?
Marc
We’re still talking to them to come to an agreement.

IF
Do all the elite members have unconditional access to the executive lounges?
Marc
When we talk about SkyTeam, Elite Plus members do have access to all lounges.

One more remark. Our members what to know all about the changes and benefits in the new program, eg. if their miles are safe. (yes, they are!) We would like to take this opportunity to explain we are doing our utmost to improve reachability of our customer service centers. So many people want information and we are working very hard to answer all questions. This merger has been a large challenge and we believe we are near the point to catch up and provide each member with the best information and service.

Hyatt Gold Passport

InsideFlyer
Expanding the Hyatt brand: does this change your direction with Hyatt Gold Passport?
Amy Weyman
Last fall, we introduced the new identity for the Gold Passport brand. We launched our first ever television campaign for Gold Passport.

IF
I don’t see other hotels running television campaigns for their program. How is this different for Hyatt?
Amy
We’re working to increase the visibility for the Hyatt brand. We see Gold Passport as a key component for that.

On the communications front we have introduced a variety of new communications, we have our new e-newsletter. All of our communications are now available in six different languages and soon to be eight.

IF
What are the two new languages coming out?
Amy
Korean and Spanish.

IF
Are those big growth areas for Gold Passport?
Amy
We have new properties coming on board in Korea. Spanish is just a good language to have.
We launched the new Gold Passport.com Web site a few weeks ago.

As of April 1, AmeriSuites joined the Gold Passport program as our second partner. We have both Hawthorn Suites and AmeriSuites.
We’re looking at what tier earning might be and what kind of program services and benefits we might have available at various segments. We’re heading in that direction.

IF
Aside from everything in the works, are you looking at doing anything different with Gold Passport?
Amy
We’re very focused on what the future should look like; we spent the past year laying the groundwork for the new platform in which we can grow the program. Integrating Hawthorn Suites a few years ago and now AmeriSuites, we know how to do that. We did the AmeriSuites in less than 90 days.

Right now I don’t have any great tidbits to share.

IF
In terms of partnerships, do you see any additional partnerships?
Amy
We continue to explore new opportunities, Hyatt recently announced a new partnership with Porsche.

IF
Would the partnership with Porsche spill over into Gold Passport promotions?
Amy
There could be some unique opportunities that spill over into Gold Passport.

IF
Years ago there was a distinct operation of Gold Passport International group versus the other group of Hyatt. Is that still part of things, or does Gold Passport now have the strings to control the continuous message between the two different groups of Hyatt?
Amy
We’re fully integrated now. Even from a marketing standpoint.

GlobalPass

InsideFlyer
Give it to me straight. What the heck is going on at GlobalPass?
Guy Booth
We tried to maintain the airlines as long as possible; it was an uphill battle. These guys always saw us, even as LatinPass, as competing with their own individual programs. When you look at the Europeans, they don’t (view) it that way, they see it as additional benefits, But it was an uphill battle with middle-management level within the programs. They always thought LatinPass and now GlobalPass was competing with their own programs.

We were going to get Air France on board; we matched Air France’s award table because they were coming on board. Here we were trying to convince Aeropostal and Taca to stay in the program and they were sending us letters of cancellation. At the end we saw it coming, so we had to make this drastic change.

Granted, we’ve been living off Web Airlines, we launched that in March of 2004 and that has started to work beautifully.

There is a large portion of this industry that is the maintenance and parts sales people; so we went out to those small, medium-size companies and offered our system. The booking engine has been good to us.

But the airlines didn’t like it, so at the end of the day we had to decide which way to go. We’re not a airline, we always paid for the tickets, there are no free lunches in LatinPass/GlobalPass, we always paid for those awards, we don’t control capacity and we like the model of this booking engine. We’ll be adding more products.

IF
Let’s go back to the LatinPass Promotion. That still has a lot to do with today’s business.
Guy
Some people don’t understand. Which part of “frequency” don’t they understand? The promotion had a 3 million-dollar cost, over 2 million dollars has been spent. We’re going to honor them, but we need to see some activity from these guys.

At the end of the day loyalty programs are based on frequency. Frequency meaning you have to have frequent use of services and products. They did the million-mile run, they got the million-mile bonus and now they’re out there complaining.

It’s been five years since the promotion, we kept it going, and we knew what we had to do to obey the rules-grandfather in the old global awards. The global awards in our book don’t exist, it’s not in our vocabulary, we don’t do awards any longer. Part of the program is they don’t understand they’re still looking for the 25,000-award seat. It’s not an option; we’re not an airline. We don’t control seats we have to buy them.

We like this “miles as money” concept. It’s working. American Express and Diners are great partners, even Hilton and Priority transferring miles. We have some solutions for these guys; we have not disclosed them but we have points.com that will join us. We’re going to come in about 3/4 to one ratio. We’re talking to gift certificates by Hallmark, we’re going to honor the 50-percent rule on bonus miles, so these guys will be able to get gift certificates with 400 merchants that Hallmark has and use those miles for money. We had been talking to TravelGuard. We’re to keep adding stuff, but we’ve got to stay away from the awards. We don’t have the ability to do them. It’s done; we’re not an airline.

When we launched GlobalPass in 2003, this bonus mile concept of 50 percent for buying products and services was already there, we may not have explained it very well, but the million miles, all they’re looking for is the awards.

GlobalPass is profitable today; it was never profitable under the LatinPass because it was a cost recovery system.

IF
So, are you partnering with Points.com?
Guy
We talk to everyone because we would like to see more miles come in from different programs.

We’re in conversations with Delta SkyMiles and American AAdvantage. We’re trying to convince SkyMiles that the rate with Points.com is to high, if we did a deal directly it would be close to 3/4 to one.

With Points.com, customers will be able to transfer inbound and outbound.

We’re not an airline program. Move us out of there and put us with the other partners.

In essence, we’re really a stand-alone program.

We’re working on the new booking engine; it will allow us to use multiple consolidators. Right now we have a single consolidator. So when you search for airfares in North and South America we beat the hell out of Expedia and Travelocity. Our plan is to get a European consolidator, then an Asian. Then it becomes a win-win situation.

That’s where we’re going.

IF
How about Priority Club? Is that working for you?
Guy
Priority Club, we don’t see much activity from them, but we’re adding a 20-percent bonus to the miles presently, we’re extending that as we go along.

IF
American Express is a good partner?
Guy
American Express is an incredible partner; we’re getting in excess of 30 million miles a month and it’s growing. They’ve started to pay attention to us, because in the old LatinPass days we were at the bottom of the transfer list. Now we’re up to the top five. They have a division called Global Network Services. It opens up the bank issuers of American Express cards so then they bring the members of the Rewards team into the fold, and we’re going out there hand in hand with Membership Rewards because they grasped the idea that we’re not a single airline. They love this concept. People of Membership Rewards are interesting because they know it’s a circle, if you use your points then you use your card to spend. As a user myself I love the program.

Membership Rewards has a AmEx shop, they have a $199 iPod lets say, which you could also buy for 39,800 Membership Reward points. Simple mathematics tells you that it’s .005. In our case if you translate $199, it requires $26 dollars and 500 GlobalPass miles. We’re giving you four miles on the dollar. But, we don’t want to rock the boat with American Express.

Our currency is a little bit better in terms of return than American Express and Diners.

Back to the LatinPass promotion, most folks did this run for $1,500 to $2,000 dollars for a million miles. Some members have never touched their rewards. But it’s out of our control.

Business Class paid passengers is 40 percent, 60 percent are running on miles.

We’re close to the Anytime Award, but you can have the seat any day. We’re just taking it to the concept that using your miles is a form of currency. We’re never going to be able to please everybody.

Jameson Inns Stock Awards

IF
How many properties to you have now?
David Vining
We have 120, all in the southeastern states. The Midwest a little bit.

IF
Are you going to expand out?
David
At the moment, we are converting Signature Inns to Jameson Inns

IF
Was Signature Inn an actuation?
David
Yes, it was an actuation. They’re a limited service hotel in the Midwest. We are in the process of converting those Signature Inns to Jameson Inns to grow the Jameson brand. We just completed two conversions. For an example, we are spending on those two properties about 4.4 million dollars.

IF
For people who have not heard of or stayed at a Jameson Inn, what can they expect?
David
It is limited services. Our primarily competitors are Hampton Inn, Holiday Inn Express and Comfort Inn. We fit in pricing-wise right at the top of the economy sector.

IF
Average room rate?
David
Average rate is $65.00

IF
So, $65 times ten percent. I can get just under three shares of stock in your new idea each time I stay there?
David
That’s Correct.

IF
I love your tag line, Invest While You Rest. Tell me more about this.
Tom Kitchin
Let me share with you how it developed and why it developed.

We started about 18 years ago as a limited service hotel company. For the first 12 to 14 years of existence, our primary competitor did not have a frequent stay program. That changed when Hilton purchased them. Then, after 9/11 it became real apparent that awards were going to become very used as far as finding the award for each night. Companies like Holiday Inn Express, Hampton Inn and Comfort Inn started offering double and triple points. It became very difficult for us to compete with a good price value.

In a brainstorming session over a year ago, we talked about doing cash rebates, we talked about purchasing airline miles and giving them to customers or giving a free night stay. Then Craig Kitchin said, what about using common stock?

After that meeting, we called our outside legal counsel to discuss that possibility. We were given the advice that it would be doable.
Jameson is the first company in any industry to seek approval from the SEC to use its common stock as a reward for loyalty. When the SEC saw the filing last September and went into a thinking process, it took about eight months.

It is very unique and the thing we like about it is the tangibility. It really gives us a chance to put value in the customer’s hand that is meaningful, and we don’t have to worry about blackout dates, we don’t have to worry about availability. They can do with it as they wish. They can buy more stock at no commission.

Our launch date for customers to earn free stock was July 1, 2005.

IF
Customers need to read prospectuses; do you think members will become more engaged?
Tom
It’s a very informative document, and it’s written in plan English. It really explains the program and talks about the company. We see that as very positive. People will have the ability to do that on the Internet. They can sign up on the Internet; they can review their account. They can do everything on the Internet. It speeds up the communication with the shareholder.

IF
The stock is floating around two and a half in that area, it looks like you’ve had a great year. Where is Jameson going as a hotel year?
Tom
For us we can have a lot of internal growth without adding any new units just by increasing occupancy. Our average occupancy for the life of the company is about 60 percent. Last year we ran just a little over 50 percent in occupancy, so reaching average occupancy would be a huge increase for us.

We are looking seriously at beginning to grow and grow our units. One thing we need is locations where people travel that stay at our inns. There are a lot of cities in the southeast where we really need to have a presence.

IF
Do you think this program will help bring more attention and more repeat customers to help with he occupancy rate?
Tom
What I really like best about this program is that it will really will align our customers not only with the company but with our product. That is something every customer service business tries to do.

IF
In reading the prospectus, it look like you’ve put aside three million shares of the common stock for this particular program. Is that over the next 12 months?
Tom
It is a registration statement that registers three million shares for distribution. We will keep that registration statement alive through our required filings and if those shares are not sufficient to fill the demands by our customers, then we will register more shares, We do see this as a long-term program.

IF
One of the things other programs try to do is measure the repeat traffic; will you have some sort of measure to see how this program is dong?
Tom
The ultimate measure is always to increase our revenue for available rooms. But our systems will allow us to gauge who uses the program, how frequently they use it and also where they use it. It will help it with the grow of our company.

IF
Where are the locations of the Jameson Inns? Airports, center city?
Tom
Traditionally we’ve looked for locations where there is a growing industrial base for frequent travelers. Interstate traffic, restaurants, and shopping.
It’s a combination of these things.

IF
Did the SEC try to discourage you?
Tom
No, there was never any discouragement; there were a large number of questions that we answered.

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