Who, What, Where and Why – Frequent Flyer Programs in 2006

Who, What, Where and Why – Frequent Flyer Programs in 2006

As we look at the who, what, where and why for frequent flyer programs in 2006, we’ll first pause to look back at what we said about 2005, because if we didn’t get last year right, what makes us think you can believe us in 2006? In a nutshell, we are pretty good at this. In the specific predictions we made, we were more than right on — nailing such predictions as our guess that Southwest might move close to offering Hawaii and international destinations in their program. We were first out with this prognosis, and it will likely come from the alliance between Southwest and ATA, since ATA serves both Hawaii and Mexico. Our bonus prediction from last year was probably our riskiest, claiming that there would be a consolidation of two programs in 2005. As we now know, that came at the end of the year with America West FlightFund and US Airways announcing their program merger.

Also last year, we named five programs to watch in 2005 and all of them made news-though we have to be honest, some of the news wasn’t exactly what we were hoping for: Delta SkyMiles with their not-so-kind changes involving loss of Crown Room privileges for their Platinum members and loss of the previous Medallion award chart and non-expiring miles for former Frequent Flyer members (prior to the SkyMiles name change); Hyatt Gold Passport increased the value of its program through a major acquisition of additional hotel properties; America West FlightFund finally stepped up to the plate and formally aligned themselves with an alliance, as in a merger alliance; Southwest Airlines made changes regarding their award redemption restrictions which may point out that the frequent flyer gap between low-cost and full-service airlines is narrowing; and finally Citibank’s Diners Club brand met with the reality of other programs’ stronger interpretation of “exclusive,” by losing strategic partners for frequent flyer mileage conversions. Funny thing there is that we thought that Citibank might make news by issuing unique American Express cards. My how the wheels of programs turn.

In celebration of the Year of the Mile (May 1st will be the 25th anniversary of these programs), we are asked to consider the dear old frequent traveler program. With this great perk you’re guaranteed an immediate, essentially unbeatable return on the time you spend traveling (upgrades anyone?), especially if your company is footing the travel bill. What’s more, the miles and points sit with subtle changes until you decide to use them — an act of true largesse from airlines, hotels, car rental and credit card companies.

Yet most frequent traveler programs are a long way from perfect. All too often members are stuck with restrictive award usage policies, growing tightwad fees for express redemption and, worst of all, changes that come without much warning (Did members of Continental, Northwest and US Airways programs spend their holidays trying to convert Club Rewards points into frequent flyer miles before the ball dropped on January 1?).

If you don’t think it matters much which program you choose, think again. Are you one of those sweating out the future of the Independence Air iClub program?

To help identify the trends (and needs) for 2006, we actually thought we’d identify the best and worst features of some of these programs and see if you can spot where the trends could be — that’s right, we’ll try and force the future, ala who, what, where and why:

Alaska Airlines Mileage Plan
Good: A wide variety of partners with which members can earn and burn miles is the defining characteristic of the Mileage Plan program. This is easily validated by their ability to partner with American, Continental, Delta and Northwest in the domestic and international market. Mileage Plan’s credit card offerings are above average in total benefits.

Bad: They had their performance problems as an airline in 2005 and members were not very happy. There was nothing new in 2005 that an airline this size has not experienced before, so let’s hold the excuse list to three words or less.

In 2006: Do as we say — a program this size cannot exist with reciprocal benefits among other airlines with only two elite levels. They must find a way to add a third tier. Their qualifying levels, 20,000 and 40,000 miles for MVP and MVP Gold, are admired, but this airline now flies from coast to coast and partners with American and the Delta, Continental and Northwest alliance, each with three main tiers of elite. Also, this program needs to fix the non-MVP earning miles with partner Continental. Other partners named above earn MVP qualifying miles: why not this partner? Details, details. We look for a letdown in 2006 and would not be surprised if American drops out of the program. Heck, the writing is on the wall that it is easier for Mileage Plan to do great things with Continental, Delta and Northwest regardless of any apparent non-alliance relationships.

American AAdvantage
Good: Your award redemption reputation is much admired among the larger programs.

Bad: It’s the first two letters of the alphabet. No, it’s not AB, it’s BA. It’s time for the two of you to finally find a way to gatecheck your egos and get the wrinkles of your partnership sorted out over the Atlantic. We continue to get questions from your members showing that they did not know they could not earn or burn AAdvantage miles while flying BA over the Atlantic from the U.S.-until it was too late for them. We’re not big on your “money plus miles” strategy for international upgrades, but you already know that, and so we’ll continue to agree to disagree on that issue.

In 2006: Our guess is that the single domestic alliance with Alaska Airlines will not be enough for you over the next five years in the U. S. and with a shrinking domestic footprint, what are you to do? We also think that Citibank needs to come up with something additional for you. Granted, they win big kudos for their special award chart for members, but the credit card world is moving pretty fast right now.

Delta Air Lines SkyMiles
Good: This space left intentionally blank. Seriously, they formerly had several strong points that made them stand out from the other programs. That list today is empty and they aren’t as sorry as we are.

Bad: OK, they repented on the L, U and T fare mileage-earning decision, but what happened to the 30,000-mile Hawaii award, the Frequent Flyer Medallion award chart, and the Crown Room benefits for Platinum members?

In 2006: SkyMiles has to hit a home run in 2006. We firmly believe they will do it with introducing a remarkably different program. Could it be that they “micro” invent their mileage currency, allowing members to redeem them in individual miles against award redemption (that will be 12,143 SkyMiles and $114.16 to travel today)? And how will they do something with their Medallion level that acknowledges that Delta Connection partners American Eagle, Atlantic Southeast Airlines, Chautauqua Airlines, Comair, Freedom Airlines, Shuttle America and SkyWest are not adding any elite level benefits and yet they account for nearly 60 percent of the Delta metal flights today?

Diners Club Rewards
Good: For many of the right reasons, this card remains a best value and choice for the frequent traveler.

Bad: Card acceptance good, loss of airline partners bad. Need we say any more?

In 2006: Unless they find something that will become the “buzz” like that having all those airline partners was this program could become just another credit card program. Hint: why not adopt a permanent conversion bonus, ala Starwood Preferred Guest?

United Airlines Mileage Plus
Good: Mileage Plus was able to keep its composure through a seriously long period of bankruptcy by United airlines without losing much member loyalty.

Bad: You’re getting very close to that edge where you’ll be labeled a greedy program. We understand the pressure from others in the United Airlines organization to produce more revenue, but you already were profitable before the airline went into bankruptcy. It’s time to start backing off the money train and get back to doing something just for your members. We’d love to see something that didn’t require an additional fee.

In 2006: Fix the problem with hotel partner Starwood Preferred Guest. Relaunch Mileage Plus upon coming out of bankruptcy by adding a new benefit to the Premier level and look strongly at reintroducing the 750-mile award level, as both Frontier and Southwest will not be backing down. Suggestion — no capacity controls on awards for Premier members. No, we’re not dreaming.

Southwest Airlines Rapid Rewards
Good: Still simple.

Bad: Relationship with ATA seems to remain undefined. Granted, it will take time, since you aren’t used to this partner thing, but the world awaits, and as the gap between low-cost carrier frequent flyer programs narrows with those of the legacy carriers, it’s going to be important to define this.

In 2006: Many of your members have already decided that the change in capacity controls on award seats is bad. We challenge you to prove them wrong. You mange everything else in the company well-we expect nothing less from you in this category. Two words: small steps. Aloha (hint, hint).

Starwood Preferred Guest
Good: Consistent delivery. Consistent results.

Bad: The 2:1 exchange rate with United Mileage Plus is a definite drag on the value of your program (Hint: they are the second largest frequent flyer program in the world). How Gold or how Platinum are you? I guess you’ll need to ask your members if only two elite levels are enough.

In 2006: Fix the United conversion problem, though we understand you might not have caused it.

US Airways Dividend Miles
Good: You saved two airlines.

Bad: There is still much work to do. In the merger, you have not created anything unique other than still being in business.

In 2006: Your members will forget you saved their miles and will start to demand something of value. Until you can name three things that Dividend Miles is known for, it will be a long year. Sure, you’ll need to look like your partner United and other Star Alliance programs, but at least look good at looking like their parrtner. Since Juniper Bank invested so much in being the new credit card partner, let’s see them come out with something really unique.

Of course, each of these programs contain much more than a single best and worst feature. To get an even better idea of what makes some programs special, and relegates others to the second and third tiers, we decided to take a close look at some of the intangibles. You may be surprised by some of our comments.

Best Idea at the Time
Elite-level programs. What ever happened to this? In the past ten years, there has been a steady decline in the number of tangible benefits caused by economics, the industry itself and a general lack of maintenance of the best customers of the airline. It was a great idea to measure your best customers, but today, is it “best members” or “most valuable members?” Time for someone to pay attention to this potential problem.

Worst Idea at the Time
It’s still the move by Delta SkyMiles to eliminate Crown Room privileges from their Platinum Medallion benefits. Apparently they have drunk the United Mileage Plus kool-aid, and think that everything has a price, as in pay-as-you go and there is no such thing as a free ride. Granted, we may be the only ones complaining publicly, but to us, there is an undercurrent similar to the L, U, T decision.

Best Idea Today
SkyPoints credit card from American Express. OK, we do beat up on SkyMiles from time to time but this new credit card product does have some promise, since it easily checkmates some of the challenge by CapitalOne, in that members can earn no-blackout date award travel and leverage their spending for real dollar savings against airfares they shop for.

Worst Idea Today
Charging payments to become elgible for certain bonus offers. Enough already. You’re either in the loyalty bonus business or the banking business but please, don’t confuse the two.

Biggest Undiscovered Value
Drum roll please… It still might have to be Frontier EarlyReturns. This airline continues to add cities and yet refuses to raise their basic mileage award from 15,000 miles, making it very hard for some competitors to get past their sometimes brilliant marketing campaigns. The other thing we’ve noticed is that they recently raised some private equity money, and if the opportunity arises, we might see this airline do something really BIG in 2006.

We don’t think there will be additional trends in 2006 that we did not cover from our predictions in 2005. 2006 will become known as a watershed year-a year in which two programs will have re-invented themselves (Delta and United) and a year in which something new comes along in award redemption, that it is not for merchandise.