Reuters: Loyalty Losing to Price

Reuters: Loyalty Losing to Price

Price seems to be winning out over brand loyalty when it comes to making buying decisions, according to a new report by Reuters. Both industry analysts and some carriers themselves are suggesting that loyalty is just not the key factor in major U.S. airlines’ strategies that it once was.

The decline in travelers who stick with a single carrier seems to be a by-product of sweeping industry changes. Some have suggested that frequent flyer programs have become diluted, for example. According to a recent WebFlyer.com poll, a full 88.1 percent of frequent travelers say the programs have become more about marketing gimmicks and less about instilling loyalty. In addition, the rise of low-cost carriers and the restructuring of major airlines has taken a toll.

“It certainly is damaging to the industry as a whole,” Stuart Klaskin of KKC Aviation Consulting told Reuters. “What it means is that there’s this floating customer base. Every airline has to work harder to attract and retain customers.”

The so-called legacy carriers, such as American Airlines, United Airlines, and Continental Airlines, have the most to lose, according to Klaskin. They have invested the most in the past 25 years to win steady customers through frequent flyer programs.

Airlines have been able to generate hundreds of millions of dollars by selling frequent flyer mileage credits to banks, hotels, car rental services and phone companies. However, the sheer volume of the miles has created a bottleneck. Reuters claims that miles are victims of their own popularity, becoming difficult to redeem simply because so many travelers are trying to do so. As the number of miles rises along with operating costs, award levels rise and it seems to take an increasing number of miles for a member to get a free flight or upgrade to better service.

“It’s absolutely harder to find seats that airlines are willing to let go for no incremental revenue,” airline consultant Robert Mann told Reuters.

Northwest Airlines, however, argued that loyalty remains a pillar of its business model and that its frequent flyer program spurs business.

“Northwest remains committed to building customer loyalty through its WorldPerks frequent flyer program, and it remains a core aspect of our marketing efforts,” spokesman Kurt Ebenhoch told Reuters. “It is the platform we use to recognize and reward our best customers.”

Since the post-9/11 industry downturn, even the legacy carriers have been forced to reduce expenses. Several have adopted the lower-cost models of airlines like Southwest Airlines and JetBlue.

Free in-flight perks have given way to extra charges for drinks, meals and entertainment. Northwest, for example, has tested an extra fee for coveted aisle seats. American no longer offers complimentary pillows. Most major airlines have discontinued free meals on domestic flights.

At the same time, the healthier low-cost carriers have actually bolstered in-flight amenities, further blurring the distinction between themselves and the major carriers.

“The common theme here is that as the low-cost segment has moved toward improving their product and offering more amenities, the major carriers as a whole have moved toward reducing these amenities,” Kevin Mitchell, head of the Business Travel Coalition, told Reuters. “The products look almost the same.”

Experts say travelers are spoiled by cheap flights and that the low-fare revolution has made price the main — and sometimes only — consideration for customers.

“For the first time, this industry is consumer driven,” Mitchell said. “The consumer has said very often and loudly where the price points are.”

Mitchell told Reuters that United and Continental, the No. 2 and No. 4 U.S. airlines, respectively, are the only majors that still make wholehearted efforts to win repeat customers by nurturing loyalty.

Others focus on almost exclusively on low-fare competition, a move that alienates some long-time customers who might have booked flights without shopping first, said KKC’s Klaskin.

“Price took precedence over loyalty,” he said.

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