Randy Petersen's Opening Remarks – January, 28 2009

Randy Petersen's Opening Remarks – January, 28 2009

Well, here we are, into a new year and things are looking good, right? Well, not really. Follow along with me. While other travel “experts” have been trumping advice that because airline traffic is falling off that this will be a good year for frequent flyer award redemption, I on the other hand, said last January that 2008 would be a good year for award redemption. And it wasn’t because of falling traffic, but rather because of the economy.

For this year, I’m saying that it will not really be that much easier to redeem your miles regardless of falling traffic, and we may be in for a softening of either demand or availability. Why is it that these other “experts” and I don’t seem to be in synch? Well, I really don’t know other than I’m a real student of this game.

It was in the fall of 2007 when I noticed an uptick in the normal award redemption statistics of a few frequent flyer programs. While I was aware that there might have been more redemptions because of the newer versions of award calendaring, I wasn’t so sure that calendaring alone could cause the nearly double digit increases that were becoming a trend. After additional research, I deduced that it was more a matter of the impact of the economy and that the redemption stats were being driven by widespread redemption, not the normal popular destination redemption that typically defines award use.

I also noticed some award changes this past fall indicating demand was actually falling instead of increasing. I measured this against supply and types of redemptions. The decreases in redemptions I’ve seen roll back to 2005 levels, which means if this continues 2009 we’ll actually see a measurable decrease in redemption–something we haven’t seen for quite some time.

I don’t think the decrease will be because of the lack of seats. With the more powerful tools that airlines have put in the hands of their frequent flyers to find seats, combined with the newer transparency of partner inventory, a year of flat redemption is more likely to reflect the overall economy. Now, I’m not saying that the redemption of frequent flyer miles is an indicator of where the general economy is going, but in the past, it sure seems that it is telling us something.

I recently polled fellow travelers as to their frequent flyer forecast for 2009 and here’s what I found out:

    Travelers cutting back on earning miles by credit cards (because of current financial crisis) — 9% More awards available because fewer people paying to fly — 12% Airline industry still beleaguered and even more fees passed on to frequent flyer program members — 61% Another major airline frequent flyer merger announced, similar to Delta/Northwest — 19%

It’s exactly the results of this poll that lead into another lingering concern of mine. If we were to head to the top of North America, we’ll find an interesting frequent flyer program story with Aeroplan, the FFP of Air Canada. Air Canada no longer has a fuel surcharge for fare-paying passengers (at least not as a tacked-on fee, if it’s there, it’s reflected in the total cost of the flight) and if you were to redeem any of your United or other Star Alliance miles for an award on Air Canada, you would not see a fuel surcharge on the award either. BUT, as good as all this seems, Air Canada actually does invoke a fuel surcharge on their most popular North American awards, the Classic awards. Of course Air Canada digs themselves in even deeper on this issue by not charging a fuel surcharge on their ClassicPlus awards that cost more miles. And thus the story begins. Aeroplan seems to be saying this is an Air Canada issue and of course, Air Canada has yet to comment and blame it on Aeroplan.

It’s exactly this type of cross communication and blame that is the dangerous part of spinning off frequent flyer programs. Who really is to blame for this somewhat unrealistic policy? Let’s give both of them the burden of the responsibility. The facts seem to indicate that while Air Canada/Aeroplan have just now dropped their award fuel surcharge from $80 to $54, it doesn’t reflect the real world. Most anyone would point out that fuel has dropped 75 percent and I’m sure my elementary school teacher would be proud of me in pointing out that $54 is not 25 percent of $80. In fact, it is only a 32.5 percent drop. Why is this important? Well, let’s look at other companies that are also interested in the cost of fuel as part of their operating cost. Federal Express comes to mind. In October 2008, they were imposing a fuel surcharge of 27 percent of their packages because of the drastic spike in the cost of fuel. They have recently lowered that additional charge to 7.5 percent–a 72.2 percent drop in the fuel surcharge which almost identically matches the roughly 75 percent drop in fuel cost since then. So, not sure what is going on here, but the stock price of Aeroplan could be creeping in. Their 52-week high was $25.30 and they are currently trading in the $8 range. Air Canada had to recently borrow money from Aeroplan to keep things going, and yet they do not charge a fuel surcharge for awards to their partners, but prefer to charge their very own customers. Guess those frequent flyers I polled were spot on–the industry is still beleaguered enough to keep in place fees for loyalty.

And finally, don’t forget that for the 21st consecutive year, we’re asking frequent flyers of all programs to help us determine the best frequent flyer programs in the world. You do this by voting in this year’s annual Freddie Awards. Since 1989, InsideFlyer magazine has served as the primary sponsor of the Freddie Awards, and has partnered this year with Points.com, Priority Pass, ICLP, Loylogic and Executive Travel SkyGuide to present the event. Vote now at freddieawards.com.

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