Randy Petersen's Opening Remarks – November, 17 2009

Randy Petersen's Opening Remarks – November, 17 2009

Month of Scrooge

Here it is, the month of Scrooge, er, December, which heralds yet another end to yet another year with these blessed presents called frequent flyer programs. I certainly have nothing against this month, so as flyers scurry about, not for the sake of filling stockings, but for more miles and more elite status, let’s take a moment to look at some of the recent news to come our way. This month we devote our attention to US Airways which has announced a change to their award chart beginning Jan. 6, 2010. There are some things that deserve our attention, some bad, some strange and some that just don’t add up. So, where do we start?

Let’s start with the strange part. It seems that US Airways has decided to let its freak flag fly. With the introduction of GoAwards, US Airways has just upset the proverbial apple cart for the Star Alliance partners here in the U.S. We’ve gone from two convenient award levels, easily understood between redemption partners to something resembling a gas barbeque grill–low, medium and high. Why not name levels like rare, medium and burnt? Get it? “Rare” as in you’ll never have a chance to find an award at this level and “burnt” for the feeling you’ll have after having to fork out the mega miles for that last seat availability. But I digress. Is this truly a run by Dividend Miles to try and snag some of the members of other Star Alliance partners?

As for GoAwards, well, it’s actually not that new. In fact, it was in 2007 that US Airways first put this strategy into place with the introduction of their off-peak awards. GoAwards is taking a somewhat permanent promotion and rolling it into their permanent program. You can see this with their promotion this last September of offering awards within and between the continental U.S. or Canada and the Caribbean for 25,000 miles.

But I’m not so sure about this four-level thing as a permanent part of Dividend Miles. In theory, I’m all for Dividend Miles solving their struggles with award redemption, but this is one solution that is sure to cause problems. US Airways’ press release says, “We’re always looking at new ways to improve the redemption experience for our members and allow them to use their miles when they want, where they want and how they want,” said Fernand Fernandez, Director of Marketing Programs for US Airways. Seems to me that they already had that, but just weren’t that good at managing it. Here’s the part I don’t like. How the heck will changing an award chart change the culture of revenue management at this airline? In 2008, US Airways’ percentage of award to RPMs (revenue passenger miles) was 4 percent. Continental OnePass (the new Star Alliance partner for US Airways) was 8.5 percent–112 percent more generous with award redemption than Dividend Miles. And the other Star Alliance partner, United Mileage Plus, had redemption at 9.1 percent, which is 128 percent more generous.

Changing the award chart just doesn’t fix this, there must be a change in culture in the whole frequent flyer program. This is the same program that charges a fee for award redemption and in recent years tried to discontinue their elite-level program benefit of bonuses. And you want more strange info? In 2005, Dividend Miles gave awards away at 9.1 percent of revenue passenger miles and in 2004 at 8 percent. So they have a history of positive award redemption under their current award level chart. This is why I’m not so sure that a change to the award chart is the magic elixir. It’s possible however, with US Airways’ propensity to charge a fee for award redemption, to earn money for the airline if it increases award redemption for the members.

I alluded earlier to the idea that this totally messes with the heads of alliance partners Continental and United. If I’m a member of these other two programs (and I am) I’m now wondering if I can redeem my OnePass or Mileage Plus miles for these new “off-peak” award levels, which are less than my current award chart with these two other airlines? I’d be stupid not to appreciate that the lowest award from OnePass would be 55,000 miles to Europe in coach class when an off-peak award from Dividend Miles is only 35,000 miles to similar award destinations. Of course we would be talking about a game of chance for the availability, but members pick programs based on things other than award availability–such as the number of miles it takes.

The rest is similar to the three-tier award chart that Delta SkyMiles introduced. We don’t know yet what the overall impact those changes have had on SkyMiles members as it was reflective of offering last seat availability (anytime, anyplace) awards. As for something that just does not add up: Since they are extending the award chart upward to last seat availability, why the need for blackout dates? Most others don’t have them to begin with for their “last seat availability” awards.

All in all, some of this is really confusing, some doesn’t seem to make sense and some of it is an interesting and perhaps a marvelous move by Dividend Miles. I’ll continue my tough love with this program in the hopes that we’ll all fly the airline, enjoy the miles and have them with us as an airline for many years to come.

So, it’s taken me all these words to say, Happy Holidays everyone!

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