Randy Petersen's Opening Remarks – May, 24 2011

Randy Petersen's Opening Remarks – May, 24 2011

Life Without Miles

I was recently asked what I think the world of business travel would have been like if no one had ever thought of creating a frequent flyer program 30 years ago. Actually, it is a rather easy question to answer since the mechanism for creating frequent flyer programs was introduced some hundreds of years ago. The concept of customer loyalty has always been a practical part of business and the relationship with customers. We’ll skip the 1700 and 1800s and land at the start of the following century with the advent of something quite relevant, the Sperry and Hutchinson Company, more popularly known as S & H Green Stamps.

This was the first company to provide trading stamps for various companies, a loyalty concept much like frequent flyer programs today. Customers filled their booklets with “Green Stamps” (yesterday’s equivalent of frequent flyer miles) and could redeem them for household products, kitchen items, personal items and likely, travel, if Green Stamps had continued. The premise was as it is today, to encourage repeat business by rewarding customers for their loyalty. And the same basic rules applied, the more you purchased, the more the reward. This started in the late 1800s but really became popular right after World War II with the purchasing power of returning men and women in uniform. In fact, Carlson Companies (today’s Radisson Hotels, Club Carlson and much more) had their start in 1938 with their Gold Bond stamp program, similar to that of S & H. Fast forward to the late 1970s when banks, facing the end of the Federal Reserve’s Regulation Q, which enforced a price ceiling on interest rates, began to offer non-price incentives such as small radios and toasters (later camping gear, electric blankets and milkshake machines) to attract additional deposits–and consumers were drawn to these new perks.

Around that same time, Bill Bernbach, CEO of Doyle Dane Bernbach, the advertising agency for American Airlines, proposed that American do something special for its best customers–this based upon watching with wonder as banks were having great success with their offers. The original idea did not have anything to do with miles as we now know them, but rather it was to offer American’s best customers special “loyalty fares”. Upon airline deregulation in 1978, the industry was afloat with ideas that all evolved around airfares. But it was concluded that a loyalty fare would likely be matched by other airlines and American would likely lose some revenue from decreased yield. So, we ended up with frequent flyer miles. If there had not been frequent flyer miles, some other sort of “loyalty” offer would surely have been offered.

Now, what would business travel look like? It would not be cheaper as some suggest. The empirical facts of the economies of these programs suggest they have saved several airlines from collapse, have never caused an airline to go out of business and that actual airline prices are much lower on an inflation-adjusted basis than they were before their introduction. I would argue, however, that business travel would not look much different than what we see today based on the actual process of business growth. In my mind, I see that global airline alliances could have certainly grown and prospered without frequent flyer programs, providing travel benefits similar to what we see today with interlining, codeshare and other types of airport and travel experiences such as airport lounges.

And I don’t think that things would look much different in the area of service. There are several programs such as Omni Hotels Select Guest, and of course those offered by Ritz-Carlton and Four Seasons, that specialize in the amenities of customer loyalty. So even without miles, we would still have many of the same travel benefits.

The funny thing is that once we get down to it, and how technology would have impacted business travel without miles, it might be said that if anything, frequent flyer miles have provided us with a topic of engagement with the airlines. They keep airlines top-of-mind and provide a place to go when things don’t go right and have replaced the apology and financial payment for mistakes.

I know hundreds of road warriors who are unfazed with frequent flyer miles even in today’s business travel environment and they function quite well. Those that can afford it continue to purchase leisure and other travel as if nothing has changed. Those with less imaginative minds and/or limited financial resources simply aren’t seeing life as some others do. They haven’t experienced the travel “bucket list” that typically evolves from frequent flyer miles or been able to up their status in their travel life because of miles.

So, what would business travel be without frequent flyer programs? Likely not much different than it is today. However, what would we be without frequent flyer miles? Far less educated, far less worldly, far less experienced in life and with far fewer friends. However, we also may have just a slightly elevated stress level because of them–have I cleared the upgrade list yet?

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