Randy Petersen's Opening Remarks – December, 17 2012

Randy Petersen's Opening Remarks – December, 17 2012

Hello 2013

I can’t think of a recent year in which I expected more things to change than I do this year. Let me point to the two areas that I think will finally reach a “tipping point” in 2013.

I was asked at a recent session of Frequent Traveler University to give a high level look at where this industry is and why it matters to members of the various travel loyalty programs. Although there are other topics that deserve equal attention–such as the days of wine and roses for large credit card acquisition bonuses may be down to beer and pretzels by year’s end of 2013–I chose two topics to address.

It is my guess that one of the main topics this time next year will be the tipping point of additional legacy carriers converting or adopting a “revenue-based” model as the standard method of mileage accrual for their members. And before you get all “aTwitter” about the topic, I would like to remind our readers and others that will listen, that “revenue-based programs” are already all around us, and for the most part are certainly a regular part of your participation in various loyalty programs.

Hotel programs are halfway there with most programs’ basis of accrual being the revenue you provide that loyalty program. Hotel programs still remain redemption tiered for awards which remains unique (awards available by categories). In a conference earlier in the year, all of the hotel programs I chatted with seemed to think that the blend of earn and burn with them works. And given that hotel programs typically escape the wrath of redemption woes (really, when is the last time any media wrote a story about Johnny not being able to use his Marriott points?) their assessment seems to hold true.

So, what does this mean? Depending upon the program–and I do not know the specifics of the upcoming changes–it could mean that you earn your miles based on the revenue spend of your ticket. You could also earn your elite that way–but likely not, with segments and other types of qualification necessary.

Hotels are great examples. While you earn award points based upon your revenue spend, you typically earn elite in other ways, by stays or nights. Southwest is somewhat similar in accrual with A-List being earned by flights or tier qualifying points. Though the idea of a mileage run on Southwest for A-List qualifying from tier qualifying points is fairly remote, it nonetheless provides us with glimpses into how the industry might edge into a total adoption of this model for tomorrow. The nuance for the industry will be which model to follow; dynamic, which is the way that Southwest has headed where award redemption is totally based upon revenue cost of the ticket; or tiered, which is the way that hotels (though revenue-based on accrual) create their award redemption.

My guess is that it may be a blend–and a tiered award structure will not soon vanish. Anyway, while too soon to know exactly where this industry might go, I’m thinking that a tipping point has arrived and the timing is likely good for change.

The other topic I think is reaching a tipping point is the business side of these frequent flyer programs. If you don’t know, there are at least three frequent flyer programs in the world that are currently seeking, talking or making some noise about splitting their program away from the airline.

For some it is a painful decision based upon financial conditions for the airlines and the need to monetize whatever assets the airline might have. For others it is viewed as a simple business decision to gain superior financial leverage in the growth of the program and its value.

Those frequent flyer programs currently in the news are SAS EuroBonus, airberlin topbonus and Jet Airways JetPrivilege. Reasons vary but I have no doubt with an improving economy that a U.S. program will join those ranks in 2013. And let’s understand that splintering a frequent flyer program from an airline does not mean that you’ll see it parading in confetti on Wall Street. There are numerous funds that would love to invest in the private market with some of these programs. I’m not a huge fan of this for all programs as I think the business side of a venture like this does not yet match the loyalty side of the current programs.

So, these are two topics that in some way, regardless of when, why and how they happen, should provide us all with a reason to continue searching out advice and solutions on how best to maximize your approach to the benefits and value of your travel loyalty program memberships. You know I’ll be on this to protect my own miles and points and you’ll be along for that ride as my goal is always to try and do the same for yours.

With this in mind, let’s hope that the recent holiday season was the best ever for you and I thank you for reading along with us into the New Year.

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