Frequent fliers turn a skeptical eye to the skies By Dan Reed, USA TODAY
http://www.usatoday.com/travel/flights/ ... iers_x.htm
Sue Reiss used to rack up 150,000 miles a year on United Airlines. Then she got fed up, unable to turn frequent-flier mileage credits into free travel.
"Their loyalty to me left some time ago," says the sales manager from Marathon, Fla. "I've simply reciprocated by flying whoever is cheapest."
The airline industry's frequent-flier programs, introduced 25 years ago this month, seem to be under attack as never before. Reiss and a fast-growing number of other critics — consumers and experts alike — say the programs are becoming more trouble than they're worth to travelers and have outlived their appeal.
An analysis by USA TODAY and Back Aviation Solutions shows that frequent fliers traveling free on U.S. airlines' domestic flights have been declining gradually as a percentage of domestic passengers — 6% in the final quarter of 2005, vs. a recent high of 8% in the April-June period of 2002. Further, on a worldwide basis, mileage credits have been building up at a faster clip than has free travel.
Nonetheless, airlines and some recent outside studies suggest frequent-flier programs are giving away plenty of free travel, attracting hordes of new members and keeping old ones reasonably satisfied.
Regardless of who's correct about the value of frequent-flier miles and the current state of brand loyalty, an assessment of the airlines' programs at the quarter-century mark shows two clear trends: The programs have drifted from their original purpose of promoting loyalty and have become important cash generators. Many travelers have taken the cue and are becoming less loyal, shopping for the lowest fare or joining multiple plans.
The world's 180 million frequent-flier members — many hold memberships in multiple programs — are earning miles faster than ever. Their accounts are brimming with 14.2 trillionmileage points, up from 6.6 trillion at the end of 2000, estimates Randy Petersen, publisher of InsideFlyer magazine and WebFlyer.com. Frequent fliers earned 2.7 trillion credits in 2005 alone.
Growth is fueled by the mushrooming tie-ins between airlines and partner companies, which range from credit card issuers and mortgage companies to flower shops and grocers. Last year, about 54% of frequent-flier miles were earned outside an airplane, says Petersen, an expert who advises both travelers and the airlines.
Globally, carriers are expected to give away about 25 million trips this year, up from about 22 million in 2000.
Petersen says membership in the programs has been growing at about 13% a year. This year, more than 21 million people — 57,500 people a day — will join at least one program.
Meanwhile, airlines are jamming more paying customers into their planes, making it more difficult to cash in the miles for the two favored travel perks — free trips and seating upgrades. U.S. airlines are pushing as never before to fill seats with paying passengers. Today they sell more than 80% of them — up from a historic norm of about 60%.
Airlines no longer treat a returning customer as anything special. Many airlines, for example, will sell a premium seat for a flat charge at the airport counter to a first-time customer rather than holding it back to upgrade a loyal customer.
Often, when a free trip or upgrade is available, members have to pony up double the miles they expected to spend to secure it. In some cases, getting free travel may involve a fee. Several carriers now charge to book award travel over the phone rather than on the Web, and some have introduced fees for booking award travel fewer than 14 days in advance.
Henry Harteveldt, an analyst at Forrester Research, says only 26% of North Americans who buy their travel online — and most of them do — profess loyalty to one carrier. Harteveldt says that frequent-flier programs have become "golden handcuffs" in which "elite status becomes a disincentive to change rather than an incentive to stay."
Frequent-flier Karen English, a clinical consultant from Jacksonville, complains that Delta Air Lines is watering-down her Platinum Medallion status in its SkyMiles program. Two years ago, to equalize its program's award levels with those of its new domestic marketing partners, Northwest and Continental, Delta lowered the mileage requirement for Platinum status to 75,000 miles a year. It had been 100,000 miles. That created a new problem: more crowded airport clubs and more competition for seat upgrades.
To thin those crowds, Delta in January plans to eliminate free club memberships for Platinum level frequent fliers. That upsets English, who for years had been flying more than 100,000 miles and earning her free club membership. She faces the prospect of paying $125 next year or cashing 40,000 miles. Her fee would double in 2008.
The airline's most loyal customers are "being punished for Delta's sorry attempt to attract more business travelers," she says.
Certainly, not all frequent fliers are angry or dissatisfied. About 280 million free trips have been awarded over the past 25 years. And an unscientific survey of frequent fliers by USA TODAY generated slightly more responses of a positive nature than critical responses.
"I'm very satisfied with OnePass," said Chris Meleg of Houston, a project manager at Sysco who flies more than 75,000 miles a year on Continental.
Program defenders say the majority of frequent-flier program members do get the rewards they seek and remain quite satisfied.
Kurt Stache, president of American's AAdvantage program, says "90% of the time people get the destination city they originally intended to book," and more than 70% of customers "get roughly the flight times originally requested."
Studies last year by both Consumer Reports and Petersen's WebFlyer.com substantiate Stache's claim that most frequent fliers get the flight times and destinations they want.
Still, even if all the other carriers were turning away frequent fliers at the same rate as American, it would mean 5 million program members worldwide each year fail to get their first choice of flight times or days. It also means that nearly 2 million each year can't get free tickets to the destinations, or at the times, they originally requested.
"Pity the poor (guy) who has K*ds," says loyalty marketing consultant Jay Sorensen, president of IdeaWorks. Not only is it hard to get four free seats for the family on one flight, it's especially difficult during Christmas or Easter breaks or the summer, when demand is greatest.
Program founder dismayed
Rolfe Shellenberger, now a retired corporate travel consultant in Palm Desert, Calif., understands frequent-flier programs from the inside out.
Shellenberger, the former marketing executive who designed the industry's first frequent-flier program at American Airlines, complains that airline managers now view them as profit centers rather than a means to promote brand loyalty.
In 1981, the former midlevel marketing executive at American Airlines was charged with devising incentives that would keep customers coming back. The plan his small team came up with, dubbed AAdvantage by American's ad agency and pronounced "advantage," was the world's first true frequent-flier program. It made its debut on May 1, 1981. United followed five days later with Mileage Plus. By year's end nearly every airline had its own program.
Today, Shellenberger's assessment of AAdvantage and other such programs is tinged with sadness, worry and even a little disgust. Airlines, he says, "got greedy."
"Their purpose now is to generate more revenue" in the short term rather than maintain and build customer loyalty that will financially benefit the company over the long term, he says.
Indeed, U.S. airlines generated $4 billion in additional revenue last year by selling mileage points to partner companies at prices of up to 2 cents per mile. The partner — a credit card company, a car dealer or a mortgage firm, for example — will then use the points to reward their customers for purchases.
The U.S. airline industry has lost more than $40 billion since 2000, perhaps making inevitable the transformation of mileage programs into profit centers. But the change, Shellenberger says, is damaging their brands.
"These programs are just about the only antidote to lousy airline service in general. Yet they are being slowly devalued," he laments.
Shellenberger fears that airline managers will follow the tempting lead of Air Canada. Last year it sold a quarter stake in its Aeroplan program. The deal raised cash for the airline and placed a value of $2 billion on the Aeroplan program. If U.S. carriers sell their programs, Shellenberger says, "It'll be a constant battle between the buyers of the systems and the airlines as to whether the mileage amounts required for awards are fair or not." Consumers likely would see their miles devalued further.
Petersen sees another, potentially brighter, possibility: the elimination of mileage thresholds for claiming awards to negate traveler complaints about flight availability. He expects airlines to transition to a system in which each mile would have a set value of about 1 cent. Thus, 15,000 miles would be worth $150 of air travel. For example, a traveler could use those 15,000 miles in lieu of cash to "buy" a $150 ticket, or apply them toward a more expensive ticket and get a $150 discount. The first small-scale test of the concept began earlier this month when United introduced "Mileage Plus Choices" in conjunction with its card issuer, Chase Bank.
To get that $150 discount on United travel, for example, a Mileage Plus member would have to buy $15,000 worth of goods and services using a United/Chase Visa or MasterCard. Buying $10,000 of goods and services with the card would net the member $100 of free travel on United, and so on.
"It won't happen tomorrow, or next year. It's a few years away," he adds. "But I think it'll happen."
In the end, even if the trouble with frequent-flier programs is only one of perception, says Roland Rust, head of the marketing department at the University of Maryland, airlines need to be concerned.
"It's never a good idea to have a large number of your best customers mad at you, as seems to be the case these days," says Rust.
Frequent Flyer Facts
• If travelers today were to convert all their miles into free travel, airlines would be liable for an estimated 27 million free trips. Realistically, many of those miles will be diverted to seating upgrades, hotel stays or even merchandise. And about a quarter of all earned miles will never be used.
• Of the 180 million distinct members of frequent-flier programs — many are members of multiple programs — only about 28% are active participants in any one year.
• American's AAdvantage program is the oldest and largest program, claiming about 54 million members
• The average active member of a frequent-flier program earns 11,364 miles per year.
• An estimated 310,000 frequent fliers have earned at least 1 million miles in their programs.
• An award trip costs an airline at least $23.93, based on the food, beverage, fuel, reservations, liability insurance and miscellaneous costs. This assumes the seat occupied would have gone unsold and the airline didn't forgo revenue from a paying passenger.
Sources: Randy Petersen, publisher of WebFlyer.com
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