I'm all for pinching pennies and paying the lowest airfare whenever possible. But the reality is that a few passengers account for a majority of an airline's profits.
Shouldn't an airline's reward program reflect that reality?
Many readers of this column apparently don't think so. Which is funny, because many of those same readers also run businesses. They wouldn't think twice at rewarding their best customers.
But apply that logic to a frequent flier program? Forget it. Emails rushed in with vulgarities degrading my intelligence. Only a few readers though my critique of Delta Air Lines' mileage program changes was on the mark.
Since I've devoted most of my career to studying loyalty programs, I thought I'd write about the things you didn't know about Delta's frequent flier program (but were afraid to ask):
1. There is a difference between SkyMiles and Medallion Qualifying Miles (MQM's). SkyMiles can be redeemed for award such as, free tickets and flight upgrades. One SkyMile is earned for every mile flown, regardless of the fare paid. So, for example, a 1,500 mile flight earns members 1,500 SkyMiles. But MQM's track a passenger's loyalty and establish criteria for elite status. MQM's have zero value except for tracking elite and Million Miler status. SkyMiles award usage; MQM's reward consistency. And by the way, other programs have similar ways of measuring the "value" of their customers.
2. All frequent fliers are not created equally. And I'm not making this up, either. My recent article on Delta's changes was an attempt to point out the imbalance of loyalty among air passengers and the effect to an airline's profitability. My premised is based on the work by Italian economist Vifredo Pareto, who outline the Pareto, or 80/20 principle, which states that a distribution of factors is predictably unbalanced.
The movie business is a good example of how this principle applies in a free-market economy. According to a recent study of 300 movies released over an 18-month period, 1.3 percent of the total movies earned 80 percent of box office revenues while the other 296 movies earned only 20 percent of the revenue. (In the case of airlines, an additional $10 per fare can add up to several million in revenues, according to a recent statement by American Airlines CEO Gerald Arpey.)
3. Delta had it right the first time. A minority of customers generate the majority of profits. Delta's original intent with MQM's was to honor those customers who provided the greatest value to the company. Whether by choice, convenience, or lack of alternatives, passengers who pay higher fares should be recognized for their added value. Keep in mind, passengers paying $200 or $2,000, on the same flight, received the same number of SkyMiles.
I applaud Delta for upping MQM's on their most discounted fares by 50 percent, but what possible reason could there be for penalizing their best customers?
By reducing the number of top level MQM's by 50 percent Delta is effectively undermining the market segment that generates their largest revenues.
It's my understanding that MQM's are meant to recognized and encourage continued loyalty. It seems to me that Delta would be better served by focusing its efforts on the minority who provide the majority of their revenue. These passengers literally are the difference between Delta continuing to soar or plummeting into bankruptcy. As such, their recognition should be enhanced -- not diminished.
Then again, recognizing passengers who can add millions of dollars to their coffers every day might be too obvious a solution for the mismanaged network airlines.