I recently attended FFP 2007, the third-annual conference of frequent-flier program (FFP) executives, which was held in Vancouver, British Columbia, at the end of February. I was one of two journalists invited to attend, and I was curious to see how the airlines are dealing with the growing perception that FFPs are dead.
The conference, which was chaired by Ravindra Bhagwanani, managing director of Global Flight and Roger Williams, managing partner of Airline Information, was a gathering of 250 delegates from 60 airlines, including frequent-flier program executives, loyalty marketers, consultants and industry insiders. They were joined, on the last day of the conference, by program partners from the hotel, rental-car and financial-services sectors.
The conversation was candid, especially about dissatisfaction among consumers who are frustrated by the lack of award availability. Happily, the conference organizers were able to report the results of a survey conducted, at their request, through IdeaWorks, which found that nearly 60 percent of the surveyed program directors anticipate increasing award availability this year.
But the big take-away from the conference — and important information for you, the consumer — is that the economics of these programs are changing. At a time of dwindling ticket revenues, the FFPs have become a profitable source of income for airlines. In fact, airline executives have come to realize that these programs are now generating big bucks for their coffers. As a result, the longstanding rift between the airlines’ cost-centric finance departments and their consumer-sided marketing departments is easing, and program directors are gaining the ability to better serve the customer.
This means you can rest assured that your loyalty programs are here to stay and that the airlines will do more to keep your business. But there’s a catch: Your business has to make the airlines a profit. As one vendor at the conference put it, “Don’t count the people you reach. Reach the people who count.”
How the numbers add up
The conference made clear that FFP consumers fall into two basic categories: those who earn points in the sky and those earn points on the ground. Both groups help the airlines pay their bills. The sky group is profitable because its members fly often and purchase high-premium tickets; in fact, they can account for 85 percent of profitable ticketing revenue. The ground community is profitable, too, even though its members are infrequent fliers who earn most of their “miles” through co-branded credit cards with generous accrual bonuses. This group drives ancillary revenues because the airlines can sell their miles to those secondary markets (for more on this topic, see “ Why FFPs Are Important to Top Management“).
Though both groups are profitable to the airlines, they are not equally happy. This is because they are looking for different kinds of rewards. High-flying program participants typically want upgrades, and these are generally available. The ground group typically wants free travel, but award tickets are scarce. The lack of award availability has been a major source of frustration to award seekers but, if the IdeaWorks survey is reliable, this situation may soon see some improvement.
It pays to know whether you are a sky-earner or a ground-earner and to think about whether your frequent-flier program really suits your needs. Some airlines, like American Airlines and United Airlines, tend to be more generous with award tickets than upgrades. Others, like Continental Airlines, Delta Air Lines and Northwest Airlines have liberal upgrade policies for frequent fliers but keep a tighter hold on award seats. If your preferences are mixed, look to an airline like Alaska Airlines, which offers an excellent array of benefits.
Technologies and expiration dates
Technology was dominant theme at the conference, as it is every year. Many of the legacy carriers are still using the now-antiquated technology that launched their programs 25 years ago. While migrating IT systems is a Herculean task, it can be done. This year, the conference’s gold and silver Awards for Program Innovation went to Qatar Airways and Aeroplan, respectively, for their use of newer technologies to deliver award value to their customers. As airlines move back into the black, achieving profitability, expect them to invest in technologies to better reward those “people who count.”
Also look for FFP expiration periods to become shorter, not only in the airline sector but across all loyalty programs. The longtime average of three years availability for accumulated points is now more like 18 months. In the words of one of the conference presenters, “If your account is dormant, we don’t need you.” Shedding the dormant accounts is advantageous to active participants, of course, as it eliminates billions of orphan miles, reducing the provider’s liability and making awards more freely available.
So, how can program members take advantage of new trends in FFPs? First, select your program wisely. If you’re a ground-earner, affiliate yourself with an airline that offers you the best benefits. Secondly, select your awards judiciously. Instead of trying to get an award ticket to the most popular destinations, such as Hawaii and Florida, purchase these inexpensive tickets and opt for more generous and easier-to-obtain international awards. For example, Delta Air Lines has a First Class partner award on Singapore Airlines for travel from the West Coast to Southeast Asia for just 140,000 miles. The price to purchase a first-class seat for these routes on Singapore Airlines averages $10,000. The Delta partner award gives you a dollars-to-points ratio of .714 cents per “mile,” compared to the average of .01 cents per “mile.”
My final word on this subject is consolidation. As I have said time and again, holding 20 frequent-flier cards does you and the airlines no good. Select one or two programs and stick with them.