Frequent Traveler Programs Turn 20, Much Has Changed

<B>Frequent Traveler Programs Turn 20, Much Has Changed</B>

By David Jonas

Frequent travel programs turn 20 years old next month. While the underlying concept has remained the same--rewards for a carrier's most loyal travelers--little else has been untouched in what has become a common global model.

Ingrained as currency for many business travelers, frequency points now can be earned, bartered, bought and burnt in more ways and with more companies than imagined in the spring of 1981. New promotions constantly dangle incentives, including huge mileage sweepstakes planned by major carriers for this spring's anniversary. However, for the corporate travel manager, loyalty programs present the same frustrations and opportunities they always have.

The concept of a traveler loyalty program first surfaced at American Airlines circa 1980 and was formalized in May of 1981 when 150,000 of its best customers were quietly pre-enrolled in the nascent AAdvantage program. At the time, the carrier was careful not to externally advertise the program. "The implication was that we didn't want the great unwashed to be part of it. The purpose was focused on rewarding existing, loyal flyers," said Rolfe Shellenberger, the project manager assigned to help design and implement the program. Shellenberger, now senior consultant at Runzheimer International, said a modest direct mailing to those best customers was the only marketing mechanism used.

That is a far cry from today's immense advertising and support efforts put forth by airlines, including global co-branded partnerships, mandatory program enrollment as a precursor to certain perks and services, and incentives in every shape and form. Still the largest program, AAdvantage now boasts more than 40 million members worldwide.

Driven by several developments that have changed the face of loyalty programs over the past two decades, membership in programs at many other carriers, both foreign and domestic, has ballooned.

For starters, airlines have aligned themselves with numerous program partners, both within and outside the travel industry. AAdvantage initially partnered only with Hertz and Hyatt--British Airways joined a few months later. Today, it has grown to include roughly 1,000 partner companies. Included are travel suppliers of all sorts, online merchants, phone companies, gas stations, grocery stores and many other consumer outlets. And, of course, there are the credit card companies.

"Probably the most significant change in these programs, from a marketing standpoint, was the development of the Citicorp-AAdvantage program in 1983," Shellenberger said. And today, with the likes of American Express, Chase and Visa partnering with carriers on co-branded corporate and consumer credit cards, a majority of points today are accrued through non-flying activities.

The rise of multinational partner networks has led to innumerable methods of earning and redeeming mileage. In 1981, 50,000 AAdvantage miles got you a first class ticket to any domestic destination--notably Hawaii--with an upgrade opportunity for a companion. Today, just about any type of travel, in any class of service, can be achieved with miles, as well as a growing number of shopping and service options.

Meanwhile, over the years, the airlines frequently tweaked program policies. United Airlines, which along with Delta Air Lines and Trans World Airlines followed American's lead during 1981, was the first to introduce rewards based on the number of flights taken. At the time, six flights within a certain time period earned a free trip, which could be transferred to anyone. "That was the beginning of a significant liberalization of frequent flyer programs," Shellenberger said. "Shortly thereafter, Delta introduced triple mileage bonuses and it exploded from there."

Greater utility for a larger number of travelers, for example, came with a more flexible timeframe. Originally, miles were counted only within a calendar year, forcing travelers to start from scratch each new year. Then miles were stored for three years before expiring, and now mileage expiration is a rarity.

For the business traveler particularly, the creation of elite status levels was a key progression that led to preferred treatment by way of upgrades and other perks. Upgrades, an element of the original AAdvantage manifestation and a pillar of AAdvantage Gold--introduced in 1982--remain one of the most sought-after travel prizes. "In the past two years, airlines have been full and people are learning to use miles to escape into first class," said Randy Petersen, frequent flyer guru and editor of Inside Flyer.

Petersen expects numerous summer promotions to celebrate the 20th anniversary, including massive mileage sweepstakes from American, Delta, United and TWA. "The industry will go ga-ga this summer," he predicted, including more multi-partner promotions, such as Northwest's current Fly Free Faster promotion that rewards 10,000 bonus points for using five non-airline partners.

These promotions add to a growing list of incentives the airlines use to lure travelers. Over the years, many travel managers have used that bait to their advantage by driving compliance with preferred suppliers. The airlines, more than happy to help a company shift its travelers off a competitor, have facilitated that process by matching pre-existing elite-level status earned by the company's most frequent travelers. Furthermore, with the advent of mileage purchasing, companies began offering points as employee incentives.

However, frequent flyer points continue to be more of a detriment than a benefit for many travel managers. As happy as travelers are to earn personal points for company travel, they are even more disgruntled when forced suddenly to use a different carrier. Such shifts, which generate deeper discounts and therefore financial benefits to the company, can cause traveler confusion and even rebellion. The more mileage a traveler has stockpiled on the original carrier, and the more senior the employee, the more difficult it is to break that loyalty. Recognizing such friction, companies in some cases "have bowed to frequent flyers in their selections of preferred suppliers," Shellenberger said. Nevertheless, corporations reach the point when shifting to a different airline is the only way to further improve its discount level.

Much to the chagrin of buyers, frequent flyer programs also have been used to stymie competition, according to many industry observers. "Ultimately, the downside of these programs for the public and for corporations is they become one more barrier to entry, one more thing a new entrant needs to overcome versus the incumbent," said Greg Moore, president of Travel Metrics in Wilmington, Del.

Moore, who observed more negative than positive effects of loyalty programs during his days as DuPont's travel manager, added that even short-term benefits of policy compliance can haunt buyers in the end. "Maybe you can get another point or two on your discount, but the costs ultimately will go up," he said. "What you have really done is drive additional business to the dominant carrier, giving it more power to raise fares."

Shellenberger's concern for the future lies in deteriorating customer service. "The airlines figure that the frequent flyer program is all they need to do for the customer, so they have been reluctant to do much else," he said.

However, frequent flyer programs help airlines identify and enter new markets and then heavily promote them. Indeed, airlines almost always offer double or triple miles to introduce a new route, such as Delta's current offer on its JFK-Tel Aviv service starting in June.

Whether encouraging travelers to book online, visit self-service kiosks or use up distressed inventory, airlines continue to find ways to lower their costs in exchange for awards. In 20 years since inception, loyalty programs gradually have become a key weapon in a carrier's arsenal, leveraged in a variety of ways for a variety of reasons. No doubt, they will further increase their prominence and influence, and travel managers will continue to grapple with their impact.