Air, Hotel Suppliers Wielding Loyalty Program Swords

Nearly every supplier segment of the travel industry this season is using loyalty points not only as incentives but as weapons and divining rods in an effort to trump competitors, entice feedback from customers and back service guarantees in a slow market.

"Frequency programs are being used as a tool, but they're being used defensively, for marketshare," said Rolfe Shellenberger, a Palm Desert, Calif.-based independent consultant.

Among airlines, this competition can be seen most vividly along the northeastern shuttle corridor, where American, Delta and US Airways are battling each other and Amtrak for a larger piece of that market. The most recent of the brazen offers matched between Delta and US Airways now promises weekday travelers 1,500 miles if the aircraft leaves the gate more than five minutes past the scheduled departure time.

Meanwhile, this month's approval of the United-US Airways codeshare agreement will enable travelers flying one preferred carrier to earn mileage on the other. The carriers plan to align their frequent flyer programs within the next few months. In turn, Northwest Airlines by next summer will drop its partnership with US Airways. Pending review of a Delta-Northwest-Continental alliance, reciprocity also could be permitted between those airlines.

Suppliers also are tweaking older loyalty programs within air and hotel sectors, invariably favoring premium class travelers. American Airlines as of August arranged for first and business class travelers booking award tickets online to receive a 1,000-mile bonus. Virgin Atlantic last month teamed up with Delta Air Lines to share flight earning and redemption opportunities, with a double miles promotion and added mileage incentives for first and business class customers. Delta in June opened its upgrade system to all travelers with money to spend on upgrades, but restricted travelers within the seven least expensive price classes from purchasing them.

Travelers understand the benefits of loyalty programs in the new travel environment. "These perks are important to our travelers now that the airport experience is more challenging," said Harriet Washburn, vice president of travel for Aon Corp. "Now they want anything that gives them preference, and these programs afford them that."

Yet, this glut of offers tends to cheapen the very novelty of awards. Among flyers, accumulated and unredeemed airline points continue to grow at staggering levels annually. By the end of last year, there were 7.9 trillion unredeemed miles, a 20 percent annual increase in miles for which the airlines were liable. Meanwhile, capacity cuts seen by major airlines heading into their winter seasons mean fewer flights are available for award travel.

At the same time, miles are becoming more fluid. American Airlines last week launched a program that permits members to transfer award miles from one account to another by Dec. 31 for a fee of at least $25. Other programs don't go this far, usually allowing only for mile swapping among families. Only accessible online, the program allows members to swap up to 60,000 miles each year and receive up to 15,000 into their account annually. The airline said a similar program, which allowed the purchase of miles, was popular. Hotel company Six Continents in April launched the first program of this nature among hotel suppliers, which already has been used by 15 million members.

Hoteliers are using these programs to back service guarantees and make midprice brands more alluring to business travelers, many of whom are mandated to use this price point. Starwood Hotels & Resorts Worldwide now is compensating guests for service or quality grievances with bonus points or payment, and midprice hotels Best Western International and Choice Hotels International added United to their partner list, joining existing partners American and Delta. La Quinta Corp. last month launched a resdesigned, three-tier loyalty program that gives top-tier members in-room gifts, guaranteed availability up to 48 hours before arrival and no blackout dates.

"It's still a very competitive market out there" and hotels are responding by beefing up their programs, said Robert Mandelbaum, director of research information services at Atlanta-based PKF Consulting.

Despite the decreased room nights seen this year, a recent Six Continents study of loyalty program members showed a 10 percent increase in accrued points from Sept. 2001 to last month.