Chasing Travel Loyalty: The Hidden Cost to Corporate Travel Programs

British Airways reignited the great loyalty debate in the U.K. when it revamped its frequent-flyer program earlier this year. The precious points used to be accrued by passengers for the miles flown—but not anymore. It's now based on travel spend. The shift caused a furor among customers and spawned countless column inches in the press. The fallout was so great that the airline introduced revisions designed to placate some members.

Frequent flyers were frustrated after seeing their points devalued, stricter elite status requirements and diminishing returns on their investment in travel. But revenue-based loyalty schemes are nothing new: U.S. carriers including United Airlines, Delta Air Lines and American Airlines adopted them a decade ago. Iberia and Qantas also made the transition, and Lufthansa is changing some aspects of its Miles & More program this summer.

However, the shift by BA, which they claim is more fair, is reigniting the debate around the role of frequent-flyer schemes in managed travel programs, the rise of out-of-policy bookings and how travelers take advantage of loyalty schemes.

"These changes often favor high-spending travelers over frequent flyers, which has understandably sparked some frustration, particularly among loyal customers who have long relied on mileage-based rewards," explained Clive Wratten, chief executive of the U.K.-based Business Travel Association.

Turning the Dial

Following the move, travel buyers might expect to observe changes in traveler behavior. Spend-based schemes could encourage late bookings (when fares are higher), the booking of more expensive fare types, out-of-policy bookings or a rise in direct bookings. Those with business-class entitlements also are more likely to maximize spend in a bid to hit loyalty targets. All these behavior changes can increase the cost of a travel program.

But all is not lost. "Savvy travelers who feel disgruntled by a certain carrier may look to alternative carriers within a managed travel program where higher-level status is more achievable or accessible, for example via status matches, and therefore turn the game on the airlines," said Kerry Douglas, head of program at the U.K.'s Institute of Travel Management. There is no doubt that the relationship between travelers and some airlines has taken a hit as the power dynamic shifts toward suppliers rather than buyers. Carriers used to have to lure in frequent flyers with elite status in order to attract customers, build relationships and loyalty—not any more.

In many ways, airline loyalty schemes have been a victim of their own success. Over-populated airside lounges, too many points in the system and escalating liabilities mean that airlines have had to shift the goalposts, devalue passengers' status in some cases and reevaluate policies.

"Frequent flyer points are a debt that impacts a carrier's bottom line, accounted for in currency, not miles," said David Frangeul, senior director, air and ground practices, Advito. "Shifting to a revenue-based approach and reducing eligible benefits creates more consistency and should reduce this debt burden. High demand and advanced revenue management systems have also reduced the need to stimulate demand through loyalty schemes," he explained.

Travel buyers are also becoming concerned. In a recent poll by the ITM, 19 percent of respondents said they have seen recent changes in loyalty schemes impacting traveler behavior or a travel program. A quarter were not sure, believing it is too early to tell due to the fact that many elite tiers have been rolled over.

"Everyone is frustrated by devalued points, stricter elite status requirements and reduced predictability, because the fixed award charts are now a thing of the past. It's especially painful when some airlines have also cut or made lounge access harder to gain entry to," said Evelyn Hamilton, global bid manager at Transcom.

Hamilton adds: "Redeeming points has become a harder process, and it will just create 'reward fatigue.' An extra complication is that that the value of both the ticket and the points can now be dynamic. There will have to be more insight and prediction modeling for companies to see when the best time to book tickets will be for both price and points value in order to maximize travel spend."

Getting More Strategic with Loyalty

Dynamic pricing isn't the only headache. This move comes at a time when more tailored experiences and personalized pricing are being touted to frequent flyers, alongside unbundling and drip pricing. All of which creates challenges for travel programs, since comparing like-for-like air ticket purchases becomes increasingly difficult. "It can lead to potential budget over spend if not properly managed," said Spencer Allen, VP for client solutions at Take2Eton Group.

Some travelers are booking out of policy in order to fly their preferred airline and retain their status. This is an age-old issue, but now that travel spend trumps miles, flyers are also honing in on single schemes that offer real value rather than spreading their loyalty across multiple airlines. Through this process, traveling executives are becoming more strategic with their loyalty. This can create tension if it's not in the corporate's interest.

"There's certainly increased pushback from travelers who want more flexibility or feel like they're missing out by strictly following policy," said Dan Seymour, global partnership manager at Direct ATPI.

"Prices and loyalty rewards can also vary depending on where you book, making it difficult to compare options or stay within policy. In some instances, loyalty offers appear on direct channels only, which can be problematic. Overall, it's all a bit clunky right now, and travel buyers are having to work harder to maintain control," he added.

Dealing with the Challenge

So, what should buyers do to take back control? "Certainly, keep a look out for loyalty-driven booking patterns and deal with them early," said one travel buyer. According to the ITM, some companies have started adding new pre-trip approval layers as a way of flagging purchases of unusually high fares, since these might be linked to employees chasing loyalty.

Others are keeping a close eye on whether travelers are repeatedly booking specific carriers despite there being cheaper options available. Some buyers are also starting to rewrite their travel policies, so they explicitly state that airline loyalty benefits must not influence booking decisions, which is easier to mandate, but perhaps more difficult to enforce.

For corporates with business-class entitlements, buyers are now analyzing spend levels more closely, since these travelers are more likely to chase top-tier status. "Buyers are reminding travelers that policy compliance comes first, not personal rewards. It's also worth running monthly audits on your top 10 routes and travelers to spot trends early and intervene if needed," advised ITM's Douglas.

She continued: "Most buyers recognize that some level of loyalty-driven behavior is human nature, particularly for frequent travelers. The key is managing it within acceptable boundaries. Some personal benefit is acceptable given the time that business travelers spend away from home and family. It is why buyers are choosing their battles focusing more on high-impact behaviors, such as £1,000-plus unnecessary fare differences, rather than trying to eliminate all loyalty considerations."

The shift in airline loyalty schemes has opened up a new battlefront for the managed travel program, but it could be just the beginning. When loyalty is combined with more pinpoint personalized pricing and more targeted offerings delivered through New Distribution Capability channels, expect another new battlefront to open up.