In Battle For Traveler Loyalty, Corps. Innovate

<B> In Battle For Traveler Loyalty, Corps. Innovate</B>

By David Jonas

As airlines dangle attractive frequent flyer rewards and redemption options to a mileage-hungry traveling public, corporate travel managers continue to develop innovative ideas to keep control of their travelers without completely alienating them.

"Managing frequent flyer programs has a potential cost savings of 10 to 20 percent," said Greg Moore, director of the travel program at Integrated Technology Research. "Demonstrate this to your CFO and I will guarantee he will want to hear more."

Frequent flyer program management can range from pooling all mileage earned by travelers for future business travel to using specialized software to maximize travelers' rewards. However, the middle ground--programs that eye compliance and cost savings while in some way incentivizing travelers--has the potential to keep everyone happy.

One solution being considered by some corporations is the development of an internal currency, either to replace or augment traditional frequent flyer points.

"It's a great idea because it can take all your suppliers into account and lets travelers redeem points on any of them," said Randy Petersen, editor of Inside Flyer magazine. "The problem is that it can be complicated to enforce, and you need a whole accounting department to track the matrix of benefits." For that reason, Petersen said this type of system is best suited to smaller companies.

Michael Cox, director of travel services for The Thomson Corp. of Boston--a company with 8,000 travelers--is trying to develop just such a system. "We're fighting fire with fire and trying to reward people for doing the right thing," Cox said.

While the specifics still need to be ironed out, the basic idea is to award points for booking online and at least two weeks in advance--areas that each could save Thomson close to 20 percent--and for other actions, such as using e-tickets and booking with preferred carriers. Points then would translate to all sorts of rewards, including merchandise, and of course, free travel.

Cox said that once the system is engrained, it could be used effectively for other cost-cutting purposes. "For example, if we advertise extra bonus points for booking a certain carrier to a particular destination," he said, "I have no doubt we would see a dramatic swing in market share."

To back his claim of leveraging power, Cox pointed out that a recent American Express sweepstakes, offering a chance to win 250,000 miles for booking through AXI, led to a 100 percent increase in Thomson travelers' usage of the reservation system. "We don't mandate, but we've tried to encourage and educate. People still need a reason to change," Cox said, adding that he also is looking to incentivize travel arrangers, who book 30 to 35 percent of all Thomson travel but currently receive no perks.

Justifying the initial expense and working through changes in senior management have hampered Cox's efforts, but he hopes to have the system up and running by year-end.

Aside from the difficulty in convincing travelers to abandon carriers where they have built up points and privileges, some travel managers disagreed with the rationale behind such a program. "Where does it end?" asked International Monetary Fund travel manager Caro Cook. "Every time you want your staff to be compliant you have to bribe them? This then becomes an expectation."

Another idea under consideration at some companies is a "frugal flying program" that allows limited use of personal frequent flyer points. "For travelers to utilize points, they should purchase coach class tickets and upgrade with their own miles. The company then provides X number of points back to them," said Carol Salcito, president of Stamford, Conn.-based consultancy Management Alternatives Inc. These types of programs "bring an element of competition into the equation" as various departments vie to cut travel costs.

Similarly, some programs reimburse travelers in cash for using their personal points for booking business travel. However, there are reports of misuse. One travel manager, who said her company returns 50 percent of the cost of the ticket to anyone who uses frequent flyer points, is seriously rethinking the policy, because "travelers are taking advantage" of the program by inflating the cost of what they would have paid for the ticket. "How do you benchmark how much a ticket would have cost had they not used mile redemption?" she asked.

As a result, the company is considering a cap on the reimbursable amount and other modifications.

Travel buyer Bill Patient of Elf Atochen in Philadelphia also uses frequency programs as a tool to build compliance, but he approached the challenge from a different angle. "We told all employees that we would not take anyone's miles, but at the same time they were not to make any purchasing decisions based on allegiances. So we told them to sign up for all the frequent flyer programs." Now the company has only "spotty" troubles with compliance.

Patient noted that some travelers even opt for flights with connections in order to build mileage on a preferred carrier, though policy does not mandate the use of connecting flights. "As a result, we're getting incremental market share in markets where our preferred carrier is not dominant," he said, so the company benefits as well.

Some airlines have created corporate frequent flyer plans of their own to incentivize both sets of customers--the traveler and the corporation paying the bill. For example, British Airways' Venture Club rewards travelers while banking all miles for future corporate bookings. However, these programs often include limitations that diminish travel manager interest.

Overall, there are a variety of reasons for controlling frequent flyer miles. Integrated Technology Research's Moore, who stressed that many people would be surprised at the amount of savings possible, said developing a program can "reduce circuitous routings, remove attractive co-marketing incentives and create an improved competitive environment."

A development that could ease the mileage dilemma for travel managers while further tantalizing travelers is the proliferation of frequent flyer program links among the airline alliances.

The Star Alliance and Oneworld have created new mileage universes where a traveler's status and stockpile of points is accepted by all members. In addition, reciprocal accrual and redemption links between traditional competitors, like Delta/United and American/US Airways, have minimized the effects of traveler loyalty.

"With the pooling of rewards through alliances, you don't have to worry as much about loyalties," according to Petersen. "It's getting to the point where you can almost pick any flight you want and still earn your miles.