Airlines Reward Higher Spenders With More Flyer Perks

Northwest Airlines this month began rewarding frequent flyers paying full Y coach fares with a 50 percent mileage bonus specifically for elite status qualification. The move matches an earlier change by Northwest partner Continental Airlines but does not go as far in tying status qualification to fare paid as Delta Air Lines, which relaunched its elite frequent flyer program at the beginning of the year. British Airways, which next month will roll out its revamped program, also will continue basing mileage accrual on class of service.

The concept of rewarding passengers on class of service and/or actual fare paid is not new nor any less problematic for travel managers trying to keep travelers in line with corporate policies. America West Airlines' original program in the late 1980s strictly was based on fare paid until the carrier caved, according to Randy Petersen, frequent flyer guru and editor of Inside Flyer magazine. Trans World Airlines in 1997 launched Fare Rewards and immediately drew ire from the travel management community. Other carriers followed with similar, lower-profile attempts.

A Northwest official, however, called the modification to the carrier's WorldPerks program "a renewed effort to reward higher paying passengers" without decreasing accrual benefits for discounted fares.

Delta's revamped SkyMiles Medallion program, on the other hand, not only rewards higher-paying passengers but also penalizes lower-paying ones. First class, BusinessElite and business class customers earn elite status qualifying miles at twice the rate of miles flown. Passengers paying full coach fares earn a 50 percent bonus. Discounted coach passengers collect elite status qualifying miles equal to miles flown but those on deeply discounted L, T and U coach fares accrue toward elite status only half of miles flown.

"These changes are designed to reward those members contributing the largest share of revenue to Delta," said Vicki Escarra, the airline's executive vice president and chief marketing officer.

The modifications elicited a strong response from Delta's frequent flyers, including an Internet campaign aimed at reversing new policies. "Elite benefits are worthless if they aren't realistically attainable," said Mike Siedenman, a founder of SaveSkyMiles.com.

Meanwhile, as part of several ticketing rules changes enacted last year, US Airways eliminated from nonrefundable fares accrual of elite status qualifying miles and segments. It later backed off that decision after sharp criticism and passenger dissatisfaction. US Airways still provides elite status qualification bonuses for business and first class bookings.

"The airlines do not understand the basics of marketing," said Rolfe Shellenberger, a consultant with Lincolnshire, Ill.-based Consulting Strategies and an early architect of frequent flyer programs. "One of which is never take something away from customers after they demonstrate that they like it." According to Shellenberger, another marketing principle is to keep separate incentives and pricing. "When we started American Airlines' AAdvantage, we carefully decided to make earning power largely unrelated to price paid. After a year of study, our tariff department concluded that a loyalty fare was not a viable marketing proposition," he said, adding that "half-credit for cheap fares" is unreasonable for travelers to accept in an era of renewed cost consciousness. "When it gets to a point where awards are tied totally to incurred cost of air travel, they will disappear."

Other industry observers, and even executives at some carriers, suggested frequency programs have gone beyond simply driving loyalty and now are impacting airline decisions in other areas. "It has become a monster that the airlines do not know how to control," said airfare expert Terry Trippler of Cheapseats.com. "First and business class service is not at all what it used to be simply because very few people sitting up front actually paid to sit there. Most are there because of upgrades."

For that reason, carriers have replaced free upgrades with mileage bonuses on full Y fares, according to Inside Flyer's Petersen, who said frequency programs in some ways "have become a victim of their own success."

"Some airline CEOs wish frequent flyer programs never started. In a sense, they have run away from them a bit," added British Airways CEO Rod Eddington. "Personally, I feel frequent flyer programs are a must-have for market penetration. It is a critical part of our offering."

To that end, BA significantly modified its Executive Club. Effective July 1, the loyalty program will be consolidated on a global level, meshing what had been five rather disparate regional programs. "Executive Club globally was a complete mess," Eddington said. "You had to be a rocket scientist to figure out how it all worked."

In addition to a more consistent set of rules, changes to Executive Club include a zonal rather than destination-specific redemption scheme, online account management and realigned elite status thresholds "to make gaining and maintaining tier status simpler and fairer." Also, frequent flyers for the first time will have the opportunity to redeem mileage for cabin class upgrades, on certain fare types, and to combine mileage and cash for ticket purchases. Those booking e-tickets for reward travel will be able to do so as little as three days in advance, down from two weeks. Like Delta, however, BA will not reward full frequent flyer mileage to passengers on discounted coach class tickets. Any fare below the full economy level will garner only 25 percent of flown mileage.

Despite these and other tweaks—including new change fees levied by U.S. carriers on reward tickets—the frequent flyer program largely has remained intact since it surfaced at American Airlines 20 years ago. Desperate for loyal customers, airlines have kept their frequent flyer programs far from the chopping block even as nearly every other element of their operations undergoes structural change.

"There is an incredible amount of value tied in to these programs," Petersen said, referring to the fact that Mileage Plus, at the time of UAL's bankruptcy filing, was the only profitable part of the company. And much to the dismay of many travel managers, frequent flyer points still drive traveler preference, jeopardizing ever-more stringent corporate policies. Said Frontier Airlines CEO Jeff Potter: "It is the drug, sugar and candy of the business travel community."