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THE END OF FREQUENT FLYER PROGRAMS
By Joe Brancatelli
October 18, 2007 -- Without drawing any kind of moral equivalency, let's just say that December 1, 2007, is a date that will live in business-travel infamy. That's when one of the Big Six will complete a sneak attack that will destroy the frequent flyer programs as we have known them.

If you're a player in Delta SkyMiles, I suggest you cash out by November 30 because your miles will essentially be worthless the next day. Playing in other frequent flyer plans? Start considering your options because, if Delta succeeds, your carrier of choice is sure to do the same thing.

I know you don't know what I'm talking about because part of Delta's strategy is to keep secret its assault on the value and viability of SkyMiles. It hasn't publicly announced its change or, until SkyMiles managing director Jeff Robertson spoke with me this week, discussed it with the media. Until now, the only way business travelers knew their flyer miles were being destroyed was if they stumbled upon a new rule that Delta recently slipped into its SkyMiles terms and conditions.

Here's what is now buried in the fine print of Delta's Web site: Effective December 1, SkyChoice Award Ticket Reservations will no longer be available on every Delta flight in which a seat is available for sale. SkyChoice Award Ticket Reservations will continue to be available on most Delta flights, but seats will be limited and possibly unavailable on some flights.

If you're unfamiliar with SkyMiles, you should know that SkyChoice is Delta's unrestricted, double-miles award level. At least it has been the unrestricted level. Come December 1, Delta will no longer have any unrestricted awards. It will only have the heavily restricted SkySaver level and the somewhat less restricted SkyChoice level, which will continue to cost twice as many miles. Worst of all, when you attempt to claim a SkyChoice award, Delta won't tell you in advance what seats you can't have or when you can't have them.

Although Northwest Airlines and US Airways have already attacked the basic concept that you can always get any seat you want with your miles as long as you're willing to pay enough for it, Delta SkyMiles is the first trend-setting, market-moving program that has told its frequent flyers that miles are, essentially, worthless whenever the airline decides not to honor them.

By Robertson's own admission, beginning December 1, about 5 percent of Delta's seats will be off-limits to Delta SkyMiles members regardless of how many miles they are willing to pay. And he can't or won't say what seats are unavailable. There's no list of what you can't have, no guidelines and no disclosure. You have to try to guess when Delta won't give you a seat at the formerly unrestricted double-miles level.

If Delta gets away with this, you can be sure that the other airlines will restrict "unrestricted" awards. And five percent of the inventory will quickly become 10 percent or 15 percent or 25 percent. You and I know how the airlines work. They relish these kinds of sleight-of-corporate-hand games.

Let's stop here for some background. When frequent flyer programs were created 27 years ago, all award seats were unrestricted. Your miles were good for any seat at any time on any route. There were no capacity controls, blackout dates or governors. The airlines published a single award chart, and, if a seat was available, it was yours for the stated price.

As the years rolled on, the airlines created hundreds of new ways to earn miles and the system got out of economic whack. There were so many miles chasing so few seats, especially on prime routes in premium classes at peak times, that the airlines were bleeding cash. Carriers were printing so much mileage "currency" that the financial underpinnings of frequent flyer plans--and the airlines themselves--were at risk.

In the late 1980s, however, Steve Grosvald and the team at the nascent OnePass program figured out what essentially became Frequent Flyer Programs 2.0. OnePass featured a two-tier award system. Lower-priced, off-peak awards were restricted by blackout dates and capacity controls. But OnePass also maintained an unrestricted level, albeit at a higher number of miles. As long as you paid about twice as many miles, you could have any available seat. The other carriers immediately mimicked OnePass' structure.

Even as frequent flyer programs morphed over the next two decades, the value proposition remained unchanged: Surrender enough miles and you could have whatever seat was available for sale. In fact, that proposition was the bedrock of the airlines' defense of frequent flyer programs. Whenever a traveler complained about award-seat availability or some media outlet claimed that airlines were too restrictive with frequent flyer seats, the carriers' public relations departments would respond with a haughty homily: We're sorry that some people can't have exactly the seat they want on the day they want it at the restricted level. But every seat in the system is available at the double-miles, unrestricted level.

But now Delta has changed all that. Come December 1, Delta makes SkyMiles worthless because there is a secret cache of seats you can never have no matter how many miles you are willing to pay. That destroys the basis of programs as we have known them.

Or consider Delta's decision this way: What if the U.S. government restricted the U.S. dollar by telling you there were situations when the greenback wasn't valid? What if, come Thanksgiving week, the government decreed that butchers and supermarkets couldn't accept dollars for the purchase of a turkey? What if, no matter how many dollars you were willing to spend, the government decided that only gold bullion could be used to buy turkey for your Thanksgiving table?

Would you continue to trust the U.S. dollar? Would you have faith that the government wouldn't then make it illegal to use dollars to buy hot dogs and burgers before the Fourth of July?

Of course you wouldn't. A currency that isn't valid to buy a product on a totally transparent basis is worthless. What good are U.S. dollars, Delta SkyMiles or any other airline's frequent flyer miles if there are times when you can't use them to secure seats at a publicly stated price? What good are miles that can't be used for a secret cache of seats that the airlines won't tell you about?

Delta, of course, disputes this indisputable analysis. Robertson insists the airline's decision to make its currency worthless for certain award seats "is truly not a big deal." He says 95 percent of SkyMiles members won't be impacted by the change. "There are plenty of other redemption options," he says.

That is economic nonsense and infuriating airline double-talk. It doesn't matter that there are other redemption opportunities. A currency that isn't freely convertible into the product you want to buy when you want to buy it has no value at all. And I don't know why any traveler would give his or her loyalty to any airline that can tell us there are times when they won't honor the currency they created.

The saddest part of this spectacle is that it doesn't have to be this way. If Robertson and Delta are worried that too many frequent flyers are claiming SkyChoice awards for inventory that Delta could otherwise sell for cash, there's a simple, elegant solution that keeps the mileage currency valid: Charge more miles for those seats.

If Delta business-class seats to Nice during the week of the Cannes Film Festival--that's an example Robertson mentioned several times--are so valuable, all Delta has to do is charge more miles to claim those seats. A SkyChoice "super-premium" level can be created to cover the 5 percent of inventory that is so valuable that traditional double-miles awards are deemed insufficient payment.

In fact, Delta already employs exactly that model in the cash world. It doesn't have one cash fare for international business-class seats, it has three prices. There's no reason why SkyChoice awards can't be tied to Delta's business-class fare structure. When paid seats are available in the cheapest business-class fare category, SkyChoice awards can cost the existing double miles. When business-class seats are available only at a higher-priced level, SkyChoice award seats could cost a substantial premium above double miles. And when Delta is only selling full-fare business-class seats--say to Nice during that week before Cannes--a SkyChoice award would cost a suitable extra number of miles.

"Maybe unrestricted awards should cost triple miles at the peak demand periods, but don't restrict the unrestricted awards," says Grosvald, who has gone on to create frequent flyer plans for airlines around the world.

"Any business relationship has to be win-win," explains Grosvald. "It is one-sided for airlines to tell customers" that there are seats they can never have with miles. "There has to be a value in miles. All you have to do is figure out that value."

Unfortunately, Delta has decided that SkyMiles have no value. That is the inescapable and indisputable reality of the decision to make a secret cache of seats unavailable for purchase with SkyMiles. In my opinion, you can't afford to do business with a carrier that mints worthless currency and then claims it is a reward for your loyalty.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.

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This column is Copyright 2007 by Joe Brancatelli. JoeSentMe.com is Copyright 2007 by Joe Brancatelli. All rights reserved.