REASSESSING FREQUENT FLYER PROGRAMS
By Joe Brancatelli
July 10, 2008 -- I know a frequent flying miracle when I'm involved in one, so let me bear witness.
This is April, a few days before the Masters golf tournament. We had recently installed big, flat-screen televisions and I noticed a promotion for DirecTV's special Masters coverage: six channels of golf and a seventh that ganged the other six on one screen.
I don't care about golf, but my formerly frequent-flying father-in-law, who retired to a home on the 11th fairway, is a fanatic. So I shoot him an E-mail suggesting that he drop his putter and come gorge himself on the Masters. My ever-practical, frequent-flying wife reminded me of the obvious problem: The long, long, long haul from his place in Volcano, Hawaii, to our home in Cold Spring, New York, is tiring, fraught with lousy connections and complicated by long transfers to and from the airports.
Yet faster than you can say "Tiger Woods," my father-in-law accepted. We book him on Hawaiian Airlines from Hilo to Honolulu and then tried to get him on Continental Airlines' Honolulu-Newark nonstop, the only one between Hawaii and the East Coast. Luckily, there were seats in first class and the fare, about $2,600 roundtrip, was what it was.
Just for fun, however, I check the Continental Web site to see if there are award seats. And here's the miracle: Not only were there award seats at the 150,000-mile unrestricted level, I scored a 75,000-mile restricted first-class award simply by moving his travel dates by a day.
Unfortunately, I probably exhausted the entire frequent-flying community's quota of miracles for the 21st century. As we all know, the Big Six have turned their frequent flyer programs into massive marketing machines on the front end and now they are taxing us usuriously on the back end when we try to claim a seat with the miles we've earned. The miracle of the Masters notwithstanding, it's time to cash out, change the parameters of our participation and reexamine the consequences of our loyalty.
First, however, we need to highlight four despicable new airline practices that make frequent flyer programs a losing game if you play by the old rules.
One: Airlines no longer reward your flying loyalty From the moment airlines began selling miles to "partners" like credit card issuers, phone companies and retailers, they have devalued the miles you earn by flying. And at least from the warped perspective of a bean counter, this makes sense. When a credit card company buys miles to induce you to take a credit card, the airline gets paid up front. The partners pay anywhere from eight-tenths of a cent to 2 cents each to buy the miles they give you. That is hard cash worth billions of dollars a year to the airlines. But when an airline rewards you with miles for flying, the airline "pays" for the miles. Why give away any more than they have to? So out go the 500-mile minimums per flight. Out go the 500-mile bonuses for booking on the carrier's Web site. And, at US Airways, out are the bonus miles you earned on each flight when you reached elite status.
Two: Airlines are abandoning entire communities of flyers Airlines are wiping dozens of cities off their route maps as they downsize their networks. Based in Albany, New York, and been a big player in American AAdvantage? Too bad. American Airlines leaves Albany and half a dozen other airports later this year. Based in Toledo, Ohio, and been a big Delta SkyMiles member? Tough break. Delta Air Lines is eliminating Toledo flights and service to a dozen more airports. Fly from Oakland Airport and are invested in Continental OnePass? Continental is dumping its Oakland service and cutting 15 airports off its route map. United is dropping at least as many. When your airline abandons you, the value of your miles obviously plummets. After all, you can't claim an award for flights that no longer exist.
Three: Airlines are dumping valuable award destinations Even if your airline isn't abandoning your hometown airport, there may not be anyplace interesting left to fly. The last truly valuable awards on most airline charts are the premium-class seats to vacation and international destinations. The Big Six have already begun cutting there. United is dropping many routes in Asia and Europe. American Airlines is retreating in Hawaii and the Caribbean. Northwest is paring its Europe flights. Delta is slashing its Mexico service and dropping Europe routes, especially from its Atlanta hub.
Four: Airlines think you're a cash cow Airlines long ago realized that they could squeeze revenue from travelers trying to cash in on what used to be called a "free" seat. First they separated taxes and fees from the "free" seat. Then they imposed fees if you booked a no-longer-free freebie by phone. Then it was a series of fees if you booked an award seat too close to the day of departure. And now come fees of as much as $100 simply because you've chosen to claim an award. Northwest and Delta have couched the new fees in the rhetoric of fuel surcharges. That's nonsense, of course. US Airways is less coy with its new fees. And American has the most "honest" approach of all. It freely admits that its new $5 redemption fee applies if you've somehow managed to avoid all of the other charges it has levied on AAdvantage awards.
So now that airlines have you coming and going--or, depending on where you live or where you want to go, made it impossible for you to come and go--the question is obvious: How do you fight back? I think the answers are obvious.
One: Stop feeding the beast It's impractical to suggest that you get out of frequent flyer plans. But you can stop feeding the beast. Use the programs only to accrue flight miles and elite status. Any other spending--credit cards, retail purchases, dining, etc.--should be directed to other loyalty or frequency schemes. Hotel frequent guest plans are the obvious alternate repository. They remain more lucrative and flexible. American Express' Membership Rewards program is a decent enough alternative for credit card spending and you can move Amex points into several frequent flyer programs when you need to top off an account to claim an award. And if you don't like Amex, look at alternative Visa and MasterCard offers. Many banks have cash-back cards or reward programs that offer a rebate as high as 5 percent on some spending.
Two: Clear out your mileage balances I've been telling you this for years: Mileage accounts are not bank accounts. You don't accrue interest and the value of your miles declines as they sit unused in your frequent flyer account. As soon as you earn enough miles for an award you want, claim it. Don't "save" miles for your retirement travel or your kids' college trips.
Three: Reassess the value of miles The top executive of a Big Six frequent flyer program told me recently that he thought "a penny a mile is a pretty damn fine return on your loyalty." I think most of us would disagree with him. We expect a better payback for our loyalty. But reality has to dictate our outlook, too. The Big Six truly do not care about our flight loyalty anymore, so they're going to lower the value of their plans as far as they can. I think the nearly 3.5-cent-per-mile payout I got on that mileage award for my father-in-law's travel was miraculous. An exceptional payout these days is probably in the 2-cent range. And you may have to accept less if your airline has abandoned your market--or no longer flies to your preferred destination.
Four: Watch the fares more carefully The best rewards--those premium-class tickets to overseas and exotic holiday destinations--now need to be examined through the lens of the dramatically altered fare structures. A decade ago, the airlines didn't discount up front. Now they do, offering a panoply of advance-purchase fares based on 3- to 60-day advance purchases. You need to understand that a restricted premium-class award can no longer be compared to a full-priced business-class seat. If you are looking 60-90 days out for an award, you need to balance the mileage cost against the advance-purchase price of that seat, not the walk-up price.
Five: Flip the equation Airlines have built the programs' economics on charging you for business travel and awarding you for holiday travel. But if you have the flexibility, why not flip the equation? If you can direct bill a client for a business trip, offer to negotiate a price they'll pay for your flights. Then cash a mileage award for the flight. It can be a win-win-win-win strategy. Your client pays less for your trip. You get to burn miles for high-value flights. You'll probably have less trouble claiming award seats to a business destination. And you get hard-cash reimbursement from your client.
Six: Understand the reality Frequent flyer miles are the economic equivalent of Zimbabwe dollars. The airlines keep minting miles to sell to partners even while they reduce the number of seats they fly. Like the thug Mugabe, the airlines are also iron-fisted dictators. They are not required to ever give you an award and they face virtually no real-world repercussions for carrying unclaimed miles on their books. So they are going to keep minting and selling miles and urging you to earn them even while they make it harder and more expensive to allow you to burn them. If you buy their rhetoric, you will have the frequent flyer equivalent of trillions of Zimbabwe dollars and nothing to spend them on.
Finally, be practical. Even while the bean-counting bosses pressure them to reduce award payouts and increase hard-dollar revenue, the folks who actually run the frequent flyer programs understand that the C-suite executives are destroying the plans. So they are making some half-hearted attempts to give you alternate ways to use your miles. A lot of these efforts center on merchandise.
On a dollar-value-for-miles-spent basis, merchandise generally isn't as good as claiming a premium-class award seat. But if you can get a decent return on your miles by claiming a new set of golf clubs or a cool kitchen appliance, do it. It's better than holding on to the miles and watch them lose value while you search for a first-class ticket to Tahiti or Tuscany.
Me, I'm looking at burning off some miles to get my father-in-law a couple of flat-screen TVs for his home on the 11th fairway…
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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