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Too Many Miles, Too Few Seats and Seven 'Solutions'
Thursday, October 18, 2018 -- Want to get heads nodding in commiseration next time you're talking to the business traveler standing next to you in a boarding queue or sitting across the aisle?
Just say your company recently let McKinsey & Company consult--on management, on head counts, on marketing strategies or even on which blend of coffee to use in the break room.
No matter what the C-suite types imagine, calling McKinsey is seen as an admission that the bosses are out of touch. Most frontline staffers believe McKinsey is the avatar of everything wrong with top-down, by-the-numbers, snot-nosed-kids style of management.
So imagine what the business travel chattering classes have been saying about McKinsey's latest missive: a spectacularly wrong-headed look at the challenges facing modern frequent flyer programs. It's glib, it's ill-considered and it's filled with the kind of fuzzy-headed, hothouse-flower logic that earned McKinsey its ill repute.
In fairness to McKinsey, its authors fully understand the problematic part of today's frequency programs. "A boom in the number of miles ... has not been balanced by a similar number of seats that can be redeemed for them," they say.
They even accurately pinpoint the underlying cause: As airlines reap billions of dollars in fees for minting miles to sell to banks, they slash the inventory they make available for awards. If McKinsey's statistics are right, there are now 30 trillion miles in member accounts. Yet airlines over the last decade have reduced the percentage of seats available for awards. In 2008, McKinsey estimates, nearly 10 percent of airline capacity was claimed as awards. It fell to 8 percent last year.
Where McKinsey fails is with its proposed solutions. They are infantile in a way only high-priced consultants can serve up specious fixes. Don't take my word for it. Read the report yourself. Then tell me what you think about using your miles for an impromptu cup of airport coffee.
There is, of course, a simple way to solve the problem of too many miles chasing too few seats.
Airlines should issue many fewer miles and earmark many more seats for award redemption.
That naturally won't happen. Airlines make too much money peddling miles to banks and they will not displace revenue passengers to make room for more people claiming awards. In fact, listen to some Delta executives last week gleefully discussing their ongoing efforts to monetize premium class upgrades that once presumably were awarded to SkyMiles members. It's creepy how far Delta thinks it can devalue its "loyalty" program without pushback.
Still, I contend there are ways to improve things. Ways that will not cost airlines too much--or anything at all. Ways that will make additional seats available--or at least make us feel better about how airlines treat us. Here are seven ideas that come immediately to mind.
Reserve Awards When Continental and Eastern airlines merged programs decades ago, members were allowed to "reserve" an award from the previous award charts and claim it at a later date. "Reserve award" gimmicks have been used only rarely since. I suggest they should be a standard part of modern programs. As award prices continue to inflate, wouldn't it make sense for airlines to allow flyers to freeze an award level for later use? Permit us to reserve one award every few years and we wouldn't feel like we're constantly on the losing end of each and every devaluation.
Route Watches There's no logic for airlines to hide what they know about award availability. Why don't airlines use their vast data capability and communications ability to help us feel better about what awards costs and when prices rise or fall? Why don't airlines allow us to specify five or ten routes that interest us and then send us bi-weekly or monthly updates on availability, dates and prices? The more we are allowed to think we're in control of what we pay, the more we'll think well of the programs.
Impulse Awards Anyone remember the Eastern Weekender Club? Every week you got a fat envelope containing a list of sale fares for weekend flights that Eastern was hawking at a discount. You then called Eastern if you wanted to book. It's hard to imagine what a vast logistical challenge that program must have been in the print/mail/phone era. Today it'd be a snap (and cheap) to revive a similar program using apps, Web sites and self-serve booking. And travelers could use miles rather than money to claim last-minute flights to wherever the airline has excess seats. Flights to London or Chicago have low loads next week? Slash the miles cost and fill those seats. Even if you never used miles for discretionary, last-minute awards, you'd feel as if the airline was doing something tangible to offer cheaper redemption options.
Pay Fees With Miles Co-pays are the bane of award seekers, especially those flyers who want to use American AAdvantage miles on its international partners or direct Amex or Chase points to Air France/KLM's Flying Blue program. So why not let travelers use their miles to pay those fees? Airlines would naturally set the conversion to its extreme benefit, but so what? If you are intent on flying "free," burning an inflated amount of miles rather than pay dollars for fees is win-win-win. Airlines make believe they have given miles greater customer utility and they burn off some mileage liability at an accelerated rate. Travelers make believe they've gotten extra value for their miles because they didn't spend cash.
Miles for Discounts Airlines have always refused to allow you to convert miles to cash because that would cost them hard dollars. It's an existential point for the carriers. They want the cash flow going only one way. But it continues to astound me that airlines do not allow you to trade miles for fare discounts. Major hotel plans permit us to use points to claim room rate discounts. Airlines should create similar mechanisms. Since they seem intent on driving down the redemption value of their miles this is a simple way to make it happen. If you want to value miles at a penny a piece--that seems to be Delta's goal--let flyers choose a $100 discount coupon for 10,000 miles. If travelers want a $250 discount coupon, charge them 25,000 miles. You or I may not want to get such a miserly return for a mile. Fine. But less frequent travelers may want the freedom to get a discount against any future flight of their choice and they would pay an inflated rate for the privilege.
Miles Perks for Elites Airlines don't discuss it much, but there are always special award prices for some super-elite flyers. Sometimes it's codified, sometimes it's negotiated individually. But if airlines are going to make it harder for elites to claim upgrades, why not at least lard the highest levels with some guaranteed discounts off prevailing award prices? It could be 5 percent for the entry level elites and scale up for super-elites. This might even be a self-funding initiative as it would incent travelers to reach a higher elite level.
Create Airline Cashback Cards Finally, let's talk about the elephant in the room: credit cards. They're the source of around 70 percent of miles. But why are banks and airlines so constipated in their thinking? Why haven't they created an alternate affinity card that offers cash back and uses airline spend as an "accelerator?" The airlines naturally want you to engage with their frequency programs and their banking partners. But earning miles need not be what binds you to them. Why can't there be, say, a Chase United MileagePlus cashback card? It could give you, perhaps, 1.5 percent cash back on general spending and 2 percent cash back on United spend. Rather than create more miles, airlines and banks should figure a way to extend their brands to alternate reward schemes. It can be done without risking loyalty to banks or frequent flyer plans and it could slow the number of miles surging into the vastly overextended programs.
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