Why Some Airline Award Programs & Elite Status WILL Change

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It has been very clear for about the last 3 years that the US airlines’ (think American Airlines, United, US Air, and Delta) generosity with their frequent flyer programs will have to change (and become less generous).  I’m pretty sure that US frequent flyer programs will be quite different in the next 3 to 5 years if not sooner.

I’m not the only one predicting this change.  Miles and points guru, Steve Belkin, has been saying this for a long time (often to an unreceptive audience at miles and points conferences).

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Planes, Trains, and Automobiles Panel

I don’t see this change as a bad thing and I understand why airline management will want to make these changes.  I’m not forecasting the END of frequent flyer awards or first class trips from US airlines.  But I am predicting that it will become tougher and tougher to get business class and first class awards.  And that airline elite status will become harder to achieve and will reward folks who truly spend a lot of money with an airline.

Airlines like Southwest or Virgin America, or Jet Blue already have sustainable frequent flyer programs, so it isn’t likely that they will change dramatically.  But other airlines will have to change.

But it will still be possible to get something for (almost) nothing.  Credit cards will still (at least up to 2016/17) offer an easy way to get airline miles without flying.  I’m not looking forward to the changes, but I won’t whine about them either.  After all, I shouldn’t complain if instead of finding $10 bills outside my house, I now only find $5 bills!

Why Frequent Flyer Programs Worked

At the Randy Petersen Executive Travel Conference, Bob Crandall who created the American Airlines frequent flyer program, explained very simply why frequent flyer programs worked so well back when he created the program after airline deregulation in the US.

He said that there were lots of airlines and lots of competition.  And that airlines wanted to drive market share at all costs.  This resulted in lots of excess capacity on planes which meant that it was a lot easier to “give away” the empty seats to members of the airline frequent flyer programs.

The times have changed

There have been a lot of mergers in the airline industry which means fewer airlines.  Fewer airlines means that there are more chances that if one airline increases a fare, other airlines will also increase fares. As Bob Crandall noted there is reduced “willingness of dumb competitors to under cut” prices (translation:  airlines are more reluctant to start price wars where all the airlines eventually lose).

Airlines have fewer empty seats, so award availability will get tougher.  I’d also argue that less competition also means that airlines don’t have to offer as many benefits as they once used to.

More importantly, most business passengers do NOT choose a frequent flyer program based on which one makes it easier to redeem for First Class awards.  Most business travelers either have no choice because they want to fly non-stop and only 1 airline flies non-stop from their airport.  Or because their corporate travel department requires them to use only 1 airline.  Or because it is the cheapest flight.

Unfortunately, the average business traveler does not read miles and points blogs.  He or she has lots of other work to keep busy with!  If you’re reading this post, you are NOT an average traveler.

I know countless real business executives from many companies who choose their airline based on convenience and habit.  And once they have elite status with one airline, they usually don’t think of earning it on another airline.

Like Mark who takes 4 around-the-world trips on paid United business class.  Or George who flies at least once every three weeks on international business class trips using Delta because Delta flights get him home to his family quicker than other airlines.  Or Tina who flies every week, and doesn’t care which airline she flies as long as it matches her schedule.

The actual customer experience matters much more to the average business traveler than the ability to redeem miles for flights.

Delta & Revenue Based Programs

Delta is often mocked by many folks who collect miles and points as having the worst frequent flyer program in the US.  It is hard to find standard award availability using their flights and they have made changes to their program that aren’t liked by even the stoic sensible types.

American Airlines and United can (usually) do no wrong.

But I’d argue that Delta is the much smarter run airline.  Delta has good public perception (It ranks as number #4 on the Airline Quality Rating, which the media usually reports as a list of best and worst airlines, while United ranks last and American Airlines brings up the bottom).

Delta flight attendants seem to be friendlier than those on American Airlines and United, and the average traveler cares about more about friendly service than award availability at the low level.

You could even say that Delta has done a wonderful job at scaring away even the most savvy miles and points collectors – the folks who usually know how to really extract the most value from a frequent flyer program!  Brilliant, isn’t it!

Delta will soon require folks to earn a certain base amount of miles as well as meet certain dollar thresholds in spending to get elite status.  I see these requirements as quite reasonable, and I’m only surprised that it took a major airline so long to experiment with minimum spending requirements for elite status.

At the Randy Petersen Executive Travel Conference, Jeff Robertson from Delta mentioned that certain customers receive more benefits than they should and certain customer receive less benefits that they should.  And he suggested that a change would eventually occur.

Bottom Line

The writing has been on the wall for a long time that airline elite status will be changing in the US.  I don’t see the addition of a revenue component to elite status qualification as a bad thing.

I also wouldn’t be surprised to see a change in how one of the legacy airlines approaches award redemptions.  Perhaps there will be fuel surcharges on business or first class flights, just like there are everywhere else in the world?

To be clear, miles, points, and credit cards aren’t disappearing and there will still be ways to travel for less. But there will be changes over the next few years.

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18 Responses to Why Some Airline Award Programs & Elite Status WILL Change

  1. I agree that Delta is doing a lot of things right operationally, for instance on Monday at the gates for JFK-NRT the agents were giving out gold colored balloons and candy to children, and chocolate packets for elites, to celebrate the May 1 start of Japan’s Golden Week. Note that the kiddies were disappointed to not be able to take the balloons on board.

  2. The more things change, the more they stay the same. If it changes, we’ll be on top of the change.

  3. Also, Delta has those biscoff cookies. I’ve been trying to boycott Delta, and whenever I find myself on an AA or United flight, I’m bewildered when the cookies don’t come. :)

  4. I think this line pretty much sums it up:

    “You could even say that Delta has done a wonderful job at scaring away even the most savvy miles and points collectors – the folks who usually know how to really extract the most value from a frequent flyer program! Brilliant, isn’t it!”

    I agree 100%, Delta is making the right moves from a business standpoint and will see a positive impact on their bottom line. Compare that to say Hilton, who I think made a wrong step when devaluing their program and will see a negative impact on their bottom line. Time will tell.

  5. Nandakumar Tanjore

    Daraius, This is one of the best article from you that talks reality. Airlines and Hotels are in business to make profit not to give away their top revenue generator no matter what. Based on the customer spend and royalty they will reward with miles for future travel but not necessarily treat them royally. Royal treatment comes at an expense.

  6. I see the major problem is that our perception of “good” and the airline/hotel perception of “good” customer are different. They want high paying/massive revenue generating while we look for cheap/free generating.

  7. traderprofit

    I agree, so I am concentrating on burning miles as opposed to collecting them for the time being, I amnot even sure booking an around the world business ticket at 300,000 miles is better than paying the 12-13k, collecting tons of miles, achieving status challenges, etc. It’s the trips where you can make the miles worth 5cents or more that make sense to me.

  8. @Rapid Travel Chai – Not sure why they gave the kids balloons only to take them back. Just candy would have been fine!

    @MileValue @Nandakumar Tanjore – Very true.

    @Kay @ Travel Bug Diary blog - :)

    @WeddingSpend
    - Hilton has reduced the price of many of their lower tier hotels and they have a very large network of hotels. When you’re traveling on business, you often don’t have much of a choice (especially in smaller cities), so I’m not sure the change will really impact Hilton much. Not everyone wants to redeem for category 10 hotels.

    @MileageUpdate
    – We’re not “good” customers by any means to airlines or hotels since we are looking to maximize our benefit and don’t mind abandoning an airline or a hotel for a few extra points.

    @traderprofit
    - Hoarding miles usually never pays off.

  9. Robert Hanson

    It seems to me that Hilton just adopted the Delta model. They decided to simply go for the high paying client who would stay with them anyway, and scare away those of us who are looking to “extract the most value” from the least spend. Whether or not that hurts their bottom line depends on how much they profit from our type of business, (selling points to banks etc,) as opposed to spending by business travelers who will still need to stay somewhere.

    For all the bluster I read on travel blogs about switching from Hilton to Hyatt, Hilton has lots of locations compared to Hyatt and SPG. Boycotting Hilton will be nearly impossible for corporate travelers who have to go to specific locations on specific dates. And as Daraius noted, lots of Corporate types are not that focused on award program specifics anyway.

    The companies whose bottom lines may be more in question are AMEX and Citi, whose cards have just been seriously devalued by Hilton. I was excited to upgrade my AMEX HHonors to Surpass next churn, and get 60K bonus points for the $70 fee. That was going to get me 1.5 nights at the Paris Hilton La Defense, now it will only get me three quarters of a night. I’ll probably still do it, but I’m much less excited about it. And I will seriously question any spend on it beyond the required minimum, since those points are getting me so much less. The fact that award levels went down somewhat at inexpensive Hampton Inns hardly offsets the fact that award rates at very expensive big city Hiltons like Paris doubled. :(

  10. WAIT WHAT? “meet certain dollar thresholds”??? I clicked the link to check the dollar threshold, and I think that is CRAZY. People should not be able to buy status like some have I think. BUT miles actually flown should be all that matters. Actual credit card sign up bonus outside of 1 airlines don’t count. I don’t get the problem. What if you fly a lot get the miles needed, but your company budget does not let you spend w.e is needed for w.e level how does that make sense? I don’t travel for business, but those who do I am sure the company’s have some kind of spend limit for every employee. I NEVER flown Delta, and now looks like I never will. (But then again if the 70K Delta offer came around I might still apply.) But unlike other airlines when I pay for tickets for sure not giving Delta my money.

  11. @MMS, yea I understand that, but I feel Hilton alienated their top customers in a way that Delta managed to avoid. Business travelers have a bit more flexibility when it comes to hotels versus planes.

  12. Delta has an excellent product but a horrible awards program. But it is just impossible to serve all of these EXP or similar when you have lots of mileage runners and cheap fares. The EXP level should be reserved for those who truly add to the airline profitability. Just flying lots of miles is not enough and if your company makes you travel 52 weeks a year but just wants to spend on cheap travel fares then maybe you are working for the wrong company!

  13. Delta is cutting benefits too fast and people will get annoyed. Their product is good now but once other airlines start getting newer planes, Delta will not look so attractive.

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  15. Robert Hanson

    I’m skeptical about the idea that last minute high paying Corporate clients make all the money for the airline, and mileage runners are free-loaders. If airlines make it no longer worthwhile to low cost mileage run for status, they will start to have a lot more empty seats. But they will still have to pay airport fees, crew salaries, and nearly as much for fuel and maintenance. If they are going to fly the plane anyway, those discount tickets are almost total profit for them.

    If not offering discount tickets made sense, there would be no sale fares, and no advance purchase fares. Once they drive off the discount “loyalty program” members, it will be hard to lure them back. Reminds me of the latest “hot” restaurant that only allows “A List” people to get a reservation. Then when it’s no longer considered “hot”, and the A Listers go elsewhere, they go out of business for lack of customers.

    I’d think the major airlines would have learned this lesson from Southwest. The fares used to be sky-high for everyone, and Southwest was able to come in and undersell them. The majors still have most of the corporate travelers, but lots of Southwest regulars are not even considering flying them anymore.

  16. @Robert Hanson – Good observation on the number of locations which Hilton has in comparision to Hyatt and Starwood. When I was traveling for business, you could almost always find a Hampton Inn or a Priority Club Holiday Inn, but Starwood and Hyatt hotels were only found in larger cities.

    @World-Wide
    – The issue (if flown miles is the metric) is that you could fly, to say, Asia on a mileage run and earn the same amount of miles as someone who buys a last minute ticket for short distance US flight.

    @WeddingSpend – It really depends on where those business travelers are going. In larger cities there are more choices, but often times there is nary a Hyatt or Starwood hotel in smaller cities. But I do agree that you have more choices with hotels than with airlines.

    @Nic – I’d guess that newer planes isn’t much of a selling point to business or leisure travelers.

    @Robert Hanson – Airlines will still need to fill up seats, because as you point out the fixed costs aren’t going away. But they don’t have to fill *as many* seats as they used to, which is why you’ll see the tightening on award availability and restrictions on elite status. I’m not saying they are going away – just that it will be harder.

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  18. I usually do not drop many remarks, however after looking at through some of the remarks here Why Some Airline Award Programs & Elite
    Status WILL Change | Million Mile Secrets. I actually do have a couple of questions for you
    if it’s okay. Could it be just me or does it appear like a few of these remarks come across like they are coming from brain dead folks? :-P And, if you are posting at other sites, I would like to follow you. Could you post a list of every one of your public pages like your linkedin profile, Facebook page or twitter feed?

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