Airline loyalty programs for dummies

I’ve been planning to write a post about airline loyalty programs for a long time. It must be because the vacations are approaching: friends are waking up and have lots of questions about miles and statuses. It has been in the works for some time because being precise and exhaustive on the subject still requires a lot of time and work. And then this weekend I saw an interesting thing on Slate : a kind of “best of” of frequently asked questions and, as the author seems at least as lost as the average passenger, I thought it was time to dig up the old drafts and bring my contribution to the subject.

It’s not easy to tell if a loyalty program is “good” or not. I leave that to the experience of each one. However, I think it is important to understand how it works “backstage”, what is at stake, in order to evaluate and better use them.

Purpose of a loyalty program: revenue, recognition and freebies

What is the purpose of a loyalty program? We are talking about airlines here, but the principle is the same regardless of the sector.

For the issuing airline it is quite simple: like any business it has only two vital objectives, to increase its revenues and control its costs. On the revenue side, a loyalty program helps you spend more and/or more often. On the cost side, it lowers customer acquisition costs since it costs less to sell to a known and loyal customer. Marketing 101

For the customer there are various benefits. Some are looking for miles to spend for free travel, others for more services (priority lanes, baggage allowance, lounge access), others for “status” (but status goes with services and services with status). And others are looking for all of this at once.

In short, you have to keep one thing in mind: both the passenger and the airline have an interest, it’s a commercial relationship and not in a charity business. This may seem obvious but it’s better to say it: the passenger who wants to pretend to be a “frequent flyer” must be clear with the rules of the game and not come whining every 5 minutes.

A loyalty program rewards relationship intensity, not loyalty

This is perhaps the most objectionable aspect of loyalty programs: their name. Because over the years they have evolved and do not necessarily reward loyalty. But here again, to take offence at this is the height of bad faith. Here’s why.

Take the example of a romantic relationship. Loyalty is “I only do it with you”, no matter how often or how intensely. It can be frustrating but it’s a moral contract. Here you are in the commercial business, so you are more in a “as much as possible, as often as possible, but you can go elsewhere” type of relationship.

A loyal customer is a customer who only travels on one airline. If it’s a business class per week it’s good for the airline, if it’s an economy class with a minimum price every two years it’s a problem because the concern of the airline is its unit revenue (revenue per seat per kilometer).

Imagine yourself in your own business: does the customer who spends little, very rarely, on low-margin products but only shop at your place get your attention as much as the one who occasionally spends a lot and also goes to your competitors. No, and that’s logical. Well, in the airline industry (and the hotel industry too) it’s the same.

In fact, the intensity of the relationship (margin) and its frequency are rewarded more than loyalty in the strict sense. Inconceivable in a Care Bear world but logical in a commercial relationship, it’s the same in all professions, in all sectors, in B2C as in B2B.

A loyalty program must respect equity between passengers

You’ll also notice that not everyone on the same plane will earn the same amount of miles. And that the miles earned do not always correspond to the distance traveled. Here is the explanation.

In fact the miles correspond to the distance traveled but after weighting. At Air France, this weighting is based on the booking class. Within the same class of travel (First, Business, Eco..) there are several booking classes that correspond to different price levels, mainly depending on two factors:

– the reservation date: the earlier you book, the more likely you are to find a quota of tickets sold at the lowest fare, with access to “good fares” depending on the load factor.

– Ticket flexibility: there is nothing worse to deal with than last minute cancellations/changes. In the end, this can lead to the operation of sudden empty flights while others are overbooked or even to the reimbursement of a significant number of tickets cancelled at the last minute. Flexibility comes at a high price for the airlines, which pass it on in the price of the ticket. If you want a flight from Paris to New York, neither refundable nor modifiable, you will find something at 600 euros. If you want it fully flexible and refundable, you will easily exceed 2000 euros, even if it means getting close to the lowest price of a modifiable business flight with some fees.

So far it makes sense. But what is the impact on the passenger? You can imagine that in the same class of travel the passenger who has paid 2000 wishes to have more recognition than the one who has paid 800. And that a business class passenger feels the same way about an economy passenger. The bottom line is that the miles earned are weighted according to the fare actually paid. From 25% to 300% of the distance traveled. And this does not come from the airlines but from the passengers who have understood the difference between equality and fairness and want to be treated according to their contribution to the revenue.

Put everyone on the same level and you lose…your highest contributing passengers. Logical. Here again, we just have to ask ourselves what we would do in their place.

Moreover, contrary to what the above-mentioned article says, the accumulation scheme is well known and quite clear. The 0% classes correspond to those where the margin is too low or non-existent (discounted prices, negotiated group rates, etc.).

A reasoning that is now the norm. For example, at Lufthansa (here the long-haul scale) and its renowned Miles & More program.luft-miles

 

So yes, a shorter flight in a high booking class is better than a long flight in a 25% mile class. And it’s the same everywhere.

In conclusion, a loyalty program is not a redistribution program. On the contrary, it favors the best clients, those with the highest contribution. This is its name and its purpose, no need to come crying.

Status and award miles

It’s the complicated side of the programs that is important to understand. The miles earned are of two kinds:

– Status : allow you to change your status within the loyalty program according to the accumulation over one year

– Award: only used to purchase tickets.

The status mile is what you traveled, based on your class of travel. The bonus mile corresponds to a certain number of bonus miles, depending on your status. Here again I find it hard to understand why anyone would be offended by this: it is a benefit of the loyalty program, a benefit that increases the more you are a “good customer”.

Case study: a premium economy ticket between Paris and New York for a gold passenger: distance of approximately 7300 miles.

The passenger will earn (rounded figures): Economy premium travel: 7280*1.25 = 9100 status miles. Gold passenger: 7300*0.75 = 5475 award miles. The passenger will thus gain 14560 miles that he can “spend”, of which 9100 will be taken into account for the access to a higher status.

So we may find it petty not to grant 100% of miles at least (see previous point), but the airlines that do so make up for it on the statutes.

There has been some evolution in loyalty programs in recent years in terms of awarding the famous elite status. Let’s take Delta’s.

Medallion Qualifying Dollars

What do you notice? That in addition to having to complete a certain number of miles, the passenger must also have spent a certain amount. In fact, you have two approaches: either the airline moderates by the income as soon as the miles are credited, or it credits 100% and adds a constraint at the time of granting the status, which in fine amounts to exactly the same thing.

Air France, for example, has chosen to be fair with regard to the booking class, while Delta is more generous at this level but punishes ” bargain hunters ” at the time of granting the status and the benefits linked to it. In the end the result is the same.

 

The loyal customer: a subjective notion

At this point we can say that accessing the grail, that is to say having enough money to buy a ticket or to access the highest statuses is complicated. Again, you have to get away from the idea that we are talking about charity programs.

What does it mean to be a “good” customer or a regular customer (which is not quite the same thing). I would say, from a passenger’s perspective, to have a hard time doing more. When you give everything you expect something in return.

But we are all someone’s “frequent flyer” and “little player”. When you make 4 long haul flights a year you think you deserve more than the one who makes half of them. And the one who makes 2 per month laughs in the corner.

In short, the notion of frequent flyer is determined rather by the top of the pyramid. The best status must concern (I don’t have the figures) 10% of the passengers. The next status 20 or 25? And so on. And the rules are made to reach this breakdown because when everyone is gold no one is.

Each time I reached a milestone in terms of number of trips and/or class of travel I often, when I was younger, had the frustration of not seeing the roads to Paradise open up. In all honesty I understood why: I just had to stop navel-gazing and look around: there were people ahead who deserved more than me. Lots of people.

Only diamonds are forever, not miles

A few years ago I had to live almost 3 or 4 nights a week in a hotel, which included a giant leap in both my airline loyalty program and that of a hotel chain.

On the airline side, I maintained my and even progressed. On the hotel side, however, I realized one day that my points balance had been reset to zero. Of course I gritted my teeth but I had to face the fact that I didn’t stay in their properties anymore since that time. Not only did I go to the hotel less, but I also preferred their competitors. So the ” loyal ” or ” contribution to the income ” side… When you break up a business relationship, you should not be surprised that you are gradually abandoned.

Okay, this explains the “degradation” in terms of status, not the reset of the balance. Again, this is logical and everyone thinks this way when they are on the other side of the fence.

Unused points or miles are a liability of the customer to the airline. So it’ s on its balance sheet and it ends up weighing a lot. Ok for those who continue to fly, who will use them one day, who are “active”. But how many people once joined a program, made two flights, and then never returned? These sleeping miles will never be used, the passenger doesn’t care about them or has even forgotten about them. However, they are accounted for.

Remember the switch to the euro. It was possible to change one’ s francs for several years and then nothing more. Why ? Because at some point you can’t have a sleeping, hidden money supply, which you may or may not know will reappear one day and distort the economy of the program in relation to the supply that you thought was actually in circulation. So one day they said “stop”. Your francs have no value and can no longer be exchanged.

It is the same principle that applies here: control of the money supply and debt (a banknote is a debt of the central bank to its holder).

In “real” life there are debts that can be forgiven after a certain time under certain conditions. Or things that can no longer be claimed. Well, it’s the same principle here except that we are on the other side of the wall. We appreciate less but if we were in charge of the program we would find it totally obvious.

And, honestly, can you call yourself a “frequent flyer” when you take a flight every two years?

A frequent flyer is not a frequent buyer

There is no loyalty program worthy of the name that is not backed by a co-branded credit card. I spend using the card, I earn miles. For a long time, spending with the Amex Air France card, for example, earned status miles.

Then nothing. These miles have become ” award ” only. This left me with a mixed feeling. Indeed it allowed me to easily stay gold every year so the end of the scheme left me with a bitter taste. On the other hand, the benefits of status have a cost for a company (lounges etc..) and their quality is degraded when there are too many people to serve. Then the status lost its exclusivity: everyone was gold (or almost), the lounges were crowded, the “priority” line was full of occasional travelers.

In short, it was possible to become “elite” without ever flying. Or very little. Hardly fair to the other passengers. A frequent flyer is not a frequent buyer and the end of the scheme was only logical even if I selfishly took a long time to accept it (which didn’t prevent me from keeping my status year after year).

Anyway, no other company offered this (you bet I looked it up…ready to “move”) so that meant it was nonsense. The mistake was not to stop but surely to start.

A better balance has since been found as the miles earned with the AF Amex Card when spending at Air France have been restored to status. Finally, we are doing better than on other programs.

You can’t spend and earn at the same time

Oh yes, there’s one thing I do have against airline loyalty programs: when I use my miles to buy a ticket, well, I don’t earn them when I travel. Logical too, but some hotel programs do allow it. Cost difference? Maybe.

So, inevitably, and as the Slate post rightly points out, if you use your miles you risk being downgraded in status. But contrary to what he suggests, it is not automatic. If I reach my “quota” of status miles on the side, I would keep it…on the other hand it is obvious that if I have not traveled enough by “paying” I risk being demoted. The solution? Use your miles only when you are sure to keep your status. And if you don’t care about your status then do as you please.

And contrary to what is written, also, it does not take 2 to 3 years to recover its status. They are calculated on a yearly basis so you may start the year with a lower status but will go up as you travel.

On the other hand, another interesting point is not mentioned: miles rollover. If you earn enough miles in one year to earn one status but not the next, the difference is retained and you start with a credit the following year. In any case, this is how it works at least on Flying Blue. If you earn, for example, 85,000 miles you fail at 5,000 of platinum status but start the next year with gold status and 25,000 rollover miles. Fort utile. This allows you to capitalize on the good years to ” dampen ” the bad ones.

There is no airport loyalty program

In fact a free ticket is never totally free. A company collects certain taxes when a ticket is issued, which it remits to the appropriate organizations.

VAT to the State, airport taxes to the airports. The first is based on the ticket price: 20% of 0 = 0. But the latter are flat rates depending, among other things, on the booking class. It is not a fragment of the flight price but a fee that the passenger pays to the airport through the airline.

In short, if I offer myself a Paris-Singapore flight, Aéroports de Paris and their Asian counterparts don’t care about my free flight because they have costs to cover. One passenger = 1 tax collected because I will use their infrastructure, their wifi, their toilets, pass the security checks that must be funded etc. Not ideal but I understand that the companies do not say “not only your ticket is free but I offer you something on the side”. It is also an opportunity to realize that on certain routes (and especially at low prices) the main part of the ticket price is not always the price of the flight.

Conclusion: you get what you pay for

You can’t go wrong with a loyalty program, airline or other. This is not charity but business. You are treated according to what you pay and not according to your ego or your dreams.

No, you will never get an upgrade if you travel twice a year in eco at a low fare.

Yes, going Platinum is not for everyone. At a guess, 6 or 7 long haul business flights per year. But it’s supposed to be an exclusive status, the most exclusive in the program. Between Ivory and Platinum there are intermediate statuses that will correspond to the habits and means of each.

In short, a loyalty program is not a tool for social promotion (giving the highest benefits to someone who would never be able to afford a full price business or economy) but rather rewarding those who do.

The problem is not the program (regardless of the airline) but the level of expectation of the passenger in relation to his habits and consumption capacities.

He who travels little will remain Ivory but one day will eventually manage to get an award ticket.

The one who travels a lot will go platinum and will be able to “afford” a few long haul flights each year.

And between the two extremes, everyone will find what suits them. The mistake is to believe that everyone should be entitled to everything and that a program is about handing out gifts.

George Clooney’s character in “Up In the Air” exists, that’s a fact. Less than 1% of passengers will ever be able to play in the same league, and in any case not by traveling in economy 3 times a year. Back to earth. Realism. Pragmatism.

The Slate article that gave me the idea to write this one asks some excellent questions that many passengers are asking. On the other hand, it seems to me that the answers are more of a mood post than a logical and rational explanation of the system that help to understand the “why” and to make its own.

Do you have to throw away your Air France card? With a few differences, all programs work in much the same way, and where one is more generous in one area, another will be more generous in another area. But they all have one thing in common, because that is the very principle of these programs: they reward customers based on their contribution. Period. If you want to have everything without giving anything, it’s not only your Air France loyalty card that you can throw away, it’s all your loyalty cards.

If you accept the proportionality between the contribution and the customer benefits, then continue. You will get what you deserve. Sometimes quickly, sometimes more slowly. A loyalty program is a business and is managed as such.

It’s been 10 years since I went Gold for the first time and I never thought I would stay Gold. In the end I never regressed I went Platinum. I came back down Gold. Then Platinum again Sometimes I “save” my status at the last minute at the end of the year, sometimes as early as June. It follows my life, my habits, my professional and personal travels. There are ups and downs and frankly, the years when there are downs and I travel less for one reason or another my Flying Blue status is the last thing I care about. It is a consequence, not a goal. After that I could take a “status hunter” approach and live with my mile calculator in hand…but then I wouldn’t be shocked if the companies were also playing the same game and prevent travellers from gaming the system. In any case it proves that it is possible to go up in status and to stay there…as long as I am aware that it is not an obligation and that if my life or my desires change, the Ivory status could be for tomorrow.

I never had to ask for missing miles to be adjusted (but I know it happens) and I never had a problem calculating exactly how many miles I was going to earn before I flew. I must be especially lucky.

In short, travel, enjoy yourself, it is already a lot compared to those who do not have this chance. And if you make the loyalty program a goal (airline or hotel) just try to align your expectations with your capabilities. It saves frustration. And don’t fool yourselves it’s “only” loyalty cards, there are more important things in life, right?

 

 

Bertrand Duperrin
Bertrand Duperrinhttp://www.duperrin.com
Compulsive traveler, present in the French #avgeek community since the late 2000s and passionate about (long) travel since his youth, Bertrand Duperrin co-founded Travel Guys with Olivier Delestre in March 2015.
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