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The future for frequent flyer programs



 
 
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Old November 26th, 2007, 04:51 AM posted to rec.travel.air
Ablang
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Default The future for frequent flyer programs

The future for frequent flyer programs
AskEd & AnswerEd
by Ed Perkins - November 5, 2007

http://www.smartertravel.com/travel-...6&u=SL4F6B4DC5

Frequent flyer programs, frustrating enough as they are, can get even
worse, and the future of those programs seems to be worrying lots of
you. One recent email from a reader, for example, asked about one
specific development. "I see that United's CEO is considering selling
off Mileage Plus or perhaps making it a stand-alone subsidiary. My gut
reaction is to use up all my miles and to start with some other program
--another airline, a hotel, or cash-back. A change in ownership can
also mean a drastic change in the current program rules and benefits.
What would you suggest or advise?"

The short answers to this reader:
* An ownership change does not necessarily mean drastic revisions.
* Programs will nevertheless change--perhaps faster than in the
last few years.
* If you fly a lot, you'll still be better off with an airline
program than with any other; but if you earn most of your miles from a
credit card and other non-flying sources, by all means switch to a
cash or gasoline card program.

Clearly, there's no "one size fits all answer." But I think I can add
a bit of clarity to what is often a very confusing situation.
Loyalty or profit?

When frequent flyer programs first came along--and later the copycat
programs from hotels and other travel suppliers--the generic term for
them quickly became "loyalty" programs. The fundamental purpose was to
keep you flying on one line (or staying at one hotel chain), even when
a competitor maybe had a slightly better schedule, more convenient
location, or lower fare or rate. And that system worked pretty well
for the airlines. With load factors hovering around 60 percent, they
had plenty of extra seats to give out for award travel without
displacing paying customers, and everyone was happy.

Two developments upset the early equilibrium:

* Airlines found they could make more money selling miles to other
companies--especially banks that issue credit cards, but including just
about any kind of consumer marketer you can name--than by selling seats
at their lowest advertised fares. As a result, the inventory of miles
in the hands of travelers skyrocketed.
* During succeeding financial crunches--especially post-9/11--
airlines started to control capacity more aggressively, and load
factors grew to between 70 and 80 percent, meaning fewer seats to
"give" away.

The net result is that airlines (and Wall Street) now view their
frequent flyer programs more as profit centers rather than as loyalty
programs.
Sellout possibilities

Combine their ability to sell lots of miles and limit the number of
"free" seats awarded, frequent flyer programs have acquired a
significant value as freestanding independent operations. According to
some analysts, Mileage Plus, as a stand-alone entity, is worth more
than United Airlines itself. Air Canada sold off its Aeroplan program
a few years back, and several other lines--not just United--have been
reported as considering similar divestitures. Future sell-offs by cash-
hungry parent companies seem to be in the cards for quite a few lines.

Even if several programs are spun off, however, major changes will
come slowly. And probably no faster than changes in programs that
remain in the airlines' corporate portfolios. Chances are Air Canada
would have made the same changes regardless of who owns Aeroplan. I
have some significant worries about the future of frequent flyer
programs, but sell-offs aren't at the top of my list.

 




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