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Hell hath no fury like an airline frequent flyer scorned.
When Delta Air Lines revamped its SkyMiles programme last year, prioritising dollars spent rather than miles flown when handing out upgrades, lounge access and other perks, users lit up social media with their ire. “Stinking odorous sack of scheisse,” was one particularly pungent comment.
American Airlines took its turn on the naughty step this spring. Plummeting sales forced it to reverse plans to make corporate travellers who wanted to earn AAdvantage miles book through its website or “preferred” travel agents.
Now US regulators are wading into the fray. The US Department of Transportation recently announced a probe of the big four American airline programmes. That comes on top of a scathing report from the Consumer Financial Protection Bureau, and complaints from US senators about “abusive, unfair, and sometimes deceptive practices”.
How did a marketing gimmick designed to build customer loyalty in the 1980s after US airline deregulation become such a cultural flashpoint?
These days, frequent flyer programmes are highly sophisticated businesses, more profitable in some ways than the airlines to which they are attached. Delta SkyMiles, the league leader, was worth nearly $27bn last year. The whole airline has a market capitalisation of just $29bn after crippling IT problems this summer. At the height of the Covid shutdowns, several airlines raised badly needed debt by putting up their loyalty programmes as collateral.
Although loose US rules on credit card transaction fees helped to foster an extensive loyalty system, this is not just a US issue. European airline group IAG makes more money from its loyalty programme than from British Airways.
Airlines sell miles to credit card issuers, who use them as rewards to lure affluent customers and convince them to spend more. Co-branding agreements, such as United’s deal with JPMorgan Chase, also include a share of the transaction and annual fees. Compared to ticket sales, it is easy revenue, unaffected by storms and other operational issues.
Loyalty schemes have also become more sophisticated about the way customers cash in their miles. Dynamic pricing steers most reward bookings to seats that would otherwise go unsold — maximising profits from point sales — while reserving the most attractive deals for the high-value customers airlines want to keep sweet.
“The programmes have become smarter and better run, and some people are bearing the brunt of that,” says Evert de Boer, managing director at consultancy On Point Loyalty.
Thus I never manage to book reward tickets to anywhere enticing, while my globetrotting attorney friend gets upgraded every time she flies.
Life has never been fair, but the Covid pandemic and its aftermath have put the system under extra strain. When travel was curtailed, customers continued to rack up miles on their credit cards. American Express and other issuers offered bonuses to encourage cardholders to put streaming, shipping and goods purchases on their cards. Meanwhile, relatively few miles were being redeemed, and airlines let customers roll over miles and retain perks.
After lockdowns eased, leisure travel rebounded first, flooding airports with the kinds of customers who make more extensive use of lounges and reward seats. Faced with a crush, the airlines prioritised buyers of expensive tickets and cut benefits they had promised to ordinary cardholders.
The cries of bait and switch reflect just how far these programmes have wormed their way into customer lives. “People get really invested and emotional. When things change . . . it can feel like an affront,” says Tiffany Funk, co-founder of Point.me, a travel reward website.
There is also a competition problem. Many passengers do not have the freedom to change loyalty programmes. An Atlantan has to take a lot of Delta flights if they want to fly nonstop. A Denverite is beholden to United. And credit card companies penalise customers who cancel their cards too soon or too often.
“Consumers suffer these harms and don’t have many alternatives because the airline industry has become so concentrated,” says Ganesh Sitaraman, law professor at Vanderbilt University. “That’s why the DoT and CFPB actions are so important.”
But smart executives would not wait for government intervention. Carefully tailored bonuses could do much to rebuild loyalty. Mileage programmes won’t be nearly as lucrative in the future if customers end up loathing the associated airlines.
Follow Brooke Masters with myFT and on Twitter
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