Airline loyalty: The numbers game

Change is in the air. In the past couple of years, several airlines have instigated major overhauls of their frequent flyer programmes (FFPs), with a clear trend emerging towards a revenue-based model in preference to the traditional miles-based formula. Essentially, this means carriers are starting to give greater rewards to those who spend more cash, as opposed to the original format that favoured those who racked up the longest distances or travelled the most frequently. Or, to put it another way, airlines are starting to change the definition of what a “loyal” customer is – much to the ire of many frequent flyers. “Something that has started to irk me is that my historic loyalty isn’t recognised. In some cases it’s exactly the opposite and I’m treated like a leper for daring to drop a tier level!” said one Business Traveller Forum user. The effects of the revenue-based FFPs have perhaps been felt most in the North American market, with all “Big Three” US carriers adopting the new rewards model. Take United’s Mileage Plus, for instance: Table 1 shows a rough calculation of the miles economy passengers will earn for a flight between San Francisco and Hong Kong under the airline’s revamped system, compared to the old miles-based structure, which clearly produced a higher return. This has led to the term “devaluation” being used online by angry frequent flyers, with many complaining that the new changes heavily favour big spenders ahead of loyal customers. This complaint is not unfounded: as Table 2 reveals, passengers in Global First (first class) are now earning substantially more miles than they did before. But while economy passengers are losing out, there is clear logic involved. After all, an individual who forks out US$47,250 to fly long haul three times a year with United in Global First is more valuable to the airline than someone who spends just US$15,000 flying the same route up to ten times a year on economy. Under the previous earning scheme the economy traveller would have earned around 100,000 points – enough to attain Premier 1K status. The first class-paying passenger, meanwhile, although spending almost three times as much, would have only gained about 30,000 points – leaving him/her stuck at Premier Silver. So, if you are paying a much heftier sum than your fellow traveller, why shouldn’t you expect to be rewarded accordingly? Cathay Pacific is the latest carrier to jump on the bandwagon; changes to the Marco Polo Club came into effect last month that also now remunerate its top-spending flyers ahead of those who might fly more regularly in coach. Silver tier was once attainable to anyone who had accumulated 30,000 miles or flown 20 sectors with either Cathay Pacific or its fellow Oneworld and airline partners. This meant that an economy passenger who flew between Hong Kong and Taiwan ten times a year (for as low as HK$1,500/US$192 per return fare) could easily achieve the premium status. Many did so, and the airline received increasing complaints from disgruntled high-tier members who found themselves faced with overcrowded lounges and unable to redeem upgrades. Now, a minimum of 300 points is required for Silver tier. With very short-haul flights being awarded a maximum of 10 points in economy, travellers will have to purchase 15 round-trip Hong Kong–Taiwan tickets in order to qualify for Silver status – 50 per cent more than they did before. According to Cathay Pacific this is a much better reflection of rewarding its customers based on their contribution. “New cabin products and additional routes, in particular ultra-long and ultra-short ones, meant that the way members were earning status no longer accurately reflected their contribution to the airline,” said a Cathay Pacific spokesperson. “Under the new points-based system, customers will be able to earn faster in premium classes, and with more eligible fare classes on Cathay Pacific and Dragonair than before. This is a more balanced approach towards rewarding members across all club tiers.” Laws of supply and demand More than anything, the impetus for change has arisen from the fact that the travel industry has undergone dramatic change. In the early days, ascension through the ranks of an FFP was indeed a reward biased towards the minority of travellers who racked up miles and flight sectors. But today, global travel has exploded, with far more people flying frequently and for longer distances. The reality is that seats on flights are not as readily available as they once were. Average industry load factors are approaching north of 80 per cent today – significantly higher than in the 1980s, when loads were hovering around the 60 per cent mark. With the dramatic popularisation of air travel have also come cheaper fares, dwindling numbers of seats (and therefore less reward seats available) and increasingly full airport lounges, leading many airlines to the realisation that the “miles-based” system is outdated and no longer an accurate reflection of the reward-to-contribution ratio. The shift toward revenue-based programmes gives carriers better control over their numbers of tiered members, and in turn, the rate in which benefits such as lounge access and extra luggage allowances are disseminated. Early adopters  While revenue-based systems have recently been gaining in popularity, the concept itself is not new. Prior to the launch of its popular Krisflyer programme in 1999, Singapore Airlines (SIA) launched the exclusive Priority Passenger Service (PPS) Club and its higher Solitaire tier for business and first class passengers. Both of these were set up with spend requirements to gain entry, and the bar was raised even higher in 2007, with the current thresholds set at minimum spends of S$25,000 (US$18,266) annually and S$250,000 (US$182,660) over five years respectively. According to Nicholas Ionides, SIA’s vice president of public affairs, the development of these programmes boiled down to the realisation that high-spending customers should be rewarded, in order to boost loyalty and encourage repeat sales. “We had recognised early on that frequent travellers in premium cabins deserve to be recognised and rewarded,” said Ionides. “Members of the PPS Club are accorded a higher level of preferential treatment, special attention and personalised service. We are able to provide them with the attention and benefits that are commensurate with their travel patterns, leading to increased customer satisfaction.” Working the system  Of course, whatever the model, shortcuts and workarounds still do exist. Just ask Ben Schlappig, well known for his online travel blog One Mile at a Time, and a hero to those seeking savvy ways to maximise FFP benefits. Using tricks of the trade, Schlappig manages to squeeze every last drop out of FFP benefits – a practice referred to as “The Hobby”. Speaking to the South China Morning Post last year, the full-time travel blogger commented on whether the switch to revenue-based reward systems would end his globe-hopping lifestyle. “I’ve been doing this for ten years, and there’s not a single year where I didn’t hear at one point or another, ‘This is coming to an end’. But every year, we find new opportunities,” he said. So what are the secrets to look out for under the more cash-heavy reward schemes? As we know, there are two essential components to every loyalty programme: frequent flyer points, which can be used to redeem travel awards such as free flights or upgrades, and tier status, which gives travellers access to perks such as priority baggage, complimentary upgrades and lounge access. Frequent flyer points are easier to attain. In fact, you can fairly easily amass over 100,000 air miles without setting foot on a plane! Methods include using credit cards linked to FFPs – such as the new Standard Chartered Asia Miles co-branded credit card, which offers an attractive sign-up and card-spend deal that awards 17,000 miles after a HK$7,000 (US$902) spend. Other ways include transferring hotel points into airline miles – for example, Starwood Preferred Guest members can transfer 2,500 Starpoints to American Airlines’ AAdvantage programme at an attractive 1:1 ratio. Then there is always the option to “buy” miles directly from the airlines themselves when a “bonus mile” promotion comes along. Climbing through the tiers of an airline’s loyalty programme is another story entirely, as this is based solely on air travel, but there are still ways and means. For those who already enjoy tiered status with a frequent flyer programme, “status matching” is a little-known option that could see these privileges replicated to another scheme. As a general rule, Air New Zealand, Cathay Pacific and China Airlines are pretty generous with status matching, and provide easy access to elite status with Star Alliance, Oneworld and Skyteam respectively. Another tip is making “mileage runs” – trips taken for the sole purpose of earning a particularly good offering of miles for usually cheap fares. While the introduction of revenue-based programmes has somewhat diminished the effectiveness of mileage runs, it’s still worth keeping an eye out for deals, and crunching the numbers. Of course, don’t forget that there are still plenty of carriers following the traditional mileage-based system that are linked to revenue-based FFP carriers via airline alliances. American Airlines (Oneworld), Delta Air Lines (Skyteam) and United (Star Alliance) may see cash as king, but Royal Jordanian, Air France and Asiana – which belong to the same airline alliances respectively – do not. So, while premium travellers may feel vindicated that the balance is finally being redressed in their favour, those on a budget need not fret – there are still plenty of choices available to those who know how to play the game.