Jenny Southan investigates the pros and cons of earning air miles on the basis of what you pay, not how far you fly
Is there anything more satisfying than earning enough air miles to get a free first class flight?
For many years, even the average holidaymaker or business traveller on a budget could rack up the miles from frequent or long-distance trips to reward themselves with a dream experience that would otherwise be unattainable.
However, as US legacy carriers follow the lead of low-cost counterparts such as Southwest Airlines and Jetblue, whose “revenue-based” schemes award miles according to dollars spent as opposed to distance flown, many flyers are concerned that they will no longer be able to achieve the status and perks they have become accustomed to.
For a few hobbyists, it also heralds the possible end of “mileage runs”, whereby someone will take a cheap flight simply for the sake of generating extra miles to achieve a certain status level.
According to a poll of 532 readers on businesstraveller.com, 73 per cent are against revenue-based programmes. Moreflyingtalk.com forum poster timnicebutdim says: “[They are a] terrible idea. Puts an instant publicly available price tag on the value of a customer and will dishearten a lot of the ‘normal’ world who fly economy class only or stay in budget hotels.”
As with most capitalist economic models, it could be argued that this is one that enables the rich to get richer, handing out freebies to those who can afford to pay for them in the first place. Then again, this is the business of loyalty, not charity.
As Brian Kelly, founder of thepointsguy.com – a website dedicated to helping you get the most out of your travel points – says, the airlines “are not there to give everything away for free”.
Frequentflier.com founder Tim Winship says: “Loyalty schemes were always intended to reward customers for their revenue contribution to the company, but initially it was easier to use miles as a proxy for revenue.
“For those [airlines] that have started more recently, at the back end, the computer systems are more robust. They have better access to the actual dollar amounts spent by members so they have been able to reimagine and redesign the programmes on the basis of a member’s revenue contribution.”
SPENDING THE NIGHT
Hotels have been implementing a spend-based approach to recognition for some time. Hilton HHonors offers members ten base points and five bonus points per US dollar spent on their room, while IHG Rewards Club and Marriott Rewards provide five or ten points per US dollar spent (depending on hotel category), instead of just rewarding the number of nights stayed.
To earn a free night at a Hilton Worldwide property, of which there are ten categories, you’d need 70,000-95,000 points for a five-star hotel such as the London Hilton on Park Lane, the equivalent to at least US$4,667 spent on stays at the likes of Conrad and Waldorf Astoria properties.
To earn a free stay at a Marriott top-level (nine) hotel, you’d need 45,000 points, the equivalent to US$4,500 spent on stays at brands such as Renaissance and Courtyard.
PURCHASING POWER
At the beginning of the year, Delta Air Lines revealed changes to its Skymiles scheme, becoming, as a press release on news.delta.com reads, the “first US global carrier to transition its frequent flyer programme to one based on ticket price from January 2015”.
Travellers will earn between five and 11 miles per dollar spent based on their Skymiles status, as well as up to two miles per dollar on Delta Skymiles credit cards. The Delta statement says: “The updated mileage-earning plan will better recognise frequent business travellers and those less frequent leisure customers who purchase premium fares. The move is consistent with a trend in the travel industry of rewarding customer behaviour based on price.”
Compare this with the earning structure of British Airways’ Executive Club, which awards passengers with one Avios (the unit of currency it uses) for every mile flown, with a minimum of 500 Avios per flight.
You also earn tier points (these depend on the route, class of travel, ticket type and whether or not you are using a BA codeshare partner airline), and the higher your status, the more bonus Avios you get (25 per cent of miles flown for bronze, 100 per cent for silver and gold). However, there is a revenue component in the fact that you also get a “cabin bonus” according to whether you are flying premium economy, business or first class.
Kelly at thepointsguy.com says he is “cautiously optimistic”, adding Delta’s new redemption chart “could have been a whole lot worse”. In many cases, the cost of award travel will go down for Level 3 (formerly Standard) and Level 5 (formerly Peak) tickets, meaning if you want to book a premium award flight in Business Elite, First or Business from the US to Europe, it will cost 195,000 points as opposed to 200,000.
However, to generate 195,000 points, even as a Diamond Medallion member, you would have to spend US$15,000 if you bought flights with a Delta Skymiles credit card (13 points per mile), or US$17,728 without (11 points per mile). That said, if you think it is easier going the distance, bear in mind that 200,000 miles is the equivalent to circumnavigating the globe eight times.
As Delta merged with Northwest Airlines in 2008, United joined forces with Continental in 2010, and AA joined with US Airways at the end of last year – making it the biggest airline in the world – these three surviving giants are the ones to watch. Delta now has more than 90 million Skymiles members, while AAdvantage has 71 million and United Mileage Plus 52 million. In contrast, BA Executive Club has only seven million.
Following Delta’s Skymiles overhaul, United has also said it will introduce spend-based changes to its Mileage Plus Premier status requirements, from next March (US-based members only, see below), as well as a new award miles system for all members based on price rather than distance flown, starting from five miles per US dollar.
MONEY VERSUS MILES
Winship says such announcements point to a “herd mentality” among carriers, and that it is “a pretty fair expectation that American Airlines will do the same” by rolling out a new revenue-based loyalty scheme in the near future.
What does UK-based Virgin Atlantic think? Alan Lias, head of loyalty and ancillary revenue development for the airline’s Flying Club, says: “If we were all starting again, I think we would go for points based on price, but our mileage scheme does reflect to some extent the value of the ticket. You get more miles if you are a higher-value customer and more if you are flying on a higher-revenue ticket, but it is not as clear [as a pure spend-based programme].”
He adds: “If someone like BA or AA goes to points, then we might all start heading to points. But points tend to suit airlines that fly with one cabin. If an Upper Class seat costs £6,000, that is pretty hard to earn in points [that have a dollar value]. I think miles will stay dominant for many years to come for the legacy carriers.”
So why did Delta introduce a revenue-based scheme? A spokesman says: “Distance flown is no longer the sole way to determine how frequently a customer is travelling with you, who is the best or most valuable. The move to a revenue component was to ensure that our most loyal customers received the best benefits and the most exclusive experience.”
He adds: “One of the things you need to account for in an FFP [frequent flyer programme] is the dollar value that a customer pays. If you look at the US transcontinental route from New York JFK to Los Angeles, you get about 2,500 miles. You may get one customer who buys this ticket for US$300 and will get 2,500 miles, compared with somebody who purchases a fully-flat bed, front-of-cabin experience in Business Elite for US$2,000.
“If you look at the difference in who is the most valuable customer, it doesn’t make sense for the customer who purchases the US$2,000 ticket to earn the same amount of recognition as the one who spent US$300.”
Of course, it’s not as simple as that, as anyone booking Business Elite on Delta would have also earned bonus miles or sectors for Medallion status qualification. As Virgin’s Lias notes, airlines do reward the cabin class booked – so the Skymiles member who spent US$2,000 in first or business would also have got a 50 per cent bonus (1,250 miles). But the point is, the airline wants to measure who really is an asset financially – and on the face of it, you’d expect that to mean their highest-spending flyers.
Randy Peterson, founder of flyertalk.com, points out that many miles-rich members haven’t earned their miles through jet-setting: “The guy with the most miles in the world has about 120 million miles but he’s not even that much of a frequent flyer. He gains most of his miles from credit cards.”
THE FINER POINTS
Delta’s spokesman says it will continue to let members collect miles through affiliated credit card deals. It makes sense, as earning points for credit card use is another way of acknowledging loyalty by rewarding spend.
Winship says: “What these revenue programmes give the airlines is a much more transparent model – they know exactly what the relationship is at any given time between what a member of their programme is earning and what they are able to redeem for.”
For a portion of business travellers (almost 30 per cent of our readers, according to our online poll), revenue-based schemes will be preferable – typically because they spend lots of money or travel frequently.
For example, businesstraveller.com forum poster peter19 writes: “A few years back, before BA lowered and introduced new tiers, I was doing a lot of UK domestic flights which earn basically no tier points and, therefore, not much status. If I had worked out how much I had spent monetary-wise on all the sectors – it was near 30 or 40 [sectors] – it would have been significant.”
Redeeming your points can also work out well. Peterson says: “In a revenue-based programme such as Southwest Airlines’ Rapid Rewards, where you are redeeming against real-price tickets, you never see a reward chart because it’s all based on the going rate of airfares on that particular day.”
So if the economy has taken a dive and airfares have gone down, for anyone looking to redeem a lot of points they have saved up, “the points you earned on higher fares are gained against lower fares,” he explains.
See below for what you could earn…
