Who hasn't dreamt about having that moment from the movie "Up in the Air"? It's when George Clooney's character reaches the 10 million-mile mark, and the pilot hands him a special card, telling him, "We really appreciate your loyalty."
For the overwhelming majority of flyers, this will only be a dream. And given the way airline loyalty programs keep changing, it seems even fewer passengers will ever reach such heights.
Are you finding it much more difficult to obtain and keep elite status? If you have status, is it harder to get upgrades or award flights? Well, you're not alone.
Airline loyalty programs have evolved tremendously since they first debuted. American Airlines was the first to launch one in 1981. The frequent-flier program concept was simple: track the number of miles flown by each AAdvantage member as a measure of his/her revenue contribution, and loyalty. Rewards were straightforward: free tickets and upgrades.
Today, some programs, including American's, still operate, more or less, on that same principle. But that is quickly changing. Now, when you fly on Southwest Airlines, Delta Air Lines, or United Airlines, for example, it's not how many miles you fly that go toward earning rewards. It's how much you spend.
"It used to be so much easier to get status because it was really based on the number of miles you flew," explains George Hobica, founder and editor-in-chief of Airfarewatchdog.com, a consumer travel website. "Now, they give more miles or points for more expensive tickets, and the pricing is dynamic."
"When programs first started, they were for frequent fliers," says Brian Kelly, founder and CEO of The Points Guy, a popular website for frequent fliers. "Now, they're about frequent spenders."
Hey, Big Spender
This revenue-based style of loyalty program isn't an entirely new concept, however, says Tim Winship, an airline loyalty program expert and editor and publisher of FrequentFlier.com. "What United and Delta have done with the implementation of a revenue-based program is not new," he says. "JetBlue Airways, Southwest, and Virgin America all have had spend-based programs in place for several years now."
Hotels and travel rewards credit cards have long operated on revenue-based platforms. Many airlines are also seeing non-flying activity generating a large number of miles for their respective programs. "American announced this year that more than 50 percent of miles created were from non-flying activity, like credit card spend," says Kelly.
Today, airline loyalty programs are big business. United sold $5.1 billion in frequent flier miles in 2012; in comparison, it generated $25.8 billion in airfare revenue that same year.
Airlines make a lot of money selling miles or points to partnering credit card companies for co-branded credit cards. "Delta was bailed out of bankruptcy by its loyalty credit card partnership with American Express," says Kelly. Last year, nearly 53 percent of all U.S. credit-card holders had a card associated with a hotel, airline, or other type of merchant, up from 46.4 percent in 2010, according to a Simmons National Consumer Survey data survey that was compiled by Packaged Facts, a marketing firm.
Bottom line? These programs are here to stay. Kelly notes, "Airlines have a vested interest in making us consumers still want miles."
So, what's changed? "What's new is that two of the three largest U.S. programs have finally come around to adopting that model," Winship points out. Last year, Delta and United announced they would adopt dollar-based earning schedules and many industry experts believe that American will follow suit once it finalizes its merger with U.S. Airways.
Keeping elite status on airlines like United and Delta is also spend-based. "Delta and United are not only rewarding based on how much you spend, but also on elite status," explains Kelly. "You have to spend a certain amount, and jump through more hoops to retain elite status. It's about the big spenders."
If you ask airlines why they transitioned to revenue-based loyalty programs, they'll argue that this structure definitively rewards their best customers -- a must for any loyalty program.
"In the old program that we had, the flights were weighted the same so if you flew a short-haul flight you got the same amount of points as someone who flew on a long-haul flight," says Jonathan Clarkson, director of Rapid Rewards and partnership development for Southwest, explaining why Southwest decided to go spend-based with its Rapid Rewards program back in 2011. "Medium- and long-haul travelers weren't getting commensurate credit for those longer trips, so by recognizing the cost of the ticket in terms of the earn calculation, we felt that made more sense, especially for those who are traveling frequently."
Praveen Sharma, vice president of loyalty for United, noted similar reasons for its program changes. "The basic premise was making sure we acknowledge and reward our best customers," he says. "We saw a situation where people were traveling similar distances but giving different revenues, and earning the same amount of miles. If someone's paying $1,000 for her ticket versus someone who is paying less, she should be getting more miles. It's moved from frequency to value so that we can differentiate and provide great service and exclusivity to the right members."
What's making it easier for airlines to know exactly who their best customers are? You can thank technology. "Airlines can track what people are actually spending now," explains Winship. "So they can portion out rewards accordingly, rather than rely on the old mileage-based model, which was never a very accurate reflection of how profitable a customer was."
Not-So-Friendly Skies?
Not all travelers are happy with the changes. "It's been disconcerting, to say the least, for some fliers who've become acclimated over 35 years, over the course of the history of these programs," says Winship.
"Disconcerting" is one way to put it. If you simply Google terms for "frequent flyer program" or "airlines," you're bound to find many sources denouncing the recent changes.
Jeffrey Pfeffer, a professor of organizational behavior at the graduate school of business at Stanford University, wrote an opinion piece for Fortune in October titled, "How Airline Loyalty Programs Seduce and Abandon You." His advice? Don't give into any of the airline loyalty programs. He told Incentive, "Airlines are walking a fine line between trying to do something to reward passengers and to do that without wasting any money. The second priority seems to have taken precedence over the first." He adds, "Airlines don't reward your loyalty to them, so you shouldn't be loyal to them."
"The effect this change is having, from a consumer standpoint -- and this is intentional on the airlines' part -- is that the programs increasingly disproportionately reward those customers who are the most profitable, at the expense of the infrequent leisure travelers whose revenue contributions are significantly less," explains Winship.
When asked about the feedback United has received since it changed its program, Sharma said, "I wouldn't say we got a big backlash. I'm not saying everyone was happy. There are some groups who are happy and some who aren't. I personally do not think, based on the feedback I've seen, that it's been negative. Any change to our loyalty program we take very seriously. It's a cornerstone of our business strategy, and we are very conscious of the loyalty aspect of our loyalty program."
When you consider rising airfares, standard checked bag fees, fewer onboard perks, and fewer airlines to choose from, it's no wonder many consumers feel frustrated about air travel in general. "Sometimes, it's such a hassle now to fly, or to use miles or points, that not only are people not being loyal to one airline anymore, but they're not being loyal to air travel," says Hobica.
In this year's Freddie Awards, an annual event recognizing the best travel loyalty programs, American Airlines AAdvatange was named Program of the Year and Best Elite Program in the Americas. Southwest Airlines Rapid Rewards won Best Customer Service and Best Redemption Ability, as well as Best Loyalty Credit Card in the Americas. Notably, Delta and United -- the two carriers that changed their programs -- were not included.
Airlines are businesses, and they need revenue to stay in the air. It makes sense for them to reward their most frequent and highest-spending fliers. But are they doing so at a cost? Are they generating more disloyalty among the general traveling public? If so, should they care? If they do, what can they do to build and keep loyalty, without sacrificing profits?
Loyalty, From the Ground Up
Even as airline consolidation rises -- and competition shrinks -- airlines can't afford to devalue their loyalty programs. "For any business, whether it's an airline or a retailer, the notion of loyalty is making sure a customer comes back to you for a service or product you provide, versus going to the competition," says Marc Allsop, senior vice president and head of global business development for Aimia, which operates the Aeroplan coalition loyalty program. "If you try to financially engineer the program to be more cost effective, you risk devaluing it so much it becomes worthless."
So, how do you go about creating a loyalty program that keeps profits high and keeps customers happy? If you ask the experts, here's what they recommend.
1. Get it right from the beginning. When loyalty programs change, it can be difficult for customers to accept. "Getting a loyalty program right from the beginning is crucial," says Winship. "It entails making that connection between loyalty and profitability, and rewarding your best customers. But you don't want to get into a situation where you've created certain expectations among a large segment of your customer base and then have to change the model, and potentially disaffect a large group of your customers because you've pulled the rug out from under them."
This is a major reason why many Delta and United customers have been unhappy with the recent changes. "One day they were able to get a lot out of your program, and the next day not," he says. "There are a lot of pissed-off Delta and United customers out there because of that. Even people who understand the rationale for the change still aren't happy."
2. Keep it simple. There's nothing worse than having a loyalty program that's too complicated for its own good. But for many consumers, airline loyalty programs are confusing and hard to understand. "I don't think the airlines are intentionally making the rules confounding in order to obfuscate what you actually have to do, but the programs are pretty complicated," says Winship. "I think it's more a reflection of the fact that the programs these days are enormous, and there are hundreds of partner companies involved." Consumers, he says, have to "devote a significant investment in time and energy" just to keep up with the current promotions and requirements.
At its core, every loyalty program must be simple, says Peter W. Hart, CEO and director of the board of Monteal-based Rideau Recognition Solutions, an incentive company. "From my point of view as a traveler, you need to have clearly defined levels; you need to know what you need to do to attain those levels."
Airfarewatchdog's Hobica wishes more airline loyalty programs would ditch minimum spend requirements and dynamic pricing. "I don't know if it's a race to the bottom, but it seems that way," he says.
3. Be transparent and earn your customers' trust. Transparency is an absolute must, and airlines should be clear about the program rules, and what it takes to earn rewards. "I think the airlines have done a bad job at setting expectations," says Kelly. "One week they're advertising 25,000-mile award tickets, but the next week they've made it 50,000 miles. They're constantly moving the goal post." Delta, in particular, has been scrutinized for removing all award charts from its website. "They won't even tell you how many miles to expect to spend for a particular route. To me, that's really consumer un-friendly."
Aimia's Allsop also says airlines need to earn customers' trust when it comes to protecting their personal data. "When you're dealing with customer data, you must think about four key principles -- transparency, added value, control, and trust."
4. Communicate often -- and clearly. Yes, programs can change at any time (it's written in the disclaimer), but airlines need to give their customers fair notice about those changes. "I'd like to see airlines have a longer public announcement period of at least three months to redeem at a certain level, for instance," says Kelly. He recalls talking to fliers who were saving for years to redeem a certain award flight, only to find that the airline took those awards away overnight, without warning. "It's just not fair. It's OK to change the rules, but it needs to be done in a way that's fair to consumers."
5. Make it easier to earn miles or points without booking a ticket. While co-branded airline credit cards allow travelers to earn miles or points with their everyday purchases, in addition to their flights, there are other loyalty platforms that magnify that earning ability tenfold. The coalition loyalty models used by Aeroplan in Canada and PINS in Europe, for example, act like "shopper-flier" programs whereby customers can easily earn points or miles by shopping at partner retail brands that are part of a coalition.
Air Canada's Aeroplan frequent-flier program was so successful that the airline spun it off in 2002, eventually forming Montreal-based marketing and loyalty analytics company Aimia. Today, it has approximately 5 million members and nearly 75 retail, online, and financial services partners. Since Aeroplan's launch, Allsop says, 822 billion miles have been redeemed for more than 21 million seats to 1,300 destinations worldwide on Air Canada and its Star Alliance partners. "There's greater stickiness with the consumer," says Allsop. "It's more than a single loyalty partnership where you earn and burn with just one brand."
PINS, says Gabi Kool, CEO and co-owner of Coalition Rewards, rewards infrequent travelers and frequent shoppers. Coalition Rewards launched spend-based PINS for Air Baltic in 2011 in Finland to "take the best of the frequent-flier world and coalition rewards world, and merge it into one scheme." The model uses a neutral currency, PINS, and works with more than 700 brands. Kool says only 5 percent of all points issued come from Air Baltic; the rest comes from partner brands.
6. Make it easier to redeem for awards. This is the crux of many travelers' frustrations with the recent changes at Delta and United. In many instances, using miles to redeem awards has become much more restrictive than before.
It may also explain why Southwest Airlines has been a Freddie Awards winner since 2013. "It really comes down to flexibility," says Southwest's Clarkson. "When you think about treating people well, the biggest concern that customers relate to us with loyalty programs is that they get frustrated if they can't use their points readily." At Southwest, there are no blackout dates or expiration dates for Rapid Rewards points. "Every seat available for purchase is also available for an award ticket, even if it's the last seat on a high-demand day."
7. Offer more types of rewards and perks. Sometimes, it's the little things that count. "Perhaps there are other perks they could offer like free drinks or lounge passes," says Hobica. "It doesn't cost much, but it shows the airlines value your patronage."
8. Get in the game. Gamification is another cost-effective way for airlines to engage with fliers. Says Kool, "We're creating campaigns to reward people for giving their opinions, being social media ambassadors, and checking into places. It creates more of an emotional bond or link to gamification." PINS partnered with a health app to give points for every 100 calories burned, for example. "If airlines can capitalize on these big trends and incorporate them into their frequent-flier programs, they can take them to the next level."
9. Don't make them wait. "People expect to get something sizable in about six to nine months," say Kool. "If they can't get something in that time, they get disengaged with the loyalty scheme."
10. Personalize the customer experience. It's time airlines use all this data to improve the customer experience, and build loyalty in the process. Allsop says British Airways recently began digitizing its in-flight customer data so that the cabin purser has all of the fliers' information on an iPad, and can engage with passengers in a more customized, personalized way. "It's like going to your favorite hotel chain and they already know what kind of pillows you like to sleep on," says Allsop. "Customers aren't stupid. With all of those changes the airlines in the U.S. have made, they know they are losing value in certain buckets. So airlines need to create value elsewhere, like in the experience, by trying to surprise and delight their customers."
Is It All Worth It?
Is it still worth it to be a member of an airline loyalty program? Yes. It's free to sign up and you might as well earn miles or points if you are going to fly. But are those programs worth as much as they used to be? That's up for debate. "Not all miles are created equal," says Kelly. "But remember, loyalty goes both ways. If the program isn't working for your needs, you should re-evaluate it." He recommends getting a loyalty credit card that partners with multiple airlines and other loyalty programs. "Don't overexpose yourself to one currency. Would you put your entire retirement in one single stock? It's the same concept with frequent-flier miles."
FrequentFlier.com's Winship says consumers should take a look at what value they hope to get from these programs, and to, in most cases, prioritize cost, schedule, and convenience above brand loyalty to a specific airline.
Regardless of how much these programs evolve, the magic of them -- the incentive that motivates us most -- remains the same.
"Historically, airline programs are incredible," says Kelly. "They allow people to achieve things they wouldn't normally be able to achieve. Everyone can win. It's about giving an achievable goal that moves the needle in someone's life. Consumers are pretty smart, and they want to be in programs that are loyal to them, and allow them to improve their lives."