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AIRLINE BEAT

Singing the frequent-flyer blues

November 15, 2009

Michael FabeyThe folks who run frequent-flyer and other loyalty programs for airlines have their jobs cut out for them these days.

Trying to get people to stick with one airline is proving to be tricky during a recession, a time when price is paramount and when getting people to fly at all is a task in itself.

Frequent-flyer program managers say that despite all the new redemption options being thrown at customers, the No. 1 choice for most passengers continues to be the free seat.

But free seats are only valuable if there is a demand for travel. The trick for airlines now is to figure out how to maintain the attractiveness of their frequent-flyer programs at a time when demand for air travel is down.

"People are traveling less and earning fewer miles," laments Andrew Swaffield, managing director of the Mileage Co., which handles British Airways' frequent-flyer program.

Fewer miles mean fewer opportunities to redeem points, which translates to diminishing returns for customers, which means less incentive to remain in a frequent-flyer program.

Paradoxically, the drop in traffic is also having another impact that stands to play heavily into the equation: Less demand is causing carriers to cut back on capacity, which means fewer available seats for redemption.

"We have to make sure we have a number of seats we need for redemption," said Ryan Green, Southwest's director of customer loyalty.

For now, though, the airline loyalty program managers have enough problems just trying to retain -- and, if possible, even grow -- their frequent-flyer base.

Many carriers are making it easier for passengers to qualify for elite levels of frequent-flyer programs, offering promotions that include lower mileage or trip counts to become members.

The airlines are also working harder with their co-branded credit card partners to get frequent-flyer club cardholders to use those cards for everyday purchases and earn miles that way.

Sure, they acknowledge, everyone is cutting down on the number of credit cards they own or use. But, they ask, why can't passengers make a frequent-flyer co-branded card the one card they have in their wallets?

"People are consolidating cards, and we're getting very aggressive with our promotions," Southwest's Green said. Southwest co-brands with Chase.

"We want them to pay bills with their cards," he said. "They can set up automatic billing for electricity bills. It's a function of consumers and a function of banks."

Anthony Glover, general manager of partnerships for Chase Card Services, said, "Most people are consolidating their spending, and here they can get more value. Groceries, pharmacy, gasoline, they can all lead to a lot of value. We're not asking them to spend any more money."

There are some indications that the airlines' efforts to keep their frequent-flyer programs aloft are working.

Frequent-flyer membership has grown about 27% since 2006, according to estimates from the InsideFlyer website, to a base of some 230 million members worldwide. And despite the focus on pricing, passengers are still searching for flights with frequent-flyer considerations in mind.

"We're finding that 75% or more of passengers don't fly the lowest price in the market; they're paying $50 to $100 more than the lowest price," said Brian Clark, senior vice president and general manager of the flight search site company Fly.com.

What passengers are doing, he said, is finding the lowest price and then seeing what's available in the price range above the cheapest fares. They're looking for things like schedule, seat availability and airline, so they can take advantage of frequent-flyer programs.

Banks certainly see frequent-flyer growth as a worthy investment. Citi paid American $1 billion earlier this year for AAdvantage advance frequent-flyer miles.

Let's just assume, then, that the promotions work and more passengers start racking up more miles.

It may happen later rather than sooner, but at some point passengers will want to redeem those miles, and those who manage frequent-flyer programs at BA, Southwest and other airlines know those passengers will want seats.

The question is: Will they get them?

Capacity cuts have started to catch up with the decrease in passenger demand, and over the past several months, airlines have started to report historically high load factors. Their planes are filling up, and analysts say it could be a while before carriers start putting some of that capacity back.

Indeed, carrier executives say they hope to maintain their "capacity discipline" even after the economy turns around and people start flying more again, so they can raise fares.

That could prove problematic for frequent-flyer program managers who find they don't have the seats their customers want.

"The payoff for a co-branded card is free travel," Ryan said. "If you don't offer a lot of seats, the card's not valuable."

I don't envy him his job.

Email Michael Fabey at mfabey@travelweekly.com.

From 1 to 5 of 9 Comment(s)

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#9December 02, 2009
I agree with the comments re: USAirways. Their whole program is a JOKE!
#8November 24, 2009
I guess I'm in the minority. I like my frequent flyer program on AA. I get seats when I want and to where I want. I've never had a problem when I booked well in advance. As far as I'm concerned, two free RT tickets to Europe a year are a great value for the $75 cost of the card.
#7November 18, 2009
Why pay for a credit card to get miles when you can get a cash back card and buy the ticket you want on any airline that is cheapest.
#6November 18, 2009
When you have to pay to use the points and pay agian for any changes, it is not cost effective to have them. The carrier isn't loyal to the customer,rather they view them as a revenue sourse for something that started out free. US Air has screwed up there program, and made it very hard to use the points.
#5November 17, 2009
Miles and status are worthless when no seats or upgrades are available. Today, why should flyers be loyal? In the past, if you called 331 days in advance you could get a free international ticket, but not anymore. I tried to book a Delta flight to Ecuador on the 331st day and for a month after, but Delta never released the seats. I had to book less direct flights because I feared even these would be gone if I waited for Delta. That's no way to treat a frequent flyer & credit cardholder! Here's a rule airlines could change to actually benefit frequent flyers-make it cheaper & easier to use miles for upgrades. Every time I've tried, the upgradeable fare is the same cost as a business class ticket, so why bother? And it's a nightmare trying to figure out which fares are upgradeable. Airlines should remember--loyalty is as loyalty does.
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