Frequent Flier Programs Change Course

Mark Erickson is the kind of flier that airlines love. Every Monday, he leaves for New York or California for his job as a master chef for the Culinary Institute of America. He returns to Atlanta on Friday night and does it all again two days later.

The 48-year-old man from Marietta, Ga., is one of Delta Air Lines Inc.'s most prized customers - a super-elite frequent flier who travels 200,000 miles a year. He looks for perks such as first-class upgrades or being able to board first instead of getting free airplane tickets for his frequent business.

"At my stage, miles don't really mean a lot to me - the last thing I want to do is travel," he said. "For us, it's a bus ride, it's just a bus that has wings instead of wheels and it's a long one."

The first frequent flier program began in 1981 with American Airlines' AAdvantage as a way to keep profitable business travelers flying the same airline. Other major airlines like Delta quickly followed.

Twenty-five years later, travelers and industry experts say the programs have flown far off course from their original purpose. Yet it's doubtful the airlines will ever change from their present direction because the programs have turned into huge revenue producers on their own, a $4 billion industry that's even been listed by airlines as assets in bankruptcy and merger and acquisitions negotiations. Airlines have created a big business out of selling frequent flier miles to outside companies that in turn use miles to woo their own customers.

"In the 1990s, the programs probably changed from less of a loyalty program - that's what it was all about - more into a rewards program that now the masses of people that just don't fly 20 times a year have the ability to earn free tickets," said Jeff Robertson, managing director of Delta's SkyMiles program.

Frequent flier programs have grown - to the tune of nearly 430 million members worldwide, said Randy Petersen, editor of Inside Flyer magazine. More than 14.2 trillion frequent flier miles are still in circulation worldwide, for an average of 33,035 per program member - typically enough for one free domestic round-trip ticket in the United States.

"Every single frequent flier program in North America is profitable. It's the best thing that ever happened to airlines," he said. "There's no doubt that without those programs, maybe two or three airlines wouldn't be around today."

The proliferation of frequent flier program members have caused frequent travelers to complain the programs now are flooding the skies with travelers who may be flying for free without ever leaving the ground to earn a free ticket, such as earning miles through credit card purchases or eating at certain restaurants.

"I would go back to the earlier days, go back to rewarding for their core business but not the behavior on the side businesses. I think it's a big mistake," said Leon Schiffman, a professor of marketing for St. John's University in Queens, N.Y. "They're losing sight of the origin and why it was done - customer loyalty."

Frequent fliers say the perks aren't the same as in the past.

"What the airlines did was put so many seats in first class, when somebody puts their seat back you have the same problems you did in coach," said Todd Good, 46, who flies 200,000 miles each year for his real-estate auction business in Newport Beach, Calif. He uses his miles for emergencies, rather than pay for a full-price domestic ticket, or he donates them to charities.

But it now costs Good 50,000 frequent flier miles to get a domestic ticket anytime he wants, as opposed to the previous cost of 25,000 miles, a level now reserved for a limited number of "saver" seats.

"From a business standpoint, they're losing money and they have to do what they have to do to stay in business," said Good. "On the other hand, the miles I have from years ago that I'm trying to use today don't have the same weight."

Delta's Robertson said airlines haven't communicated well the value behind the evolution of the frequent flier program's airline partnerships, which allow the airlines to reward loyalty in different ways.

When American started its program, it looked to the S&H Green Stamps loyalty program as a blueprint. That program allowed grocery shoppers to collect green stamps for purchases that later could be traded in for prizes ranging from toasters to mopeds. (Today, that program's stamps have been replaced with bytes - S&H Greenpoints are now doled out via computer).

Ironically, today's frequent-flier programs look more like the S&H Green Stamps program than the original airlines' loyalty programs. Today, frequent flier miles can be cashed in for not only airplane tickets but other awards, including hotel and car rentals and even, in some cases, S&H-like prizes from electronics to home gadgets.

United, American and Delta each rake in an estimated $1 billion a year from the partnerships between airlines and credit cards, restaurants and other companies that pay cash to purchase frequent flier miles. The companies then give them to their customers, Robertson said.

"They have changed quite a bit, a transformation from 'frequent flier' to 'frequent buyer,'" Petersen said of the programs.

At the same time, airlines say they try to provide perks that their most frequent fliers want, such as upgrades, advance boarding and special lines through airport security. They also work to make sure all travelers are able to use their miles for free tickets.

"Ninety percent of the time somebody asks for a flight, they're able to get the flight they want. Eighty percent at the time they wanted," said American spokesman Billy Sanez of AAdvantage participants.

Back in Georgia, Erickson says he understands that the airlines must walk a tightrope between nourishing a profitable business opportunity and wanting to keep their best customers.

"The mileage program in the early stages was really about flying with someone frequently or choosing them first so you could accumulate mileage points," Erickson said. "Now with points you can get on credit cards and every conceivable way, it becomes a bank account to some degree. It's a place to aggregate additional value to your life."


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