Revenue-based frequent flyer programs have always been less generous. These programs were long popular with ultra low cost carriers, with low margins, where awarding customers little made sense.
For full service carriers it’s not about ‘making sure airlines reward the right customers’. Overall revenue-based mileage earning has meant less total mileage earning. And switching to that model has frequently been accompanied by devaluing the miles on the redemption side, so that the supposed best customers earning more points are receiving points worth less.
Only 23% of airline frequent flyer programs worldwide have gone even semi-revenue based for earning miles. It seems like it must be more because it’s the standard in the U.S. (other than Alaska Airlines).
Punishing cheap fares makes no sense when there are only cheap fares, and that’s what airlines are pushing to fight for their share of limited passengers. American Airlines realized this in offering elite status recognition for basic economy passengers.
When planes were full, rewarding customers less made some sense. Airlines didn’t need to spend as much marketing to fill empty seats when there weren’t many empty seats. The problem now is that revenue-based programs reward customers less in a low fare environment precisely when:
- Airlines need to be rewarding customers more, spending more on marketing to fill all their newfound excess capacity
- It’s cheaper to provide redemptions, with more unsold seats than ever, a condition that will only become more acute as international travel comes back online.
To be sure, revenue-based programs on the earn side can run promotions ‘double spend points’ or the like. But as Ravindra Bhagwanani notes, “to make them meaningful, you often need to go to extremes such as Lufthansa offering up to quintuple miles in its Miles & More program – raising though some doubts among customers how valuable the core proposition really is.” If quintuple points are needed, how bad must the program’s earning be when that promotion ends?
And revenue-based redemptions are risky when business turns south, as Bhagwanani further explains,
As soon as some news emerges questioning the future of an airline – see Virgin Australia or Thai Airways – a run on the bank starts since customers want, obviously, to redeem their hard-earned points before it is too late. With a traditional redemption approach, you can contain such behaviour to certain degree through controlling the inventory offered for redemption.
We’re not going to see airlines that made the switch go back, but it’s a cautionary tale. And they’re going to have to work harder around the constraints of their programs to get them to do the work to help fill seats in an airline world that expects demand to be depressed for some time.