I’ve written in the past about the general state of miles & points, and about how it’s the best of times, and the worst of times. Big picture, things are better than ever before when it comes to all the ways we can earn points, while they’re worse than ever before when it comes to the ability to efficiently redeem them.
All the time we see airlines devalue their award pricing, limit who can redeem for awards, etc. It’s super frustrating, of course, especially for those of us who still remember “the good old days.” The most recent thing we’ve seen is that Flying Blue has devalued award pricing, which is of course bad news.
I’m frustrated when I see negative program changes, but I’d also like to take a bigger picture look at what goes into these decisions. This is just a general reflection of what I’ve witnessed over the past couple of decades, and it’s also based on endless conversations I’ve had with program executives, etc.
We all want great value redemptions using points!
To state the obvious, we all love when loyalty programs offer lots of premium cabin award seats at reasonable costs, both in terms of the number of points required, and the surcharges. Trust me, I’m 100% in that camp, and as someone who constantly looks at award availability and who is obsessed with getting good deals on redemptions, the changes over time have been really, really rough.
There are three things that complicate this even further:
- Travel loyalty programs have gone really mainstream, so demand is higher than it has ever been before; an increasing number of people are chasing a decreasing number of good value award seats
- We’ve seen increased automation with searching for award availability, so it’s no longer the person who studies the most who gets the best deal, but instead, it’s largely the person who sets the most award alerts, or whatever
- Loyalty programs have evolved from cost centers to absolutely massive profit centers, so the way they’ve been monetized has completely changed
The internal politics & math on points redemptions
Understandably, most of us don’t get a clear picture of the internal workings of airlines. Every airline is different in terms of its structure, who various executives report to, how close loyalty and revenue management work together, etc.
At many airlines, you have the loyalty and revenue management departments constantly going back and forth when it comes to mileage redemptions. Releasing award seats isn’t as easy as someone in revenue management just saying “oh, those seats will probably go out empty, let’s just make them available, no biggie.”
Nope, quite to the contrary, the loyalty program has to “pay” revenue management for each award seat. Obviously this is primarily an internal accounting exercise, and the calculations differ greatly depending on the airline. But you have two departments that are typically at odds with one another, since they have different metrics for success:
- Revenue management wants to show as much revenue for each flight as possible, as it’s all about the bottom line
- The loyalty program wants to offer value for members, show program growth, and of course good margins help as well etc.
Nowadays we see dynamic award pricing at many airlines, so the idea is that if there’s not saver award availability, members can spend a lot of points, but still get seats. In those cases, the loyalty program is often “paying” close to the going cost for a seat.
It’s common for loyalty programs to essentially take a “loss” on many kinds of award redemptions, especially for those that are a really good value.
This is one of the reasons that we’ve historically seen so many frequent flyer programs focus so heavily on getting members to book partner award space, where the reimbursement rates are often much lower. Take Aeroplan, for example — it’s an amazing program for partner airline award pricing (assuming you can find availability), while redemption rates for premium cabin Air Canada flights are typically pretty brutal.
What should loyalty programs actually prioritize?
In recent times, we’ve seen major structural changes to how airlines release award space. Just look at United MileagePlus, for example. In the past, United would release a ton of business class award space to partner frequent flyer programs. Now it’s available almost exclusively to MileagePlus members. Not only that, but those with a co-branded credit card and/or elite status get better pricing and availability.
It’s largely the same story with the Air France-KLM Flying Blue devaluation we just saw. Essentially the previous lowest award fares are becoming “Light” fares, and have fewer inclusions, but elite perks still apply. So as a Flying Blue Platinum member, not a whole lot changes for me. On top of that, Flying Blue Platinum members actually get extra award availability.
So as a Platinum member, I still consider the program to be pretty great. To be clear, I’m not trying to say “well this one change doesn’t impact me much, so screw everyone else.” Instead, I’m saying this because it reflects the trend we’re seeing, because airlines are going back to trying to reward actual loyalty, rather than treating everyone who earned a mile in one way or another equally.
Selfishly (looking across the industry), I absolutely hate this change. It makes it so much harder to redeem miles for a ticket involving travel on multiple airlines. I was kind of a pro at booking crazy Aeroplan tickets involving travel on half a dozen airlines, and that’s just not possible in the way it used to be. That makes me sad!
But am I surprised to see things going this direction? If an airline has one saver level award seat available, should the program take the approach of making it available to everyone at the same cost? Or should it try to prioritize rewarding a loyal customer over someone who just moved some points from a credit card program?
If you were running the program, what approach would you take? After all, it’s easier to justify giving someone an award seat at a loss if you can say “hey, but they applied for a credit card,” or “they flew with us X more times to earn status,” etc.
I don’t think there’s a right or wrong answer to any of this. However, I do think it’s worth discussing some of the nuance to all of this.
Bottom line
Frequent flyer program devaluations are no bueno. There’s an ever-increasing number of miles chasing an ever-decreasing number of saver level premium cabin award seats, and airlines are struggling with figuring out how to handle that.
In an ideal world, we’d all get unlimited saver level award seats at good pricing with our credit card points. But to state the obvious, the economics of that don’t actually check out. That’s why we’re seeing airlines increasingly add restrictions on which members get the best deals, whether those restrictions are around needing to have elite status, having a co-branded credit card, etc.
What I also think many people don’t realize is the complicated dynamics when it comes to award availability being released. It’s not as simple as a loyalty program just deciding, “hey, let’s open up those seats, they don’t cost us anything.” The loyalty program has to “pay” another department for those seats, and the program takes a loss on many of those seats, in the name of the greater good. In big corporations, people report to their bosses, and have to justify their results.
Again, I wish we had a ton of saver level award availability, and I hate when we see devaluations. But I also figure it makes sense to discuss the “why” of the changes we’re seeing, rather than just standing here with a pitchfork. As always, I’ll continue to chase the deals that are available, and those do change over time…
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