The state of the mileage world (or more accurately, the sad state of the airline industry)

Eric left an interesting comment to my recent post where I reminisce about some of the most pleasant mileage runs I’ve taken thanks to United’s cheap first class Tampa to Ontario fares. Anyway, the questions he asked and points he raised deserve a separate post, in my opinion. Here’s his comment:

Lucky:

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When flyers are trying to accumulate miles for status, are they booking a fare from point A to point B, and then booking as many waypoints as the fare will allow? Why do the airlines allow this? Is this a technology issue? Given that a pax is paying a fare for a city pair, why don’t the airlines just award the defined mileage between those cities?

When I’ve commented on revenue based FF programs, I received a response how on an annual basis, this may benefit the airlines (a full fare flyer traveling 2x per year), but from a cash flow perspective, a miles program creates the incentive to fly more often. This made sense.

However, this argument loses some steam when these types of practices are allowed (good for you, bad for the airlines).

It’s really not fair to the frequent fliers who fly a lot, but don’t have the time to take full advanteous of the system. In other businesses, these loopholes are eventually closed. Will this be as well? Or is there a good business reason for the airlines to allow it? Or am I misunderstanding the concept altogether?

Curiously,

Eric

Rather than tackling Eric’s points head on (apply directly to the forehead), I’ll be a bit circuitous. This is one of the reasons I didn’t respond to his comment in the comments section, because my response was just getting too long, detailed, and off topic.

Right off the bat I should say that everything I say from hereon out applies to the US legacies, and not necessarily other airlines. Aside from the legacies, some airlines — shockingly enough — are in the transportation business. Their primary goal is to move passengers from point A to point B efficiently while making a profit. Can the same really be said for the legacies post 9/11 (and even a bit before that)? I’d argue not.

I’d argue the legacies are really in the mileage program business, and they just happen to operate fleets consisting of several hundred high performance machines that serve no purpose other than to provide a vehicle for miles to be issued. I actually just got the December issue of InsideFlyer magazine a few days ago, where Gary of View from the Wing writes an article that’s similar to what I’m trying to get at. It was through selling miles to credit card companies that several of the legacies either emerged from bankruptcy or are still in business. I don’t remember the exact numbers (and I’m not trying to write a research paper, so I’m fine with that), but we’re talking about billions of dollars, much of which was financing when the airlines needed it most.

So what does this have to do with the price of butter in Patagonia (oh gosh, did I really just say that?)? Well, frequent flyer programs aren’t really frequent flyer programs anymore. They’re frequent spender programs, frequent diner programs, and frequent hotel stay programs. Just take my obsession with miles as an example. I open checking accounts, donate $1 to plant a tree, dine at restaurants I wouldn’t otherwise eat at, and much more, just to earn miles. Hell, I think “Up in the Air” does a pretty good job of showing what an obsessive, ridiculous hobby this can become. And I’m betting that even beyond the FlyerTalk crowd, the concept doesn’t seem that outlandish anymore.

I guess I still haven’t answered what this has to do with anything, so let’s get to it.  I’d argue that the airlines like the fact that this has turned into a game for us. Maybe not people like me that do the absolute minimum to earn miles, but in general the mileage obsession is a good thing.

While a revenue based frequent flyer program sounds good in theory, I think it would be a bad idea in the long run because it would disconnect many people from frequent flyer programs, and largely some of the most profitable customers — no, I’m not talking about paid first class passenger, but instead those that earn hundreds of thousands of miles without stepping on a plane. So if the purpose of a frequent flyer program were really just that — to reward frequent and maybe profitable flyers — I think a revenue based model is the way to go. But as long as they’re frequent [fill in the blank] programs, I think the airlines are happy with the status quo as far as the programs go.

Now to finally answer your question a bit more directly. When I book a ticket from Tampa to Ontario via Washington, New York, Los Angeles, and San Francisco, I’m really booking a Tampa to Ontario roundtrip ticket which just has four transfers in each direction. This is exactly what United’s fare rules allow domestically.

But not all airlines are this generous. Delta and Continental don’t allow this many transfers. American is somewhat generous, as is US Airways. But why would United allow this? Well, in some cases the rules make sense. There are some destinations that could potentially practically require three transfers in one direction. For example, flying from a small regional airport on one side of the country to a small regional airport on the other side of the country. So it’s definitely not a technology issue, it’s intentional.

A further reason this might be the case is because the inventory and revenue management departments at airlines are just so un-friggin-believably complex. I’ve obviously never worked for an airline, but as a consumer that spends half of my awake life looking at fare rules, routings, fare buckets, etc., I still get thrown off some days. It’s ridiculous how complicated the system is. First you have published fares, then you have fare buckets, then you have fare rules, and then half of the time (from my perspective) the actual inventory released doesn’t make sense. I don’t doubt that the suits at IM/RM know what they’re doing, because they most definitely do, but the system as such is so complex that I think the airlines somehow miss the big picture.

A couple of quick examples. Explain to me how a flight from San Diego to Los Angeles can be ten times the price of a flight from Los Angeles to Boston. Furthermore, I’d love if someone could explain to me how airlines try to get away with charging ten times as much for a domestic first class seat as a coach seat. This is something Continental actually agrees with me on, and it’s one of the many reasons upgrades are so tough with them — they actually sell first class seats.

Wow, I’m rambling. What does this have to do with your question? Well, I’d argue the airline inventory system is so out of control that the airlines can’t even keep track of it. There are many cases where flying Tampa to Denver to San Francisco would price out higher than Tampa to Washington to New York to Los Angeles to San Francisco, due to the fare buckets available on the individual flights, even though the flights on the four segment route might be substantially fuller than the planes flying the more direct routing.

So that’s fine and dandy, but why do airlines not just award mileage based on the origin and destination, regardless of where you connect? Well, that does make a lot of sense, but then again, lots of travelers (even profitable ones) have become very loyal and involved in mileage programs. Let’s say I need to travel from Washington to San Francisco and I’m loyal to American. Well, I could fly United nonstop, which is no doubt a more convenient option, or I could fly American and connect. I’d earn a few extra miles, which is a small consolation for the more inconvenient routing.

So I apologize for totally rambling here. Holy crap, what an unorganized, disconnected, scatter brained post. But it sums up how I see the industry right now. There’s a lot of things the airlines need to work on improving — on-time performance, customer service, the onboard experience, etc. But I think the airlines are best off leaving frequent flyer programs alone for the most part. They’re massively profitable beasts that have grown totally out of control, and probably for the better!