Airline Loyalty Programs in Flux

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Recently, Delta Airlines announced changes to its SkyMiles program that would reward consumers for dollars spent, not miles flown. A $500 round-trip flight from New York to Los Angeles that would have netted an economy Delta flyer 4,950 miles will now earn him just 2,500 miles. But a business traveler booking a last-minute flight from New York to Atlanta, also costing $500, would earn 2,500 miles instead of just 1,250.

Southwest and JetBlue, which market themselves as value airlines, also reward customers based on overall spend, showing that the math for loyalty programs is changing.

No one likes change, and the sweeping recalculations of mileage have prompted many frequent fliers to evaluate their loyalties. Half of high-frequency business travelers would switch to another loyalty program, even after achieving the highest status level, according to the Deloitte Survey "Rising Above the Clouds: Charting a Course for Renewed Airline Consumer Loyalty."

What's more, high-frequency business travelers, defined as those who fly more than 50,000 miles for their jobs per year, rated loyalty programs as the second-most important attribute, even above safety. Overall, business and leisure travelers ranked loyalty programs near the bottom, in 18th or 19th place, a dramatic difference.

While Delta might have targeted its Sky Miles program toward those spending the most money, like high-frequency business travelers, the changes incited negative discussion among them. Online guru Brian Kelly, who runs the Web site The Points Guy, was one of many who criticized the changes. In a video to his viewers, which includes many savvy business travelers, he said, "I think [Delta has this] whole concept that there's this one business traveler type that doesn't care about price and will just book full-fare tickets. Well, why are you going to cater your loyalty program to them if they don't care anyway?" He urged consumers to rethink their loyalty. "I think Delta's really missing the boat here with consumers...that want to see value back."

Yet the model for spend-based loyalty is already well-established in other areas. "The hotels shifted to this a long time ago," states Lori Ward, a principal with Deloitte's Travel, Hospitality & Leisure practice. Most hotel programs reward guests for money spent, not nights stayed, a fact that has not gone unnoticed among airlines.

First introduced by American Airlines in 1981, frequent flier programs are "mature" and "ripe for innovation," Ward notes. The kind of changes Delta is making "gives them a way to sort of reward the customer who's spending the biggest share of wallet with them."

The innovation in airline loyalty programs won't stop with changes to how customers accrue miles. "What airlines need is to create more differentiation and distinguish themselves from the pack," Ward says.

Ward forecasts more changes ahead, not just to miles math, but to qualitative benefits. JetBlue, for example, launched a program in the fall that allows families to pool points, designed to target the leisure market. Perks like JetBlue's, which are unique among U.S. airline carriers, can be a deciding factor for consumers.

Airlines are also exploring ways to match the right perks to the right customers. "It could be that if you know your customer segment is always going to get the lowest-cost ticket, you'll refine rewards to that segment so that it's more impactful and meaningful to them," says Ward, who like many other Deloitte employees is a road warrior. She also notes that even within that segment there is a great degree of variation. Some might be more loyal "if out of the blue you gave me an extra ticket for a hotel stay, whereas other people might say 'I have so many points, it doesn't matter'," and place a higher value on customer service, like someone making an extra effort to reroute them after a missed flight.

Redeeming frequent flier miles takes time, and it lacks the immediate gratification many consumers want. "I think the question is, with some of these shifts, how are you matching the expectations of your consumer? How are you giving them other things they find valuable?" Ward states. "Accessible and timely" rewards like a free drink or meal for a customer who normally purchases in-flight goods might be a way for airlines to fill in the gap. "Give them rewards that are very personally meaningful to them, that are unexpected, and you create a customer for life."

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