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Airlines Weigh Returns on Frequent-Flyer Programs

September 15, 2008

By Soule, Alexander

Two promote the 21st anniversary of its frequent-flyer program, Continental Airlines sponsored a poker tournament this month in Las Vegas, with the grand prize of 21 million miles, the largest ever single award for a frequent-flyer program.

The gambling Mecca was a fitting venue – when it comes to frequent-flyer miles these days, you got to know when to hold ‘em.

As airlines struggle to break even, many have looked to extract additional revenue – or cut expenses – from their frequent-flyer programs. Many airlines are upping the mileage totals that trigger free flights, and in June, Delta Airlines slapped a $50 fuel surcharge on flights booked with frequent-flyer miles.

Some airlines, however, are shielding “elite” members who rack up the most mileage from fees, giving them an extra incentive to accumulate miles.

Nearly half of business travelers participate in one or more frequent-flyer programs, according to a 2005 survey sponsored by the Travel Industry Association – a perhaps surprisingly low figure given the venerability of many programs.

In 2001, Delta commemorated the 20th anniversary of its own frequent-flyer program by bestowing million-mile awards to 20 people, including Jacqueline jean Claude of Greenwich.

American Airlines beat Delta to the gate in 1981, getting credit with creating the first frequent-flyer program in the U.S., the AAdvantage.

Since then, the largest development in such programs has been affiliations with credit card companies, hotels and car rental agencies. In late July, Norwalk-based Webloyalty Inc. acquired Incentive Networks, whose platform helps merchants reward patrons with frequent-flyer miles and other perks.

Affinion, Webloyalty’s larger neighbor in Norwalk, also helps airlines run frequent-flyer miles, specializing in helping them minimize “liability” to maximize profits. Affinion also runs the Travelers Advantage program that offers rewards for airlines, lodgings, car rentals and other travel expenses.

Such programs may have limited value for the companies offering them, according to Cornell University researchers. In a new study published last month, researchers at Cornell’s Center for Hospitality Research reported that loyalty programs do not appear to increase the average purchase frequency by airline patrons, contrary to assumptions otherwise. Instead, the researchers found, the frequency of ticket purchases is driven by overall brand penetration, with advertising still playing a key role.

“I believe that hospitality marketers who focus only on loyalty programs for competitive advantage will be disappointed, unless they also build their brand,” said Michael Lynn, a researcher at Cornell University’s Center for Hospitality Research. “Having said that, I must say that airlines and hotels probably cannot abandon their loyalty programs, because they constitute a defensive strategy.”

Road warriors with a devotion to such programs frequent the Web site FlyerTalk.com.

A portion of the site is devoted to “mileage runs” and “mattress runs,” absurdly low air and hotel rates on which frequent flyers pounce to boost their accounts to reach trigger levels.

The “Pudding Guy” remains the most famous instance of an individual resorting to extremes to obtain miles. David Phillips, a University of California Davis professor who specializes in mortality statistics, bought 12,000 boxes of pudding over sever weeks, after noticing the maker was offering 500 miles for each 25- cent container of pudding. Phillips’ $3,100 pudding spree bought him enough miles for 50 roundtrip flights in the U.S. – along with an $800 tax write-off or donating much of the pudding to the Salvation Army, in exchange for volunteers to help him remove the UPC codes needed to redeem the miles.

Continental Airlines estimates its own giveaway will result in 400 domestic flights for the winner – not bad for a roundtrip ticket from the metropolitan New York City area to Las Vegas that was selling for $300 this month, and the knack for knowing when to hold ‘em.

Copyright Westfair Communications Aug 18, 2008

(c) 2008 Fairfield County Business Journal. Provided by ProQuest LLC. All rights Reserved.




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