The chaos of ‘frequent flier’ points: a currency that needs changing

It was in 1981 (when airlines were still glamorous, mostly profitable, all-frills businesses often owned or protected by proud national governments) that the world first heard of frequent flier points. The pioneering “AAdvantage” was American Airlines’  great wheeze “to reward customers and promote future loyalty”.

Now, 30 years later, so-called customer loyalty schemes are everywhere and no self-respecting airline, hotel, car renter, credit card, or retailer feels, well, respectable without one. The ‘airmiles’ shorthand for the now pervasive loyalty programmes, comes from British Airways’ brilliantly-branded Air Miles scheme launched by Sir Keith Mills in 1988. And, if there’s one thing that underlines their coming of age, it is the news that Brazilian cyber criminals are now hacking into emails and stealing them, even bartering them (apparently) for stolen credit cards. With a mighty 470m people worldwide owning frequent flier points, it was inevitable that some gang, somewhere would start to steal them.

Perhaps, some passengers have not noticed their ‘miles’ have been snatched, and many others will have a wry smile about the news that frequent flier points are valuable to someone. That’s because, for all the talk about well-travelled people getting their family holidays free courtesy of their ‘miles’, millions of us find it almost impossible to ‘spend’ them. The point is that the schemes, developed in the days when air travel was growing fast (and, still, profitably) have changed in front of our eyes. The rise of  low-cost carriers has been a consumer boon, but has sliced average airline profit margins. So, down have gone the benefits of frequent fliers, in a market where:

1. Airlines strictly limit the number of tickets “available” for redemption of frequent flier points. In the early days, most airlines had no such artificial limit. So, if there were seats available, passengers could book them, whether with cash or points. Similarly, the airlines have variable rules on whether or not frequent fliers can ‘mix’ cash and points in paying for tickets.
2. Airlines (always the masters of small print) are adept at changing the rules about the expiry of frequent flier points. Some will have no expiry dates, most will have a fixed life and some will expire if the passenger does not travel (ie add to their points) within a certain time period. And (wouldn’t you guess?) those conditions often get changed.
3. If that was not enough, the “value” of the currency frequently changes, so what you “earn” from a flight and what you have to “pay” in ‘miles’ for a “free” flight is also subject to change. Frequent flier points are the ultimate floating currency. But, like the currency of an impoverished, chaotic republic, frequent flier points only ever seem to devalue.

So, you might just be cynical enough to wonder whether some airlines, realising that they alone cannot be seen to scrap their frequent flier schemes, are doing their level best to limit the “cost”. If so, they are succeeding. An estimated one-third of frequent flier points will never be redeemed. In the US, it is said that 90m frequent fliers have 2 trillion unused ‘miles’. Most airlines have, thus, been able to escape from the 1990s spectre of huge potential liabilities in outstanding frequent flier miles – by helping to ensure they remain unused. Oh, great!

But there’s something else to frustrate the enthusiastic frequent flier who wants to “spend” their points. The UK Consumer Association, publisher of Which? magazine, found that passengers have to make as many as 20 return flights to be able to get a “free” ticket – if they can struggle to make the booking;  they still have to pay the taxes and charges applicable in many countries including the UK. Which? showed that a London-Sydney economy return flight on Virgin Atlantic costs £1,186 and earns a member of the Virgin Flying Club 10,550 points. But it would “cost” 105,000 points to cover the £741 portion of the fare not represented by taxes and charges. So, the “free” trip (if you managed to book it) would “cost” the points earned on 10 return flights PLUS £445 in taxes. Not exactly the “free” gift that airline passengers had in mind when they were first sold the idea of frequent flier schemes in the 1980s.

On the other hand, Tesco supermarket customers in the UK might feel more positive about their store’s “loyalty” Clubcard, for two simple reasons: First, customers can judge the competitiveness of Tesco’s products and prices for themselves and may regard their points as a real “bonus”. Second, the “deal” is measurable – and accessible – because the Tesco points can either be claimed back against bills for subsequent shopping or redeemed for gifts from an online catalogue. It’s much more straightforward (and offers more transparent value) than any airline scheme has ever done.

Let’s feel sorry for the airlines, just for a nano-second. The rising cost of fuel and regulation, the increased competition and lower tax-excluded prices have (mostly) slashed their profits while increasing the marginal cost of each passenger they carry. Tesco executives realise that having a deep knowledge of their customers’ regular shopping habits (and, therefore, their lifestyle) really is gold dust: so much better than those 1960s books of green shield stamps! But their airline counterparts neither get such interesting data, nor can they use it as effectively in a diverse world of agents, intermediaries,”code sharing” and huge variations in price and yield. Given also the various ways in which airline points can be exchanged and traded with other schemes, airlines are arguably having to try to minimise the cost of something that is now almost impossible to control. And pity the poor airlines, some of whose business passengers even have to surrender to their employers the points that were formerly inducements to travel. So, what would you do with a marketing expense that wasn’t delivering? But, perhaps, not if all the others are sticking by their loyalty schemes…

The answer is that airlines do need to come up with something else. They might give travel-related gifts or “value” for immediate use. It’s not, of course, that easy because (apart from anything else) the airlines currently have near-perfect control of the levels of redemption on existing schemes. So anything new – and longterm – might be more expensive even if, ultimately, it attracted more customers.The idea of “instant” value might be an attractive innovation but it would, by definition, be redeemed by all passengers.

Whether any airline comes up with something as innovative as that first frequent flier scheme was 30 years ago might be the measure of marketing innovation in an industry that can sometimes seem pretty weak. But there is no doubt that frequent flier points are a currency that needs overhaul. As always, there’s a prize for being first…