U.S. airlines are changing the rules of their frequent-flyer programs and, befitting air travel, being greeted with a measure of rage.
Amid strong travel demand, Delta and Southwest are now pricing loyalty awards more like all other tickets—“dynamically,” with regular changes in how many miles it takes to buy an award seat. It looks like United is next.
That means the number of miles required for a ticket will vary with sales, destination, cost in dollars, and other factors. “This is likely to become the new norm on the award side of these loyalty programs,” says Tim Winship, editor of FrequentFlier.com.
Airlines have always managed their award inventory. Tickets to Europe in the summer generally require more miles than in the dead of winter. But the awards hewed to redemption charts, offering mileage collectors a guide—it was clear what a business-class seat to Paris or a January getaway to Maui “should” cost.
That notion of fixed award prices is now under assault, partly reflecting the industry’s consolidation into four large U.S. airlines since 2009 and their constraints on seat capacity. With passenger load factors well above 80 percent, the airlines can more easily sell seats they may once have ticketed as awards. With these changes, the currency of the mile is no longer tied to fixed conversion rates. Delta stopped publishing mileage award charts for its SkyMiles program in early February, sending many of its members and travel bloggers into apoplexy.
“It’s really a punch in the stomach to a big [mileage] fan when they replace the reward chart with a question mark,” says Jason Steele, a freelance writer in Denver who blogs about the travel loyalty industry. He likens the change to shopping at a retail store where prices are shown only at the cash register. “Now, overnight and with no notice, all the price tags are gone and the currency is worth whatever Delta says it is,” Steele says.
Delta has been the most aggressive of the legacy carriers in altering its program, first moving from a system that doles out miles based on flight distance to one that recognizes how much a customer spends with the company. United quickly followed, matching a revenue-based scheme that had been used previously by airlines such as JetBlue and Southwest. But it’s Delta’s redemption system that has received the heaviest and most consistent criticism on social media and travel blogs for being the least consumer-friendly. The changes mostly favor high-spending customers, on both the earning and redemption side of the program.
For the average traveler, the kind who flies only a few times a year and rarely abroad, the airline mileage game soon may no longer be worth the expense of buying tickets to accrue miles.
“I don’t want to say they’re worthless, but they are certainly worth less,” Winship says of the frequent-flyer programs. “I can certainly foresee a day when average travelers knock consideration of frequent-flyer miles down to the very bottom of their list, and they buy on price and let the frequent-flyer chips fall where they may.”
Karen Zachary, managing director of Delta’s SkyMiles program, says, “We really take into account our customers and what they provide to us.” She says Delta had mapped the evolution of SkyMiles for several years before making the 2015 changes and has convened numerous focus groups about its loyalty program, including two last week, in New York and Los Angeles. Most people have been pleased by the changes, Zachary says.
This month, Southwest increased the number of points needed for a free ticket in its Rapid Rewards program “to stay competitive in current market conditions,” the airline said in a statement. Redemption levels now vary based on the destination, time of day, demand, fare class, “and other factors.” Previously the airline tied its redemptions to ticket prices, with each $1 worth 70 points. Under the change, which took effect on April 17, some awards now cost 80 points per $1, although Southwest says many of its award levels will stay the same. Southwest remains the most generous mileage program by award availability, offering almost 12 percent of all its seats as awards, Consumer Reports magazine found in a review being published in its June issue.
United is expected to begin a similar dynamic-pricing scheme for its MileagePlus award seats in the second quarter. A United spokesman declined to discuss specific aspects of the changes, saying: “We remain very interested in broadening the options customers have both for earning miles and redeeming them.” American, which is merging with US Airways, has made no significant adjustments in its AAdvantage program, although many observers are awaiting news for 2016 to see if the airline mirrors any of the industry changes.
The variable pricing of award seats comes as many U.S. airlines are working to wring more money from their premium cabins, where many seats are not sold but allotted as upgrades for top customers. Airlines are increasingly offering first class as a paid option, with prices that vary, when someone buys a ticket in economy class. That type of merchandising can reduce premium-cabin seat inventory for use by frequent flyers trying to redeem their miles for seats in first and business class.
Delta’s SkyMiles for years has been widely considered the stingiest of the U.S. airlines’ programs in terms of awards, leading some flyers to deride it online as SkyPesos and SkyRubles. Then, in 2014, many were heartened to hear Delta announce that it had heard the complaints and that in 2015 it would boost its award seat inventory at lower mileage levels and add a one-way ticketing option, matching other airlines.
Zachary says those changes were among issues Delta heard about most from travelers, with many people also complaining that frequent-flyer programs were too complex. Mileage redemptions at Delta have grown 10 percent this year compared with historical levels, she says, mainly because of the new one-way ticketing option. “We’re just kind of moving things along at a pace that we feel consumers can adapt to,” Zachary says.
Taken together, the changes in airline loyalty programs are likely to reduce the overall number of active members, says Winship of FrequentFlier.com. “It’s making these programs untenable from a value standpoint for a huge chunk of the program members,” he says. Having fewer active program members might actually be a goal for an airline, since unused miles count as a liability and some airlines’ miles never expire. None of the carriers disclose their active-member numbers.
Amid all the grumbling, it’s easy for travelers to forget that airline loyalty programs are an important business unit within the larger corporation, with critical income and with costs that managers must justify. What’s good for a traveler is typically bad, financially, for the airline.