TrueBlue2 Details – this time without all the assumptions

OK, so maybe I jumped the gun a bit on my post earlier this morning.  Forget maybe.  I definitely jumped the gun.  I posted a lot of things based on some assumptions and the way that all the other programs I’ve seen through the years operate.  It turns out that jetBlue is actually trying to change the way things work in the loyalty marketing sector – a lot.

Not much more than an hour after my last post I actually received an email from Dave Canty, Director of Loyalty for jetBlue.  I’ve worked with Dave in the past and so when he said we needed to talk to clear up some of my misconceptions I was quite happy to take the call and get some better answers to the questions that are swirling about with respect to TrueBlue2.  And so, 30 minutes later, I was chock full of actual information, including answers to some of the more glaring omissions from the initial release.

Mr. Canty certainly seems to have the right idea when it comes to creating value from a loyalty program.  I know that from our previous discussions and it was reinforced by some comments he made in this afternoon’s call.  There is the issue of availability and getting to extract actual value from a program rather than just the perceived value that the marketing folks put on the table, essentially summed up thusly: “Programs have lost their utility due to capacity controls, among other things.”  I’m not so sure that they have completely lost their value, but certainly the capacity controls have a notable negative impact on the value of the points earned. 

One of the main drawbacks of the TrueBlue program was that the occasional flier struggled, unless they held the jetBlue AmEx card.  Watching the points expire and knowing that there is nothing to be done about it always hurts.  At the same time, it is important to not destroy the value for the very frequent flier (VFFs) out there.  The VFFs are generally where the bulk of the revenue comes from so they have to feel that they are getting value for their investment.  Mr. Canty accurately summed up the challenge he faced:

[We] absolutely want to reward frequent fliers…and at least match the value for the current members.  We also wanted to come up with an opportunity for the [less frequent] fliers to get value, too.

On the earnings side, it looks like the basic numbers I had before are correct.  Earning will occur at 3 points per dollar of the base fare (excluding taxes and whatnot).  That will double to 6 points per dollar for folks who buy at www.jetBlue.com and for customers with a jetBlue American Express card they’ll receive their normal 1 point/dollar spend and a bonus dollar for spend on the jetBlue website.  That’s pretty straightforward.  But there is more.  Lots more.

There are bonus thresholds out there.  After the first $500 in spend a TrueBlue member will have earned 3,000 points in the program.  This is rewarded with 500 bonus points.  After $1,000 in spend (6,000 points, not including the 500 bonus points previously received) there is a threshold bonus of 1,000 points.  There is an additional 2,000 bonus points granted at $1,500 in spend (9,000 base points) and then 4,000 bonus points for each additional $500 spend.  Those bonus numbers can really add up in a hurry.  By the time a customer reaches $2,000 in spending they will actually be earning bonus miles faster than base miles in the program.  As if the spend bonus wasn’t enough, the new TrueBlue program is also going to reward their frequent transcon customers.  Flying five transcon round-trip flights (previously sufficient to ensure 100 TB points and a reward) will net a bonus of 10,000 TB2 points, essentially guaranteeing that a customer has enough points for a reward on the jetBlue network.  And all the miles are pooled together for the sake of reward redemptions, which is very good.

OK…so now the earning ratios are covered and they’re much better than previously expected.  What about the redemption rates?  This is what the jetBlue website states:

You will need at least 5,000 points to earn an Award for a oneway flight. The number of points required to redeem an Award flight will vary according to the flight chosen; for example, some flights may require more than 5,000 points depending on your choice of destination, day of the week, time of year and how far in advance you are booking your flight.

I interpreted that as a linear redemption path, starting at $50 in value for 5,000 points.  Boy was I ever wrong.  There are going to be three redemption price-points, similar to the approach Delta has taken with their reward charts, though mapped rather differently.  The rewards will be based on the current selling price of tickets on the desired reward redemption flight, with the 5,000 point tickets covering the cheapest “pool” of fares and a 10,000 point redemption level covering the bulk of the fares jetBlue sells seats at.  There will be a higher redemption bucket for last seat availability and the highest fares but the redemption value isn’t yet clear for those.  Based on the current prices at which seats are selling and some of the data analysis the folks at jetBlue have done, they  expect that the average redemption will come in below 20,000 points for a return ticket.  That is a better value than today for a straight AmEx spend and they expect that it will also solve a few other value-based issues that they are seeing today in the program.

Redeeming a TrueBlue award for a short-haul today is, essentially, a losing proposition from a value perspective.  Redeeming for JFK-Syracuse when the same amount of points can be used for a JFK-Aruba reward seems counter-intuitive.  The new program will definitely discount the redemption costs at the bottom end of the fare bucket and include the vast majority of the seats in their inventory at the “regular” level of 10,000 points/seat.

So, with that all out of the way, let’s take a look at a few different examples of “typical” customers:

First off, the customer who flies 5 return transcons annually at the cheaper end of the spectrum.  Previously they’d spend about $1,250 and earn 100 TB points, enough to redeem for a round-trip reward.  In the new plan they will earn 7,500 base points, 1,500 bonus points for spend and 10,000 bonus points for transcon flying.  That puts them at 19,000 total points and right at the “average” redemption cost for a reward in the new program.  In other words, their net change is nil.

If that same customer were to commute between the coasts ten times annually, however, the numbers skew much differently.  Under the old program they’d get one more freebie.  Under the new program that customer would do MUCH better.  The second set of five transcon trips would earn another 10,000 bonus points for the flying, as well as spend threshold bonuses at $1,500, $2,000 and $2,500 for a total of 10,000 more bonus points.  That totals 29,000 points earned for the second set of five transcons or a total of almost 50,000 total earned for the year.

For the NY-Florida commuter the value comes from the spend threshold bonuses.  The ~$2,000 spend that the old program required for 100 TB points will realize 19,500 total points in the new scheme.  Again, that’s enough for a redemption in most cases and additional travel will earn at a faster pace since the spend threshold bonuses are higher the more one spends.

On the partner integration front things are somewhat mixed.  Day one of the TB2 program (expected now to be sometime in September ‘09) will not have a ton of partners integrated into the mix.  The good news is that there are a lot on the horizon, including potential of implementing the much hoped for Lufthansa partnership.  Many of these integrations are expected to happen in the 6 months between the initial launch and the end of Q1 ‘10.

There are other “soft” benefits coming, too.  These might include pre-boarding, free EML upgrades and other benefits.  They have not been finalized yet and will not be until sometime in Q1 ‘10.  Part of it is a technical issue – they have to integrate all the new systems and jetBlue has a lot of those coming online right now – and part of it is a process and training issue.  They need to make sure that their airport agents can be sufficiently trained to actually deliver on the soft product and right now there just isn’t time to make that happen.

The new TrueBlue program looks very much like it will compare favorably to the old program, both for the VFFs and the infrequent customers.  The less frequent fliers will have access to some rewards eventually instead of kissing their points goodbye at the end of 12 months.  That’s good news for the folks who are currently loving the jetBlue experience.  But what about customers in other programs?  Is the new TrueBlue2 a sufficient draw to gain converts?  I think the jury is still out on that one.  A direct correlation between spend and “elite” status (bonus miles, priority handling, etc.) is a nice draw, particularly for folks who buy expensive tickets when they travel but who don’t necessarily travel too frequently.  For folks who get lots of very long flights for very cheap TrueBlue2 still isn’t quite there, but it is darn close.  I’ll definitely be reexamining my travel plans next year – especially once the Lufthansa details are known – and perhaps I won’t feel like I’m throwing points away when I travel on jetBlue any more.

Oh, and sorry for all the misinformation earlier.