Think that all award points are the same? OK, sure, we know that the currency which is points can vary from program to program, but what about within a program? Yes, there are even differences there, despite the fact that the points appear identical to the end-user. The airlines are doing everything they can to shift the balance of the two types of points; it should not be surprising that they’re doing so in their own favor.
So, just what are the two types of points? In a recent presentation one program executive described them as “Program Miles (PMs)” and “Commercial Miles (CMs)” in his slides. Program Miles are those accrued through air travel and Commercial Miles are everything else (e.g. banks, etc.). The image quality here is pretty awful; sorry about that. But the point being made is very clear: Airlines should do everything they can to decrease the PMs and increase the CMs in circulation. In the case of this presentation the advice offered (both on the screen and aloud) was to
Reduce PMs to most rational level based on competitive dynamics & ROI.
If that’s not a clarion call to the programs I don’t know what is. And given the recent trends – most recently with Delta and United Airlines choosing to go revenue-based for PMs in the coming year – it seems that everyone is listening.
CMs are a revenue source for the programs; the partners are buying the points at a rate which is generally very beneficial to the airlines. PMs are a cost center, taking away from the internal accounting balances as the airlines pay themselves internally for the points being issued. The overall liability to the airline can shift dramatically as the ratio of PMs:CMs is tweaked through marketing actions. The chart above shows an example of that valuation shift. It is no wonder that the program operators want to look a lot more like column B.
The argument is also made that increasing the distribution of CMs increases the value of the program as it means reinvestment based on higher revenues within the program. When they have more money they can spend more on treating the customers better. Of course, there are plenty of customers who believe that they are the most important part of the program’s existence and that’s often based on their flying behavior, not their partner activity. In some cases they might be correct, but the programs have a very different view of the situation as shown from presentations like this one.
Are the mid-fare customers being pushed out of the loyalty market as some have claimed? Maybe they are on a straight earning for flying basis. But the plethora of partner earning options remain. And there are more cash-back options than ever. You can only lose in the game if you’re not paying attention and fail to adapt. Better to understand what is going on and why than simply be pandered to and told that you’re the most important customer and that the programs are screwing you. Especially when you’re not.
Some are choosing to see the recent changes to program earning rates as a negative. I’m looking at it as an opportunity for reevaluation and potential personal benefit. Even if that doesn’t come in the form of heavily discounted first class tickets all the time.
- So, about United’s new spend-based earning rates…
- Delta ties elite status to spend
- Why spend is a good qualifier for airline status
- United Airlines adds spend to elite qualification requirements
- Are we looking at a shift towards revenue-based loyalty programs?
- Why the Delta SkyMiles changes don’t really matter
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