This article, the first in an eight-part series on travel loyalty programs, features the insight, opinions and advice of the decision-makers at the three largest airline frequent flyer programs. Other articles in the series highlight the perspectives of managers of the discount carriers’ programs, hotel program executives, program participants, travel media representatives and other program stakeholder groups.
On May 1, 2006, airline frequent flyer programs celebrate a significant milestone in their history, popping the cork on their 25th anniversary of recognizing and rewarding travelers.
In the quarter century since their inception, the programs have done much more than survive; they have positively dominated the marketing landscape, in the travel industry and—in the guise of database marketing, loyalty marketing, customer-relationship management and related disciplines—throughout the world of commerce. There are currently more than 100 million Americans signed up for the programs. And worldwide, an estimated 10 trillion miles reside in members’ accounts.
If frequent flyer programs are the world’s most powerful marketing schemes, the individuals in charge of them are the world’s most influential marketers. Their programs are the benchmarks against which others are measured; they establish the de facto industry standards which drive consumer expectations.
Where are the airline loyalty programs today? How did they get to this point? Where are they headed? And what strategies should program members adopt going forward?
To get a sense of the programs’ past, present and future, OAG Frequent Flyer posed a series of 10 questions to the decision-makers at the three largest U.S. mileage programs:
- Kurt Stache, President – AAdvantage Marketing Programs
Stache has worked for American Airlines since 1995. He assumed his current position in July 2004 after a stint as American’s Managing Director, International Revenue Management, responsible for pricing and yield management for the airline’s international markets.
He received his Bachelor of Science in Finance degree from Santa Clara University in California and holds an M.B.A. from Harvard Business School.
- Jeff Robertson, Managing Director SkyMiles Program
Prior to assuming responsibility for managing Delta’s SkyMiles program, Robertson served as director of Delta’s Customer Insight and Analytics Team, where he supervised corporate CRM objectives, marketing research and customer analytics.
Before joining Delta, Robertson spent two years as a management consultant with McKinsey & Company and nearly a decade with American Airlines in various positions in revenue management, new product development and frequent flyer marketing. He’s a graduate of the University of Notre Dame and Indiana University’s Kelley School of Business.
- Kenneth Feldman, V.P. Loyalty & e-commerce
Feldman joined United in October 2005. He is responsible for United’s Mileage Plus program, as well as united.com and related online initiatives.
He previously served as president of Ameritrade’s Private Client Division, and before that worked for eight years at America West Airlines in various positions including vice president of marketing, senior director of distribution and director of market development. He holds a master’s degree in business administration from the University of Chicago and a bachelor’s degree in economics from Rollins College in Winter Park, Florida.
Their answers follow. (Profiles of the programs they manage can be found at the end.
Questionnaire
1. Looking back over the past 25 years, what do you consider the most significant two or three developments in the programs' evolution to date?
Response by American's Kurt Stache
The introduction of customer recognition programs was the first major development. These programs have allowed us to provide valuable customers with the recognition and benefits they deserve for their loyalty to American Airlines and the AAdvantage program. Within our own program AAdvantage Gold status was introduced in 1983, AAdvantage Platinum status in 1993, and AAdvantage Executive Platinum status in 1998.
Second, I would say the addition and expansion of partners, creating additional mileage accrual and redemption opportunities. Specifically, the introduction of the Citibank AAdvantage card in 1987 provided our members with the first significant way to earn miles via a non-travel channel. And with the increase in the number of partners, it is now far easier to earn miles than it was 25 years ago.
Lastly, in 1999 the AAdvantage program announced a new mileage expiration policy that allowed members to retain their miles with no expiration date as long as they have some type of mileage accrual or redemption at least once every 36 months. This change provided members with a lot more flexibility to manage their mileage redemption opportunities.
Response by Delta's Jeff Robertson
From an industry perspective, I think one of the most significant developments would be the introduction of mileage-earning credit cards. At Delta, we added the SkyMiles Credit Cards from American Express in January 1996, and it revolutionized how members could earn miles.
The expansion of airlines’ presence internationally, including the addition of alliance partners, also was a major development. This enabled members to receive elite benefits and earn and burn miles on long-haul flights throughout the world.
Response by United's Ken Feldman
These programs have evolved beyond earning credits toward free travel awards—as initially structured. They’re now also about more personal and meaningful recognition. The travel experience for frequent flyers has improved dramatically thanks to the systems put in place to help us better understand what our members value most. These systems enable us to offer the benefits associated with Elite level status—preferred seating, dedicated security lines, advance boarding, mileage bonuses, etc.
2. Today, 25 years after their introduction, what role do mileage programs play in your airline's overall marketing efforts?
Response by American's Kurt Stache
The AAdvantage program plays a key role in American’s overall marketing efforts. The AAdvantage program is a powerful tool that we leverage to reward our customers, earn loyalty for American over our competitors, and drive revenue for the company.
Response by Delta's Jeff Robertson
The SkyMiles program plays a significant role in our marketing efforts. The vast majority of our marketing communication, whether it is traditional or via the Web, is through or touches the program. With millions of active members, the program is a great way to communicate, engage and market to loyal customers.
Response by United's Ken Feldman
Mileage programs are a very important component of United's marketing efforts. Our Mileage Plus program enables us to identify our most frequent travelers, offer them promotions that are most meaningful to them, and track their overall travel behavior and value.
3. Through the sale of significant quantities of frequent flyer miles to program partners (credit card issuers, hoteliers, etc.), the largest frequent flyer programs have become profit centers unto themselves. How do you reconcile this with the program's traditional role as a loyalty program?
Response by American's Kurt Stache
The profit center model is not as counterintuitive as you might think. The key for us is to look for partnerships that complement our program so there’s synergy between what our members desire in products and services and our company’s revenue goals.
For example, our frequent flyers are in need of more than airline tickets. They need hotel rooms, and often a rental car plus business meals, etc. With this in mind you realize that a global airline like American can partner with a number of companies to our benefit, but also to provide our customers with more ways to earn AAdvantage miles—something they find extremely valuable.
While our partnerships have made it much easier for consumers to earn miles, American has not changed its domestic MileSAAver award level in more than 15 years—this is a strategic decision to provide a loyalty program that our members value.
Response by Delta's Jeff Robertson
At the end of the day, we must recognize and reward our best customers. If we aren’t doing that, we must step back and readjust the playing field. Both our Partnership and SkyMiles/Medallion programs are housed under the same department at Delta. This enables us to keep our members under one umbrella and provide valuable and relevant benefits to them.
Response by United's Ken Feldman
That value creation is reinvested in improving the customer experience for all customers—with a significant share of that investment going into programs that make the travel experience better for our most frequent flyers.
4. What changes can program members expect over the next 12 months?
Response by American's Kurt Stache
I’d rather not talk about the next 12 months in specifics for competitive reasons. However, I can tell you that the AAdvantage program is an important part of American’s marketing program and we are committed to it. I also envision programs that become more customized in the next 10 to 15 years. One of the main benefits our members value is the number of options they have to earn and redeem AAdvantage miles. The AAdvantage program allows members to earn miles many ways everyday and then redeem miles for trips around the world, give them to charity, or even buy a magazine subscription with them.
In addition, we expect to see an increase in members who utilize the unique perks of our program, such as redeeming AAdvantage miles for the land portion of vacation packages in addition to their flights—a benefit other airlines don’t offer. The more we can focus on providing desirable options for our members, the longer they will value the program.
Response by Delta's Jeff Robertson
We’re working on a couple fun things now. In recognition of the 25th anniversary of the program, we’ll unveil various exciting promotions, benefits and events throughout the year. We’re also planning to introduce more opportunities for our best customers to redeem miles for non-travel benefits.
We’re also expanding our international network and adding new benefits through our alliance partners. This provides greater opportunities for members to earn, burn and be recognized with our airline partners and Delta.
Lastly, members will see significant technology additions including new functions and features on delta.com that will greatly improve their travel experience.
Response by United's Ken Feldman
United will continue to identify new and better ways to recognize our most valuable customers by offering them more personalized, meaningful reward choices and special perks like our Economy Plus seating.
5. A widely held view among frequent travelers is that mileage programs are a burden the airlines bear only grudgingly, and that airlines would terminate them (and offload their associated overhead) if only they could do so without putting themselves at a competitive disadvantage. True or false? Please elaborate.
Response by American's Kurt Stache
False. The AAdvantage program is valued by our members, and therefore, it drives significant value for American. As I indicated in response to Question #2, we see the program as a valuable tool with which to reward customers for their loyalty.
We know that the road warrior who travels between Dallas and Austin or between Chicago and New York each week doesn’t want to go there on his vacation. Or the member who may not travel as much but works to earn miles through the AAdvantage partnerships is working toward a future goal.
The AAdvantage program, in addition to the breadth and depth of American’s network and the ability to upgrade to first or business class, gives our AAdvantage members the opportunity to earn miles on their weekly business trips or with our other partners and then redeem those miles for trips to places they want to go—like Hawaii, the Caribbean or Europe.
Response by Delta's Jeff Robertson
False. As mentioned before, most legacy carriers’ programs generate profits. And, they help airlines communicate and reward our best customers. It would not be in our customers’ and thus Delta's best interest for this program to go away.
Response by United's Ken Feldman
False. Our Mileage Plus program helps us better understand what our customers value most, and that feedback is very important to us. Right now, we are improving the value of the program for our members, which in turn improves the value to United, by differentiating our members’ experiences and developing benefits that are based on the extent of their loyalty and business with United.
6. There is a rising tide of consumer sentiment to the effect that mileage programs have lost so much value—more fees, higher award prices, fewer available award seats, etc.—that they are in danger of losing their relevance. How would you address that concern?
Response by American's Kurt Stache
I think that’s a popular theme with the press, but our research and data don’t support it. In fact, our focus groups tell us that our elite members really understand the program and value the recognition and rewards. Total program membership is growing, not shrinking. We still have quality companies coming to us and asking us to partner with them based on the reputation and influence of the AAdvantage program.
In addition, Consumer Reports rated the AAdvantage program #1 in October 2005 based on their independent test during the peak summer months. The Consumer Reports test showed they were able to obtain 93 percent of requested economy class awards.
While our top-tier members really understand the program very well, some regular members may not understand the program as well. It is important to note that American has not increased the MileSAAver redemption award level in more than 15 years, yet the opportunity to earn miles and the rate at which miles can be earned has increased significantly since the program’s inception.
An example of the customization we talked about earlier is the AAnytime Award. It was introduced to provide a redemption option some of our travelers desired. AAnytime awards allow members to redeem any seat on any flight as long as the seat is available for sale. It is designed for those members who do not have schedule flexibility. The AAnytime award is an additional option that is valued by some members, but it is not a good fit for all members—and that’s why the mileage needed to redeem a MileSAAver award has not been changed in 10 years. In addition, using more miles for AAnytime awards may actually be more achievable now than 10 years ago because there are so many more ways to earn miles today in the AAdvantage program.
Also, total award redemptions were up in 2004 versus 2001, and upgrade awards were up more than 26 percent in 2004 versus 2003.
Sometimes, experts lump all airlines into the same category as well, which does not always reflect reality. For example, American has nearly 50 percent more First Class seats on a per aircraft average than United. Thus, the [number of] seats available for upgrades is likely to be significantly higher for AAdvantage members. Further, American’s decision to add two more First Class seats on its MD80 fleet gives AAdvantage members access to an additional 2,600 First Class seats every day. Access to First Class is valuable to our members.
Response by Delta's Jeff Robertson
This is not necessarily a new concern, but one that has received greater attention as the industry has gone through turbulence in the past couple years. It’s also a perception built on the low fares, historically speaking, currently in the marketplace. In reality, most award redemption levels have stayed the same—the basic 25,000 domestic, coach award hasn’t increased in many years—and we recently lowered most of our fees. New partner alliances also have added award seats to the supply side.
Response by United's Ken Feldman
We are differentiating our members’ experiences and developing benefits that are based on the extent of their loyalty and business with United.
7. The principal complaint we hear from mileage program participants concerns award availability, specifically the difficulty in obtaining award seats at restricted award levels.
- What percentage of your available seats were used by frequent-flyer program members traveling on restricted awards during 2005?
Response by American's Kurt Stache
I can’t answer that question for competitive reasons. I can tell you that the percentage of total seats used for award redemptions is in our 10K, and it’s been pretty consistent over the past several years. Independent tests like the Consumer Reports test during the peak summer travel season of 2005 rated American’s AAdvantage program No. 1.
When we benchmarked domestic awards in March 2004, we found that AAdvantage program members had already redeemed 11 percent more domestic awards for travel June 1 through September 10, 2005 than during the same time period in 2003. As of March 2005, AA had more than 50 percent more MileSAAver award seats available for the summer than it had available in the summer of 2004.
Internationally, as part of the same benchmarking process in March 2004, award seat availability was up 15 percent year over year for the summer. So, independent third-party tests, our research and our benchmarking all show that more than 90 percent of AAdvantage members get where they want to go. This may not be true for some frequent flyer programs in which the airline does not have the scope of service that American Airlines has today.
Response by Delta's Jeff Robertson
We don’t break our numbers out by award type, but I can tell you that 9 percent of our available seats in 2005 were used by program members traveling on awards.
Response by United's Ken Feldman
See below.
- How will that percentage change in 2006?
Response by American's Kurt Stache
I can’t give you an exact number. What I can tell you is that award seats shift somewhat based on how the airline is growing and shrinking. We are growing about 4 percent internationally in 2006, so there is likely to be an increase in total award seats to international destinations.
Response by Delta's Jeff Robertson
It will probably stay the same. For comparison purposes, we’ve been at or near the top of the industry in this statistic for the last couple of years.
Response by United's Ken Feldman
United’s standard award program addresses this by offering award seats that are not inventory controlled. We will also continue to evaluate new, alternative redemption choices such as auctions, travel partners and other product and service options.
8. What strategies should program members use to maximize the value of their frequent flyer miles, both on the earning and redemption sides of the programs?
Response by American's Kurt Stache
Earning – Take a look at the Mileage Maximizer on AA.com and make sure you know all the ways you can earn miles. Most non-top tier members don’t maximize the miles they could earn because they let earning opportunities go by unintentionally.
Second – Participate in the many promotions we offer. We constantly have promotions going on, many of them fairly rich, so it pays to keep up with what’s being offered and participate in those offers that are relevant to each member. For example, if you travel to Kansas City, St. Louis, Austin or San Antonio from Dallas/Fort Worth, our Fly3 promotion (for travel between March 2 and May 26) offers 30,000 bonus AAdvantage miles for just three roundtrips at fares between $59 and $79 each way.
Redemption - There are really three things frequent flyers can do to ensure they are getting the most from their programs: Know the program, be flexible, plan and check availability frequently.
Know the Program: Consider redeeming one of our program’s off-peak awards to Europe or Asia. Not only will you have to use fewer miles, but there tend to be more award seats available during these periods, and you can usually get some good land deals on hotels, etc., as well.
Many members participated in our short-hop awards promotion (ended February 28) on flights of 750 miles or less where they could redeem awards for 15,000 miles rather than the regular 25,000 miles.
Be Flexible: Flexibility will help you get the most for your miles, especially when traveling to popular destinations. In addition, when searching for a MileSAAver Award, selecting the “Dates Flexible” option ensures that AA.com will scan for available seats up to four days beyond the original travel date.
Consider traveling mid-week to mid-week rather than weekend to weekend. Often, even routes with high demand have weak and peak travel days, so sometimes simply shifting your vacation by a day or two or traveling mid-week to mid-week can make a big difference. Generally speaking, there are more AAdvantage award seats available for travel mid-week to mid-week rather than weekend to weekend.
Consider capitalizing on some of the perks that make the AAdvantage program really robust—like using miles for an annual Admirals Club membership. You can also use miles for the land portion of AA Vacation packages—something no other program offers.
Plan and Check Availability Frequently: Planning travel as far in advance as possible is the best way to confirm an award seat. However, additional award seats sometimes become available throughout the life of the flight depending on how customer demand changes. Therefore, American offers the AAdvantage HotSpots Calendar on AA.com to help AAdvantage members determine when award seats are available. Checking the HotSpots Calendar regularly allows travelers to view color-coded calendars that highlight where there are AAdvantage MileSAAver travel award seats available on domestic and international flights. Featured destinations are updated weekly.
The AAnytime award, which allows a member to get a seat on any flight that still has a seat for sale is a valuable option for members who do not have flexibility in the travel plans. AAnytime Awards are not inventory controlled, so we are seeing more and more members enjoying the benefit of trading more miles for less time planning their vacations in advance.
Response by Delta's Jeff Robertson
First, I recommend members utilize delta.com and sign-up for our SkyMiles e-mail distribution lists. This is the easiest way to stay abreast of earning and redemption opportunities.
On the earning side, I recommend members look at our more than 100 partners, especially our SkyMiles cards from American Express where one can earn upward of 10,000 miles just for signing up and using the card once. Members also can earn miles for practically every activity they do on a daily basis, such as paying bills, shopping and dining out. SkyMiles Dining & Hotels is another easy way to quickly earn a lot of miles.
On the redemption side, members should be sure to plan ahead and try to be flexible with their schedules. Delta.com is a great way to search for available seats and last-minute Award Travel availability. Members also can redeem miles with our more than 20 worldwide airline partners. And, earning Medallion status helps because it opens up more award seat availability.
Response by United's Ken Feldman
Concentration of accrual on one airline—especially one like United with an extensive travel and partner network—will facilitate the best earning opportunities. This breadth also provides considerable options and opportunities for more personal, meaningful redemption choices. United will continue to be an industry innovator on both sides of this equation.
9. Industrywide, what frequent-flyer marketing trends do you anticipate in the foreseeable future?
Response by American's Kurt Stache
We anticipate trends toward further customization and more partnership options that cater to our varying types of members. It’s important to offer a program that is relevant to the customer and allows the customer to choose how he would like to participate and how he will be rewarded for his loyalty. We also expect the low-cost carriers to continue to try to improve their programs to mimic more robust programs like AAdvantage.
Response by Delta's Jeff Robertson
I see more worldwide alliance and non-travel benefits. The Legacy carriers are moving into new markets, and it’s only logical that their loyalty programs follow. Similarly, I believe the Legacy frequent flyer programs will become a more prominent differentiator versus the low-cost carriers. The smaller carriers will increase the complexity of their programs, but loyalty programs like Delta’s will continue to have a competitive advantage due to their size, technology and breath of network.
Response by United's Ken Feldman
The travel loyalty landscape has become more competitive—not just with the development of travel company loyalty programs, but with credit card companies and others. This will force airlines to be more creative about not just the earning and redemption parts of the equation but in regard to the recognition component of these programs as well.
10. Anything else program members should know going forward?
Response by American's Kurt Stache
If you aren’t already an AAdvantage member, sign up. If you are, concentrate your flying on American and your purchases on our AAdvantage partners to make the most of the program.
Response by Delta's Jeff Robertson
Obviously, the last few years have been a challenge. We are aware of customer concerns and working diligently to address them, but we will do so in a financially responsible manner. It’s important that we maintain and extend program elements that are most valuable and enable differentiation from our competitors. And, we also want to fix program areas that members find frustrating.
Our new international routes will provide members with more mileage-earning opportunities and new destinations for Award Travel redemption, such as Copenhagen, Budapest, Kiev, Tel Aviv. By May, Delta will be the number one carrier across the Atlantic and have the most flights to Europe from the United States. This should be a big plus for members.
Finally, I’d like to thank our customers, partners and employees for their loyalty, dedication and 25 years of frequent flyer success.
Response by United's Ken Feldman
Fly United and join Mileage Plus because United is innovating our program to offer more personal, meaningful choices for earning and redeeming miles that fit our customers’ individual needs.
Program Profiles
| | American AAdvantage | Delta SkyMiles | United Mileage Plus |
| Program Start | May 1, 1981 | September 1981 | May 6, 1981 |
| Current Members | 54 million | 40 million | 48 million |
| Number of Airline Partners | 30+ | 19 | 27 |
| Total Partners | 1,000+ | 100+ | 100+ |
| Alliance Tie-up | oneworld | SkyTeam | Star Alliance |
| Award Tickets Issued during 2005 | 2.4 million [1] | 3.3 million [2] | 1.7 million [3] |
| Upgrade Awards Issued during 2005 | 863,859 | Not disclosed | Not disclosed |
[1] On American, American Eagle and AmericanConnection
[2] Includes awards on partner airlines
[3] Figure is for 2004; 2005 not yet available
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