- Many travelers are finding their frequent flyer benefits less rewarding as airlines like Delta Air Lines and American Airlines adjust their loyalty programs.
- Frequent flyer programs are a major profit source for airlines, often more lucrative than ticket sales, with benefits including status tiers and lounge access.
- The shift from mileage-based to expenditure-based status in frequent flyer programs reflects airlines' focus on profitability and changing economic conditions.
Adjusting Frequent Flyer Programs Amidst Growing Concerns
As the U.S. holiday travel season gains momentum, passengers are observing a decline in the value of their frequent flyer benefits. Notably, Delta Air Lines overhauled its frequent flyer program in September 2023, initially making it more challenging to earn status before partially reversing these changes. American Airlines also revised its loyalty scheme significantly in 2022 and made additional tweaks in spring 2023. Meanwhile, British Airways is altering how it awards travel points. This has led to questions about the fairness and accessibility of such status, especially given the often unpleasant experience of flying.The profitability of airlines is largely dependent not on ticket sales, which are minimally lucrative due to the competitive nature of the industry, but on ancillary fees and frequent flyer programs. Earning status on many airlines can be achieved either by frequent flying, which involves spending considerable time in busy airports, or through substantial spending on rewards credit cards. Delta Air Lines' recent financial reports show a substantial income from selling credit card miles, underscoring the significance of these programs.
The Complex Dynamics of Loyalty Programs
Businesses across various sectors, not just airlines, offer rewards programs designed to offer customer value while encouraging brand loyalty. For airlines, the costs of offering early boarding or lounge access are minimal, yet these perks are highly desired by customers. However, setting the right threshold for achieving status is challenging. Too low a threshold saturates the exclusivity, diminishing the value of early boarding and congesting lounges. Conversely, too high a threshold leads to customer dissatisfaction.The criteria for achieving frequent flyer status fluctuate with the economy. During prosperous times, as more people travel, airlines tend to tighten frequent flyer rules. In contrast, during economic downturns, airlines ease these rules to encourage travel. The COVID-19 pandemic saw airlines making it easier to earn or maintain status due to reduced travel. Now, with the economy recovering and travel returning to pre-pandemic levels, airlines are tightening these rules.
Financial Implications of Reward Programs and Credit Cards
Many airlines are transitioning from a frequent flyer status model based on miles traveled to one based on dollars spent, aligning the benefits offered with the value received from customers. While these programs are profitable for airlines and credit card companies, the benefits for cardholders are less clear. Rewards cards often come with annual fees and can accrue significant interest charges. Additionally, the interchange fees charged to merchants for transactions with reward cards can lead to price increases for consumers.For the typical flyer, the financial dynamics of reward card use are complex. Those who pay off their balances in full every month might break even with the extra fees, while those who don’t, or use cash and debit cards, effectively subsidize the travel of more affluent cardholders. This system results in less financially savvy or lower-income individuals bearing a disproportionate cost.
Future Prospects for Frequent Flyers
The airline industry has experienced cycles of prosperity and downturn since its deregulation in the 1970s. Currently, with high demand and full flights, airlines have less incentive to offer generous frequent flyer benefits. However, this trend may reverse in the future, with more rewarding opportunities for flyers when airlines face lower demand and excess capacity.In the interim, the recommendation for travelers is to opt for credit cards offering cash back rather than airline miles. Cash provides more flexibility and stability compared to miles, which can be devalued by airlines without notice. Furthermore, even the highest status offers little solace in the face of increasing flight delays and other operational challenges.
