Advertisement
Are credit cards killing mileage programs?

There's been plenty of digital and physical newsprint dedicated to the notion that airline loyalty programs are losing their cachet with consumers. It's a drum I've been beating for several years, lately with an increasing sense of urgency.

A little-told side story is the proliferation of non-airline travel rewards schemes, in particular those of the credit card programs. As AAdvantage, OnePass, WorldPerks, Mileage Plus and the like have shed value, Capital One No Hassle Miles, American Express Blue Sky, and Citibank PremierPass have gained greater traction with consumers, often at the expense of the same consumers' engagement with airline programs.

Advertisement

The rise of the credit card programs is both a cause and effect of the airline programs' erosion. The ready availability of awards—a benefit widely trumpeted by the credit card schemes—shines an unflattering light on the airlines' onerous capacity controls, reminding consumers just how ungenerous the airline programs have become. And the well-documented loss in value of airline miles makes the credit card programs an increasingly attractive alternative.

A newly released study by consulting company Oliver Wyman, "The New Economics of Loyalty Programs," summarizes the situation as follows:

"Airline loyalty program currencies clearly have suffered the most over the past few years, as customers perceive that less aircraft capacity is earmarked for rewards, lowering the implicit value of airline miles. In a WebFlyer survey, customers reported a 50% success rate with airline award availability, compared to a reported success rate of 75% with hotel awards.... With credit card companies increasing more earn and burn options, customers are learning to bypass the traditional airline loyalty program, putting the viability of this traditional model in question."

That's worth repeating: the viability of airline programs is in question.

While it has become routine among consumer advocates to vilify airline marketers for their apparent callousness or obtuseness when it comes to the needs of their customers, they're not dummies. So we have to assume they understand that their loyalty programs are losing their relevance. And it further stands to reason that that prospect concerns them.

What, then, can airlines do to stem their programs' loss of value? According to the study, "What customers care about is no longer just miles or points. They want options, and successful programs will address that priority straight on."

I'm not at all sure the solution to the problem is a proliferation of options. What the programs are missing is predictably good value: Reliably available awards at reasonable price levels.

With that in mind, here's an idea for befuddled airline marketing executives: Allow loyalty program members to redeem 25,000 miles for a domestic award ticket on the day of their choice at least 75% of the time. In fact, guarantee that level of award availability. Make that the program's central selling point, much as Capital One has made it theirs, incorporating the promise into the program's very name.

Problem solved. Airline programs regain their legitimacy, and credit card programs are again relegated to second-class status.

Read comments or add your own insight!
Please enable JavaScript to properly view and use this web site.