Year 2000 Was: a) a Good Year, b) a Bad Year, or c) an Indifferent Year? [Choose One]
This year, against a backdrop characterized by missteps, airlines did well simply by doing no harm. It was a year where the interests of investors and employees trumped the interests of the flying public. Frequent flyer program members will remember 2000 as a year that the positives and negatives largely offset each other.
The following are the moves and countermoves?the Good, the Bad, and the To-Be-Determined?that I think were among the most significant during 2000. Most are mileage related because that’s our focus. But two others are more general, deserving mention because of their scale (United’s bid for US Airways) and potential impact (the United bid, plus American’s extra space initiative).
This was the year that American did what I once heard Bob Crandall, American’s longtime leader (now retired and one of the industry’s most respected figures), swear would never be done: it increased the legroom throughout the economy class cabin. I recently had a chance to ask Crandall about the reversal (enacted by his successor, Don Carty). He explained that the move was necessary to maintain its share of the Chicago market against United, which had introduced Economy Plus (added legroom in just the first few rows of coach).
Whatever the reason, the move was a bold one and deserves the thanks and support of back-of-the-bus air travelers everywhere. Unfortunately, other airlines have not felt sufficient competitive pressure to match American’s initiative, presumably due to the robust economy and the resulting healthy air traffic. Ironically, it appears we will have to wait for a recession for other airlines to bother fighting for our business.
American finally launched AOL AAdvantage Rewards. While the program begs questions as to how it relates to the “original” AAdvantage, and seemed somewhat underdeveloped when it debuted in October (rushed for competitive reasons, perhaps?), it is a positive evolutionary development for at least one reason. It permanently institutionalized the miles-for-merchandise feature of frequent flyer programs (although we’re not especially impressed with the value of miles when redeemed for merchandise, which is substantially less than the $0.02 per mile conversion rate benchmark).
Delta to Chargers: “Take Two”
Delta’s year-2000 claim to our mileage-related heartstrings was its new double-miles-for-staples feature added to its co-branded SkyMiles credit card. If this were simply a limited-time promotion, it wouldn’t warrant mentioning. But as a permanent benefit, it’s a welcome step.
United to Elites: “Sorry”
While the havoc wreaked by their discontented workforce dinged United service-wise, revenue-wise, reputation-wise, and otherwise, they are due some credit for making a good-faith effort to mollify their abused and frustrated customers?at least those who were elite members or were on track to attain elite status for 2001. United’s lowering of elite qualification levels, and other “forgive us” gestures made toward current elites, stands as a serviceable precedent for using frequent flyer miles to address customer service shortfalls. What’s left for next year is to establish a precedent for compensating non-elites.
Another new launch worth noting is MilePoint. MilePoint extends the common-sense notion that miles are a kind of currency, and as such should be convertible and fungible. The basic idea isn’t new. We’ve seen miles-for-merchandise offerings on a small scale from other programs before, and most recently from AOL AAdvantage. But MilePoint is a step forward in two respects. First, it allows frequent flyers to combine miles from different programs into a single currency, MilePoint Money. And second, it gives miles a fixed value of $0.02 per mile.
Northwest Just Says “No” to Cybersavers
Just when we thought Northwest was on track to sneak through the year without embarrassing themselves (as they did last winter for holding passengers captive on a snowbound plane), they made a less sensational, but perhaps more far-reaching customer-unfriendly move. Putting yield first, Northwest in October summarily began withholding mileage credit for cyberfares.
The reaction in the frequent traveler community: Bad move, badly made.
Is United to Blame for Higher Airfares?
United just couldn’t get it right with its employees, and customers paid the price in delays, cancellations, and lost mile-earning opportunities. So far, what’s gone largely unmentioned is the link between the contract the airline finally negotiated with its pilots and United’s bid for US Airways. My take is that United gave its pilots the most generous compensation package in the industry. One major reason was because it was in the midst of making a case for its proposed US Airways acquisition to unions, stockholders, and government regulators. Furthermore, the pilots’ highly publicized labor disruptions threatened to derail the merger. In other words, United caved to the pilots in order to keep the merger on track.
Higher pay?even exorbitant pay?for United’s pilots is neither good nor bad. But consider the aftereffects: other United unions are already lobbying (and ultimately may be striking) for commensurate pay increases. On a wider scale, the corresponding unions (pilots, mechanics, flight attendants, etc.) at other airlines are beginning the battle for parity with their United counterparts. The inevitable result will be higher ticket prices industry wide.
So, knitting together cause and effect: consumers will pay higher airfares because United wanted to buy US Airways.
SkyMiles Members Disenchanted with Upgrade Changes
Change is a good thing. Except when it isn’t.
Delta got a lesson in “isn’t” this year when they disenfranchised their best customers by amending their elite upgrade policy. In response to the change, a group of concerned Delta SkyMiles members put up a website (http://SaveSkymiles.com) to publicly express their displeasure and rally others to the cause. Surely to Delta’s discomfort, that website has garnered a lot of media coverage, thereby keeping the issue alive and Delta’s feet to the fire.
If you had your ear pressed to the tarmac, you surely heard rumors over this past year that the Oneworld alliance was crumbling. There were several versions of the story: American was bailing, or British Air was, or Cathay, or Qantas. All were denied by officials of the airlines concerned. True or not, it forces you to think of the airline landscape in terms of the network of interlocking alliances, and to consider how that landscape would change if any of the individual groups self-destructed.
UA to buy US?
There are two schools of thought on the proposed United-US Airways merger: it will happen, or it won’t. The “won’t” camp (where my tent is pitched) is betting that federal regulators will disallow it on the grounds that it’s anti-competitive in the short term. In the medium term, it will force other airlines to merge, leading to widespread industry consolidation and further disintegration of the competitive forces that theoretically drive down prices and drive up service levels.
Notwithstanding the strength of such objections, project teams at both United and US Airways are working on integration. And US Airways’ marketing partners report that work on most future initiatives have been suspended in anticipation of a successful get-together with United.
Whither (Wither?) Online Programs?
Lastly, and something of an outlier in the context of click-and-mortar travel programs, 2000 was the year that the dot-com bubble burst. While that hasn’t significantly impacted traditional frequent travel programs, it is very likely to have a destabilizing effect on the new crop of online travel rewards programs. The players include the likes of ClickRewards, WebMiles, GreenPoints, e-Rewards, FreeAirMiles, Milesource.com, MileSpree, SmartMile, etc.
There is a place for these programs, but probably not for all of them. Even venerable MyPoints is teetering?its stock price has fallen so low from its high of almost $100 that it’s in danger of being de-listed on the NASDAQ. Consumers would do well to closely monitor the financial health of the programs in which they have mileage earnings, with an eye not only to the programs’ generosity, but also to their prospects for survival.
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