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Free Seats Are Good for Business. Really!

Remember the TV ads for the Capital One No Hassle Rewards [[Credit Cards for Frequent Flyers | credit cards]], featuring the comedian David Spade as a mileage program supervisor? (They’re all over YouTube if you missed them, or if you just want to see them again.) Spade’s message, which he delivers with evil relish, is that every customer request for a frequent flyer award should elicit the same response: No! The ads are memorable not only because they’re funny but because they ring true—they trade on the widespread perception that [[Frequent Flyer Programs | airline programs]] have indeed made award redemption a huge hassle.

What if the practice of limiting free ticket availability wasn’t just infuriating to consumers but downright bad business? Or to put it differently, what if there’s a business case to be made for giving away more rather than fewer free seats?

That’s the finding of at least one major North American loyalty program.

In a recent interview in the Toronto Globe and Mail, Rupert Duchesne, CEO of Groupe Aeroplan Inc., comments as follows on the relationship between awards and loyalty:

One thing that’s very interesting is that when they [Aeroplan members] do a redemption for an airfare or a gift card or an iPod they actually become more loyal afterwards for about a six-month period. Actually, the accumulation rate of the currency goes up substantially.

It’s as if when you’ve got a meaningful reward something in the back of your mind clicks and thinks that was a very valuable thing to do and you focus more of your spending on the partners that earned you the currency. We can prove that very clearly with the data that we have.

In other words, giving (awards) and getting (more business) are part of a virtuous circle. What’s good for the program member is good for the companies participating in the program. This is a lesson the U.S. programs, which see awards as a cost to be avoided, have yet to learn.

U.S. programs are larger and older than Aeroplan, so it’s fair to ask why they haven’t yet learned what Aeroplan has. My guess is that it is at least partly a reflection of the Canadian program’s status as a freestanding company operating in a competitive marketplace. Competition engenders intelligence.

Aeroplan is still often identified as [[Air Canada | Air Canada’s]] in-house mileage program. But while Air Canada remains Aeroplan’s largest and most visible partner, the program is now more accurately referred to as an independent coalition loyalty program—the coalition consisting of 70-plus companies that award Aeroplan miles to consumers who purchase their goods and services.

Aeroplan began life as the frequent flyer program of Air Canada. In 2002, the airline spun the program off as a wholly-owned subsidiary, and in 2005, Aeroplan shares were put up for sale in an initial public offering, making it the first publicly traded loyalty program.

U.S. airlines have flirted with the idea of selling their mileage programs, and the current economic malaise could force the issue back onto the list of tactics available to keep the airlines solvent until the economy rebounds. Perhaps if AAdvantage, [[SkyMiles]], [[Mileage Plus]], and other such programs were subject to the demands of the marketplace and directly accountable to shareholders, they would more closely examine the link between loyalty and rewards, and conclude, as Aeroplan has, that generosity pays.

If you’re an Aeroplan member, let us know whether you’ve found that the program is as generous in practice with awards as it purports to be.

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