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What’s the Future of Frequent Flyer Programs?

With all the talk about the airlines’ financial “crisis,” lots of travelers are wondering about what might happen to their frequent flyer credit. One reader put it simply:

“What do you see as the future of frequent flyer programs?”

The short answer: Things will get worse, not better. But some travelers will fare better than others.

Still piling on the miles

Adding miles to your account won’t be a problem. In fact, you’ll probably see more rather than fewer opportunities to “earn” frequent flyer credit:

  • Airlines, eager to attract (or at least retain) your business, will continue to offer various extra-miles promotions.
  • Third-party miles merchants—credit card issuers and others—will continue to feature those airline miles as long as you, the consumers, are receptive to mileage promotions.

The net result will be plenty of miles in your account.

“Free” seats an endangered species

Just as your mileage accounts will overflow, you’ll find fewer and fewer opportunities to use them, at least for “free” flights and upgrades:

  • Almost all the big U.S. airlines are downsizing, with cuts of at least 10 percent nationwide expected by fall.
  • Pressure on the airlines to sell every possible seat has never been higher. To me, that means not just fewer award seats overall, it also means fewer award seats on each flight. Put those two together and you get a serious reduction in seats.
  • A disproportionate share of the flight cutbacks will be on routes popular with frequent flyers. Historically, average fares the airlines receive on flights to major tourist destinations such as Honolulu, Las Vegas, and Orlando are very low: Those routes attract comparatively few high-paying business travelers and they’re dominated by leisure travelers looking for rock-bottom fares. As a result, those low-fare routes are likely to face the most severe flight reductions.
  • “Free” seats won’t be so free anymore. Some airlines have already started charging a cash “fuel surcharge” on frequent flyer awards, and—as they usually do—other airlines are likely to copy that bad idea.

Europe and—to a lesser extent—other international destinations are uncertain. Most of the big U.S. lines are shifting at least some of their domestic capacity to international routes, so you see more flights to more different destinations than ever before. But profitability on those routes depends highly on business travel, and if the weak economy starts to drag on business travel, cutbacks apply to those routes as well as domestic routes.

Upgrades scarcer, too

A few big airlines have announced reductions in the number of upgradeable domestic first-class seats, and even absent any more reductions, most lines offer comparatively few. I expect scoring domestic upgrades and award seats in first class will be tougher than ever before.

Europe, again, is uncertain. On one hand, European flights typically have far more premium seats than domestic flights, so the seats would seemingly be there. But that doesn’t mean airlines will allocate them to frequent flyers.

Program changes

In addition to the scarcity of award seats, you can expect a general tightening of rules and more fees.

  • Other airlines will almost surely copy the moves by American and US Airways to charge fees for issuing any award ticket, including online. Fees for late issue and exchange of credit will probably go up, too.
  • Don’t be surprised to see further tightening of “use it or lose it” deadlines on accrued credit.
  • Expect a gradual upward creep in mileage requirements for “saver” level awards.

But the biggest question is whether the airlines will adopt far more drastic changes in their award schedules. Early this year, Delta announced it was planning a switch to three award levels—the lowest “fat chance” level (my term, not Delta’s) with hardly any available seats, a new intermediate “fair chance” level with up to half the seats in play for award travel, and a “good chance” level with almost all the seats available. Recently, I’ve seen nothing beyond this initial announcement, and nobody outside the airline knows whether it’s still on the table or has been scrubbed. However, if Delta does make such a move, you can surely expect other lines to follow.

Also possibly on the horizon: reduced earning for flying on cheap tickets. Most big international carriers already award only partial credit—or none at all—to travelers on the cheapest tickets. It’s hard to see how the U.S. lines can’t be envious.

Less flying, more merchandise

How’s this for a business proposition: Sell credit to merchants for up to 2 cents a mile, then redeem it in merchandise at a cost of less than 1 cent a mile? Sounds a lot more lucrative than flying airplanes these days. It’s hard to see why the big airlines haven’t piled on that bandwagon to a much greater extent than they have. Certainly the banks and American Express have seen that opportunity.

So far, only a few airlines have gone this way. But given the scarcity of award seats, offering frequent flyers an alternative way to use their credit would seem a no-brainer, especially when it would generate a fat profit.

Elites win, ordinary consumers lose

Overall, airlines are likely to increase the bias of their programs—on both the earning and award sides—to favor the small minority of elite frequent flyers over mere mortals who travel only a few times a year. That means more award seats for high-level flyers and fewer for the rest of us. And it especially means that most upgrades and premium award seats will go to those “elites.”

It’s hard to fault the airlines for this: They get a huge share of their total revenue from a relatively small cadre of road warriors. And those are the travelers the airlines want to court. Ordinary consumers, who generally buy the cheapest available ticket, have little or no brand loyalty, so why vie for that loyalty?

Any upside?

The only significant upside to this dismal story is the likelihood that, as award seats dry up, the programs will lose some of their clout. When that starts to happen, airlines will likely end or at least temper the erosion of benefits.

Still, the outlook for all but elite travelers is dismal—and getting worse.

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