Why Revenue-Based Programs are Bad for You — and Why You Should Jump Ship Now
Joe Brancatelli offers mostly sound frequent flyer advice but has a real soft spot for revenue-based frequent flyer programs that seems undeserved.
Joe thinks that revenue-based frequent flyer programs should be guide for business travelers who spend more than leisure travelers. As though it’s a coincidence that Delta’s and United’s move to being revenue-based next year also reduces value overall.When Delta Air Lines announced plans to reward miles based on dollars spent, not the number of miles flown, critics immediately decided that so-called “revenue-based” plans were bad for business travelers. The cries got louder when United Airlines mimicked Delta and adopted the same strategy.
Unfortunately, the complaints conflated two unrelated factors. Delta and United consciously used the switch to revenue-based accrual to mask devaluations of their programs’ total value. Revenue plans, by nature, should be better for business travelers because they recognize that we spend more than leisure travelers.
…In the longer term, the smartest airlines and hotels will reward our superior revenue contribution with superior rewards. We should be ready to move our business to those companies.
Now, granted, United just copied what Delta did. And Delta thinks it is attractive enough in the current environment that it doesn’t need to be especially rewarding in order to fill incremental seats. They may be right. But don’t get confused by the “revenue-based programs are more rewarding than mileage-based ones for customers who spend more eeme. We simply are not seeing that.
United and Delta have both suggested that they are going to give out just as many miles next year. But they set the “break-even” point where flyers will earn as many miles next year as they do under the current program at 20 cents per mile flown. Since their actual revenue per seat is only about 75% of that, the math doesn’t work.
I don’t like revenue-based programs because there’s an inherent conflict of interest between employee and employer interests that these programs bring to an intolerable level.
Furthermore, the customer spending more money doesn’t always deserve to be rewarded with more miles. In many cases the lower revenue flyer is the more profitable one to incentivize through the loyalty program.
There’s also a meme that customers who don’t fly much will benefit — fewer miles earned via flying, miles from other sources don’t pull back, those credit card miles face less competition. At best that’s only true if you believe:
- that new award pricing represents a good value — how quickly we capitalize Delta’s and United’s big devaluations
- that availability will stay the same or get better — and there are reasons to think that with Delta, at least, that will not hold for partner awards.
Remember, these programs are huge money makers now. There’s no desperate need to up-end them.
We shouldn’t just accept the changes. Making our own travel decisions wisely, based on how well treated we are and how well rewarded for our business, makes sense — and is exactly what has influenced these decisions by programs in the past.
Delta took a risk with their new program. United is managing by doing what Delta does. It could well work out for Delta, but don’t just throw up your arms. Even if you think another airline could follow suit doesn’t mean you should not fly the other airline while they are more rewarding. And if you do, that’s exactly how you’ll incentivize their continuing to be more rewarding.
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