Do Frequent Flyer Programmes Generate Loyalty?

Frequent flyer programmes are not as good as they used to be.
Do they generate loyalty? I think they do.
I used to have a BA gold card 15 years ago and I felt I was treated like someone special.
I changed to KLM because BA are not interested in flights outside fortress Heathrow, so KLM and Schipol are much better with connections from most UK airports.
KLM obviously thought loyalty programmes were very important.
The result was, it became too easy to have a card for lounge access.
It became ridiculas. The KLM lounges at Schipol had elite? travellers packed in like sardines. It became more elitest not to uses the lounges.
I have a Patinum card for life, so no need to rack up the points but airmiles are nice to collect.
I still use KLM when possible, I like them. I dont like KLM UK Cityhopper.
They are not so professional as mainline.
Your chances of a free upgrade, absolute zero.
To them pax are pax.
In my view the biggest plus for being a card holder, is priority check-in.
I think though that generally because fares are very low, probably on a par with locos in most cases. For this reason, you no longer have the luxury of lounge access when not flying with KLM. In the old days you did.
However,in the final analysis, I think they do bring in extra pax.
Especially for those whose fares are paid for by the taxpayer.

Oh, and to answer the original question – “Do Frequent Flyer Programmes Generate Loyalty?”

The answer is no, they do not generate loyalty. But they do help to ensure continuity of / preserve loyalty. However, this will increasinly be more selective and some customers will find themselves disenfranchised from frequent flyer programs as airlines seek to preserve loyalty from only those customers that they really want/need to remain loyal

Andy

OK, based on a number of years working for airlines, and more recently working on IT systems that support airline loyalty, I’ll make a few observations…

Interesting rdc, but I think you are wrong with what you are saying

Andy

But you don’t say in what way?? LOL. I’m not saying they have no influence at all, I still think they are important, but I do think their influence has been reduced. What I wrote was based on research carried out by others, not on my own original research in this area. I think Gears Up’s research will be interesting.

Interesting rdc, but I think you are wrong with what you are saying

Andy

This is part of my dissertation, where I was discussing barriers to entry, below is an extract of the reducing impact of FF programs. Also, the main issue was that, before the grwoth of the LCC (related to other reductions in market entry barriers), new airlines were trying to compete at the same fare level, with the same level of service, but they couldn’t offer FF programs or the network to back them up, so passengers felt they may as well use the airlines with FF programs. Now, passengers have more choice on the basis of price, and therefore may nto be so loyal to airlines providing loyalty programs. There has been much written on this subject.

In recent years several noticeable changes have occurred to many Frequent Flyer Programs. These have to some extent diluted their efficiency as tools to gain and retain customers.

One of the major problems that has occurred is that the programs have become very complicated for the customers to understand. The restrictions of both accumulation and usage seem to be forever changing. Some have argued that there have been positive changes to blackout dates and expiry dates of points (Andreen et al., 2001) but in reality these are often offset by the growing complexity of which ticket purchases will earn passengers points.

In some respects the frequent flyer schemes are becoming victims of their own success. The airlines have gained so many members that they are now cautious about the number of points they award for fear of diluting their profits. Typically redemption in the US is around 25% of points awarded each year, if the full 100% were to be redeemed it could be disastrous for an airline, particularly one that is already suffering financial problems. Therefore many incumbent carriers are reducing the number of points they award each year by imposing tighter restrictions on which fare levels passengers must pay before receiving points, and it has even been suggested that the major carriers have considered suspending awarding points on short sector flights, as these can be made frequently each year and accrue huge amounts of points (Barker et al. 1996). For the contestability of the industry this would be beneficial, especially as these are the route types that are likely to attract new entrants anyway.

Furthermore reducing the points awarded on these routes could reduce their effectiveness even more as these are the typical routes for frequent business travel. If passengers know that they will not receive mileage or points when booking trips then they are likely to use their company’s money more effectively and purchase a ticket with the airline offering the best fare, or most convenient service. In essence this counteracts the effects noticed by travel agents following deregulation in which passengers were willing to make changes to their itinerary (even as far as making connections through hubs when direct flights were available or rejecting cheaper flights) in order to obtain points and therefore stay loyal to an airline.

From the late 1980s onwards airlines started to offer additional ways of redeeming points instead of using them for free flights or upgrades. Such schemes included hotel stays, car rental discounts and meals in restaurants. Initially these were benefits and allowed a greater level of redemption, thereby satisfying passengers who were not acquiring sufficient points for flight benefits prior to them expiring. In some ways though this has reduced the purpose of the schemes, and this has been exacerbated by the introduction of similar benefits by other industries such as the retail sector. These loyalty schemes by new sectors are often now more efficient and customers can gain points for the schemes by using any subscribing service, whereas with many (but not all) frequent flyer schemes the accumulation of points is still restricted to the purchase of airline tickets. As a result it could be faster now for a customer to gain points for a free restaurant meal or hotel stay by using a Nectar Card than using British Airways’ Executive Club. This would certainly be the case when accounting for a typical family who may gain points on their Nectar Card through the use of supermarkets, filling stations and other practical day to day expenses as opposed to monthly business trips. For example, in order to qualify for a free return flight from the UK to France, the British Airways website quotes 12000 miles needed on their program. For each mile flown passengers receive 1 mile on their frequent flyer card. So to justify one return trip to France each year a passenger would have to fly an average of 1000 miles per month. Looking at the Nectar Card by comparison it would take less than 1 year to gain return Eurostar journeys to France and Belgium by spending money on everyday items .

Because people are being rewarded outside of air travel and gaining their benefits then they may be less sensitive to booking flights based upon the frequent flyer points they will accumulate.

At the time of that Pan Am went out of business passengers were trying to use their frequent flyer points as quickly as possible before loosing them forever with the collapse of the airline. So in recent years, following IATA recommendations, most airlines have included a clause within their schemes which permits them to close or amend their schemes at anytime. Currently passengers are unlikely to be aware of the implications of this which could lead to a financially struggling airline closing its scheme so as to protect itself from the liability of the value of unredeemed points. At this point the passengers would loose all their points that they have accumulated from using a given airline no matter what the cost or inconvenience. As such this has not happened yet, though with several major incumbents having been close to bankruptcy in recent years the temptation may have existed to implement this clause. Should any airline close their scheme to protect themselves it would undoubtedly impact on the effectiveness of all loyalty schemes within the industry as people would question whether the risk is worth the additional money they pay for their ticket.

The spread of Information Technology systems since the mid 1990s has further reduced the demand on business travel. It is now quick and easy to hold a business meeting using videophones across several countries at one time, and the cost of the technology for this has reduced substantially. General business practices have changed over this period as well. Integrated carriers such as UPS, DHL and FedEx have grown in size and now carry documents for firms who would have previously had these transported to international meetings and offices by company employees. Combined, these factors have put pressure on the number of business travelers making regular trips. This in turn has affected the frequent flyer schemes. Previously most passengers using such schemes did so because their employers paid for full fare flights and the employee could claim the points and redeem them against leisure flights. However as the number of trips is reduced, employees are using their memberships less. Therefore they are having to pay for more of their leisure trips, and when doing so they are more likely to be susceptible to the price of the tickets, which will always benefit new entrants in a contestable market because they can only justify entering a market by undercutting the fares of the incumbent carriers.

One final point regarding loyalty programs is that some governments have acknowledged the potential for them to be anti-competitive. In Germany for example, Lufthansa has to allow new start-up airlines to join their frequent flyer program, which will at least give the option to these airlines to start on an equal footing with Lufthansa in this respect.

As I travel to the States 3 times a year I have joined Continental’s frequent flyer club. The fact that they had such a club was not instrumental in flying with them. Their awards programme was fairly good when I started a few years ago but now they have cut back on points given for certain fare classes and reduced the points given for booking on line from 1,000 to 500.
You also have to be careful and check your statements. They charged me $800 for upgrades for my wife and I which we did not get. I trust that this is being resolved as I write.

Yes I think so.

I will always fly bmi or star alliance were possible as i am a diamond club member. The rewards are very good even on economy fares.

I know most government workers [within NI] who fly to London over the course of their duty will fly bmi due to various contracts and hence due to diamond club and its reward system will use bmi or star for all onward travel after arriving in LHR.

E.g. My dad flew to London from Belfast for work last Monday. On Tuesday, even when it was the most expensive available he flew to Manchester with bmi rather than BA etc due to gaining points on diamond card.