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Airline Programs: The Beginning of the End... Or the End of a Good Thing?

In 2015, Delta Airlines rocked the points world with a radical change on how it awarded points.  They changed from a mileage-based measurement system to a "revenue-based" approach.  No longer if you flew 1,000 miles would you earn 1,000 points.  From then on, Delta Skymiles members were awarded 5 times the dollar spend on each flight.  So, in this case, for instance, if you paid $200 (ie. separate from taxes/fees) for your 1,000-mile flight, you would earn 5 X $200, or 800 points rather than the traditional 1,000.

The following year American Airlines AAdvantage program copied this formula; and this year United MileagePlus has joined the club.

From a business point of view, the new method makes more sense than the rather arbitrary mileage-based system of the past.  Why would an airline award two customers flying the same flight and sitting in the same cabin the same mileage if one paid more than the other?  And why would an airline reward a customer for flying X number of miles?  Obviously it makes more sense to reward the customer based on how much money they spend.

But, as you can see by this example, the average Joe will suffer; and in most cases the big-spenders will benefit.

Say you flew that same 1,000 miles, but bought a business class ticket for $1000.  In this case, you'd score a whopping 5,000 points for a 1,000-mile flight.  Even with the old 25% - 50% bonus miles formula for business class, you're earning far more points now than under the old regime.

Furthermore, all three airlines have rigged the system to benefit their top tier members.  The higher the tier you belong to, the more miles per dollar spend you earn.  A Gold member earns 7 X dollar-spend; an Executive Platinum member earns 11!  It's like the old saying, "The rich keep getting richer."

So, for Canadians, who typically focus on Aeroplan and Westjet Rewards, why should they care?  Well, first of all Westjet Rewards has always been a dollar-oriented program.  But the question is this: will Aeroplan follow the same route?  With all three major US airlines now gone down this path, and Westjet already there too, it would seem inevitable that Aeroplan will follow the pack.  In fact, this might be the most important reason Air Canada spent so much money two years ago buying back the program they had spun-off so many years before.  There was little incentive for Aeroplan, the private company, to go this route; and every reason for Air Canada to want this change.

It seems like no coincidence that even before the official transition of ownership has happened, Aeroplan has already announced major changes to its own status program.  All for the bad.  Likely Air Canada will retire the Aeroplan status program, which has always been very confusing to members, and focus on their own status program, Altitude.

There are other changes happening south of the boarder - changes to how status is awarded, changes to what you can or cannot do when you redeem awards (mostly what you cannot do!), etc. that will likely eventually infect the Canadian program.   

So, are we seeing the full unravelling of airline points programs, or is it just evolving in a way that punishes the infrequent-flyers and rewards the frequent?  I think loyalty programs are here to stay.  There's no closing the Pandora's Box; and in fact airline executives will confide that they love them!  They earn a lot of money from credit card partners and other partners, in fact.  But, I think you will see that for the "small guy" points programs will eventually be next to worthless.

 

 

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