Just How Frequent, Again?

There was an interesting story on the news the other day about some disturbing new developments in the Airline industry – even more disturbing than charging money for checked bags and food, I mean. By this point there’s really no point in arguing that the industry as a whole (at least in the United States) is in dire trouble, and even future bailouts (your tax dollars at work again!) will not prevent many of the carriers from going under. But this most recent development is an indicator not only that the companies involved are feeling the ground getting shaky under their feet, but also that some of the disasters predicted years ago may finally be coming true, as poor management decisions come home to roost…

The story concerned moves by several major US airlines to curtail use of their Frequent Flyer rewards programs, by increasing the number of miles or “points” needed to obtain a free ticket, cutting in half the time customers have to redeem their miles (from 3 years to 18 months), and worst of all, by requiring fees to redeem those free tickets – anything from $25 on some short domestic flights to a whopping $350 on some overseas flights. The fees are being called “fuel surcharges” just like the fare hikes on tickets you pay for out of pocket, but with no real prospect of jet gas prices ever going down, those fares are probably permanent, and the amount you save on a supposedly free ticket has dropped anywhere from 5% to 65%. Or, to look at it another way, your “free” ticket is now being offered at a discount of 35% to 95% -- possibly a quite large discount, but no longer a free ticket by any means…

The airlines are claiming that these are still free tickets, and the fuel surcharges are only temporary. They’re defending the higher redemption rates and shorter life spans of the points by claiming that since they’ve added all manner of other things that you can buy with your rewards miles (e.g. rental cars, hotel rooms, merchandise, even magazine subscriptions) that the new programs actually offer better value than in years past. But customers seem unconvinced; one corporate executive was quoted as saying that it seemed inefficient to spend $500,000 and in return get a year of Reader’s Digest…

What makes all of these even more upsetting (and possibly hysterical – it depends on how you feel about airlines) is that this crisis was predicted over five years ago by Professors Bazerman and Watkins, in their book “Predictable Surprises.” The good doctors noted that the frequent flyer miles owed to passengers were, at least from an accounting standpoint, a huge debt that the airlines had incurred while trying to draw all of the frequent flyers to themselves. Since any such program would immediately be duplicated by all of the companies in the industry, all of the airlines were effectively mortgaging their future to gain an advantage in the present that could never be preserved. They predicted that the airlines must either begin defaulting on these promised flights (incurring huge lawsuits) or begin devaluing the reward miles themselves…

Of course, a lot of people have come to look at frequent flyer miles (and the attendant free tickets) as their right as passengers, not as a misguided (and possibly suicidal) marketing strategy that has now brought a troubled industry even closer to the brink. They will not react well to their miles dying off even faster than before, and as a result air travel in the US is going to decline even faster. In fact, it seems likely that the more fees, surcharges and rate hikes the airlines pile on to their remaining customers, the fewer customers are likely to remain in the air…

I’m not sure where all of this is going to end, but I know that if you were planning a career in the Airline industry, you might want to consider a change – and if you were saving your frequent flyer miles for a big trip in a few years, you might want to consider moving up your departure date. While you still can…