Requiem For A Free Seat

Latin Trade, Nov, 2000 by Mary A. Dempsey

Is the death bell tolling for frequent flier programs?

THE STORIES HAVE BECOME LEGEND. THERE'S THE PUDDING MAN, THE CALIFORNIA GUY WHO FIGured out a way to earn 100 American Airlines frequent flier miles for every 25-cent cup of pudding he purchased. He ended up with 1.2 million miles--worth 48 free domestic tickets--and 12,000 desserts. Then there are the LatinPass road warriors who zipped around the region earlier this year, cobbling together member hotel stays and flights in a quest to win a million-mile prize. Randy Petersen, editor of Inside Flyer magazine, hit the mark following three days of one flight after another and scenic views of the interiors of air terminals.

Those flying fanatics are discussed like heroes in many an airport lounge. But are the mile maniacs ever going to see free tickets for their labor? Some airline experts have their doubts.

"Frequent flier mileage will eventually be worthless because the airlines will be more interested in selling that last seat than in giving it away," Julius Maldutis, managing director of equity research at CIBC World Markets, told a conference of airline CEOs earlier this year.

Either Maldutis has gone mad or a consumer hurricane is surely brewing. Since American Airlines launched the first frequent flier program in 1981, the concept has become the most successful customer loyalty promotion in history. American's AAdvantage, which began with 750,000 members, is now the most popular frequent flier program in the world, with 40 million members. Even the slightest change to the rules brings massive class-action suits. American Airlines is offering millions of dollars in mileage credit and fare discounts to settle legal claims filed a decade ago after it altered the terms of its program. A similar lawsuit was settled against Delta Air Lines in 1998.

Talk of alterations in these promotions draws a strong denial from airline executives but, increasingly, frequent flier programs aren't serving their traditional function: to fill seats while encouraging customer loyalty. Thanks to a buoyant U.S. economy, many carriers are operating with their jets 80% full, the highest level since World War II. Airlines don't have to fight as hard to fill their planes. Instead of "giving away" seats, air carriers now sell them, slashing fares at the last minute on their official Web sites.

Can't get no satisfaction. Just as important, the very success of the mileage plans undermines their effectiveness. The more people jump on the frequent-flier bandwagon, the more compete for the coveted free seats. There are clear indications that the programs have hit a wall in terms of capacity. According to a recent study by Frequent Flyer magazine and J.D. Power and Associates of "factors showing overall satisfaction among air travelers," consumers rated frequent flier programs at the bottom of the heap, tied with airline food.

Embattled United Airlines is using miles as booby prizes to assuage angry passengers. In August, after weather and labor problems resulted in delayed and canceled flights, the airline apologized by giving its "Elite" status frequent fliers double bonus miles for the rest of 2000. But there is a move afoot among fliers to reject the miles--and send United a message of dissatisfaction.

Lucky seats. Award tickets are always available, but travelers have begun to complain they can't vacation where they want at the time they want. U.S. airlines allocate an estimated 8% of their seats for frequent flier freebies, but the carriers won't reveal precisely how the process works. The growing suspicion is that the airlines are cutting back on the award seats.

"They're still available. They've actually increased in number," says Martha Pantin, a spokeswoman for American Airlines. She could not, however, say if the number of free seats has grown at the same rate as enrollment.

"The complaints that you hear from travelers today, that there's such a limited number of seats available, may get worse," warns Stephen Roof, aviation attorney at law firm Shutts & Bowen in Miami. That's because airlines want the highest "yield" or dollar return for each seat on the plane, says Roof. With planes running nearly full, that puts pressure on the frequent flier pool.

Waning enthusiasm for free seats within frequent flier programs in the United States will be felt in Latin America. U.S. airlines move more than half of all travelers to and from Latin America and the Caribbean. Naturally, the region's airlines are joining them in global alliances [see chart] to extend their flight offerings and promote consumer loyalty. For example, Aeromexico recently joined Sky Team alliance members Air France, Delta and Korean Air in a mileage sweepstakes. The four carriers will ante up 2.6 million miles each, redeemable as freebie awards by contest entrants who answer questions at the airlines' Web sites.

The punch of such promotions and the alliances in general may suffer if frequent flier programs don't deliver free seats for brand-loyal travelers. Overall, Latin American carriers have been less aggressive, less sophisticated and less successful with their frequent flier programs.