Travel News

Frequent-Flier Program Changes And Other Airline News

Frequent Flier Program Changes With Scott McCartneyIn recent weeks, we’ve seen changes in the airlines’ frequent-flier programs, for better or for worse.

Peter checked in with The Wall Street Journal‘s Scott McCartney about the latest news in the frequent-flier game, as well as some other new developments in the airline industry.

Peter Greenberg: We’ve seen some movement in the frequent-flier programs in which Southwest Airlines revamped their program. Then Delta did something which seems to be a good move for travelers…

Scott McCartney: I think it is a good move. Delta eliminated the expiration date on its frequent-flier miles. Before, miles would expire after two years if you didn’t have any activity in your account. It caught a lot of people, made them furious when the airline just grabs the miles and takes them away. I think Delta realized that it was a major irritant and they ought to eliminate it.

PG: All right, but can I be devil’s advocate for a second? If it’s virtually impossible to redeem your miles then there’s no point in having an expiration date. The miles will expire before they’re ever redeemed.

Scott McCartney Radio Interview - Frequent-Flier Program ChangesSM: Well, that’s true. I think Delta is making a conscious effort to improve its redemption. They really got hammered in earlier studies. We report on people that have had a terrible time when redeeming with Delta. At one time, Delta had stopped reporting redemption activity, but they have now restarted reporting that. Everybody else reports it every year: how many awards were redeemed, what percentage of your passenger traffic is on your frequent-flier tickets. I think that’s because we’re going to see those levels come up some.

PG: And again, to be devil’s advocate, how much can they come up if they’re already filling 87 percent of their seats on average? They’re effectively flying full anyway, so what’s their incentive for displacing revenue passengers by giving away a “free” ticket?

SM: There is an incentive. The incentive is that accounting rules have changed and frequent-flier miles on your books are a bigger liability than they used to be. So there is an incentive to get rid of them. There is also an incentive since Delta got $500 million from American Express for the pre-sale of frequent-flier miles.

I think if you’re a credit card company, you’re trying to give your customers a loyalty award/ reward that’s worth something. If people can’t use their Delta miles, then American Express is going to find that there’s not much value to all those miles that they’ve pre-bought. So American Express can pressure them into something better.

Get tips on how to redeem frequent-flier mileage: How To Redeem Frequent-Flier Miles: Unusual Ways To Make Miles Work For You. And dont’ miss this clip from CBS Moneywatch: Best Ways To Use Frequent-Flier Miles

PG: You’re right about that. They’re trying to figure out other ways for people to redeem miles other than by giving them tickets. The one that makes me laugh is, I think about 12,000 miles, they’ll let you redeem that for a box of Godiva chocolates. Now let me tell you what we did. We found out what the Godiva chocolates retail for… they retail for under $40. How many dollars did you spend to get to 12,000 miles? We figured out you spent $4,200 effectively to get that box of chocolates.

Delta Plane - Delta Changes Redemption Policy, Eliminates Expiration DatesSM: Those are expensive bonbons. You can get gift cards, you can get just about anything with frequent-flier miles, but you’re absolutely right it’s not very good value. On average I think it’s worth about half a cent a mile. You certainly ought to be able to get a penny per mile value out of frequent-flier points. Out of some of the hotel programs you can do 2 cents a mile or better if you use them for upgrades and things like that. If you’re smart about how you redeem you can really do better. But turning your miles into chocolate is not a very rewarding way to go.

PG: Yes, Willy Wonka, mega frequent flier. Let’s move on because Delta did something that you actually like and I actually liked. They’re actually giving a little bit more room in coach on the long-haul.

SM: Yeah they’re going to start putting in premium economy cabins on their long-haul international flights. A lot of international airlines have done this. It seems to be very popular. It’s basically what coach used to be in the good old days when you actually had room for your legs. And on some airlines–not on Delta, but on some airlines–the seats in premium economy cabins are a little wider; sometimes you get better food service. It’s a choice between business class, which is very expensive, and coach, which is very cheap. But I think it is a reasonable choice. On the same front, United has decided to keep its premium economy cabin and expand it into the Continental Airlines’ planes. You could say, gosh, they made coach so uncomfortable they had to do something and now we have to pay extra for what used to be considered reasonable coach, but at least we have more options.

First Class Seat - Premium Economy On Long-Haul Flights For Elite FliersPG: And the nice thing about the Delta thing is if you’re one of their premium fliers, one of your elite mileage people, they’ll put you in that cabin for free.

SM: That’s right. If you’re not an elite level member and you have to pay, it tops out at about $180 or so. That’s actually significantly less than some of the competitors: Virgin, British Airways, Qantas, others who are doing premium economy. So I think it is going to be reasonably priced. I think one of the reasons why Delta will be cheaper is that it may not be as nice a product as you get on say Virgin where you do get a wider seat. But at least you’ll get 4 inches more leg room and a little bit more recline to the seat. If that’s the difference between sleeping and not sleeping on a long flight, or working and not being able to open your laptop, I think that’s a good way to go.

PG: I think if they really want to be doing truth in advertising they should have four classes of service. Are you ready? First, business, premium economy, and deep vein thrombosis.

SM: Yeah, 31 inches in seat pitch for a 10-hour flight is really tough.

PG: It’s cruel and unusual punishment.

SM: Some people may be upset and say you’re making me pay extra for what you should have provided in the first place. It is what it is today and people want cheap tickets and that’s kind of where we are.

Check out another informative radio interview on air travel news here: Frequent-Flier Rules and Airlines: Interview With Fortune‘s Leigh Gallagher

PG: One other piece of news on the business front this week: United and Delta, two of the airlines that handed out profit-sharing checks to their employees in the hundreds of millions of dollars.

United Airlines Boeing 747 Now Mostly RetiredSM: They did. They had a good last year. Every major airline last year made money and made significant money. Except for American Airlines, which lost more than $400 million last year. But United profits were more than $800 [million]; Delta I think was north of $500 million. It’s a big turnaround after years of losing billions and billions of dollars.

PG: They didn’t earn that money because of just airfares, they earned that money because of checked bags and ancillary fees.

SM: In fact, at a carrier like US Airways basically the entire profit comes from baggage fees, cancellation or change fees, all of that extra revenue. I think you can make that case at United. It’s a model that’s working for airlines and at the end of the day airlines have to make money. They have to be able to invest in new aircraft and that is a good thing for travelers.

By Peter Greenberg for Peter Greenberg Worldwide Radio.

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