Bloomberg Businessweek - USA (2019-11-25)

62 In2013,I redeemed70,000UnitedMileagePlusmilestofly
LufthansafromNewYorktoFrankfurt,thenontoBangkok
onThaiAirways—allfirstclass.
MyLufthansaseat,oneofjusteightonthetopdeckofa
Boeing747-400,includeda spaciousarmchairandseparate
bed.OnThai,I rememberbeinghandeda glassof 2004 Dom
PérignonbeforeI’devensettledintomyseat.HadI paidfor
it,theticketwouldhavecostmealmost$10,000.
Todaya similarticketstillcostsabout$10,000,butI would
need140,000UnitedMileagePlusmilestobookit.Didmy
milessimplylosehalftheirvalueinsixyears?Ina way,yes.
Buttheanswerwillsoonbeirrelevant.
Tooptimizerevenue,airlinescontinuetorestructuretheir
loyaltyprogramstofocusonthehighest-valuecustomers,i.e.,
theoneswhospendthemostcash,divorcingtheideaofa
“mile”fromactualtravel.Wecantracethebeginningofthe
endto2009,whentheNewYork-basedJetBlueAirwaysCorp.
joinedtheupstartSanFranciscocarrierVirginAmerica(R.I.P.)
inputtingintowiderpracticea uniquetypeofloyaltypro-
gram:Flyersearneda setnumberofpointsperdollarspent
onairfare,thencouldredeemthemata fixedrate,alsobased
onairfare,ratherthanondistancesflownorregionsvisited.
Onotherairlinesatthetime,passengerswouldusually
earnmilesbasedonthedistanceoftheirflightandcould
redeemthematsetratesaccordingtoa printedawardchart—
forexample,12,500withinNorthAmericaonDeltaorUnited,
or67,500AmericanAAdvantagemilesfromtheU.S.toAsia
infirstclass.(Thesameinternationalawardcannowrange
from110,000to235,000miles.)If youfoundanawardticket,

50,000

oMILES

o

5,00

o

MILES

o

75,

o

MILES

o

100,000

oMILES

o

Mile’s End

Howwelovedfrequent-flyer

programstodeath.ByEricRosen

youcouldredeemcheaplyearnedmilesforit,nomatter

whatthepaidairfarewasthatday.

Now,thoughsomefrequent-flyerprogramsaremak-

ingmoreawardseatsavailable,theyhavealsobegunpric-

ingredemptionratesdynamically,morecloselypeggedto

thepriceofairfare;DeltaAirLinesInc.andAirFrance-

KLMdon’tevenhaveawardchartsanymore.Sometimes

thisworksoutfortheconsumer,likea DeltaSkyMiles

“flashsale”inJanuarythathalvedthepriceofa round-

tripeconomyawardfromtheU.S.toAsiato30,000miles.

Butmostlyit meansthatnotonlyisit moreexpensiveto

earnmiles,it’salsomoreexpensivetoredeemthem;some

awardscosttripleorevenquadruplewhattheyusedto.

Creditcardcompanieshavealsohadtheirparttoplay

inthisinflation,mintingmileswitheverydollarspent,

whetherontravelornot,andfloodingthemarketwith

flashysign-upbonusesthathavecausedanarmsrace.

Whilea mixedbagforconsumers(everybodyit seems,

evenpeoplewhodon’tflyregularly,is sittingonmountains

ofmiles),thishasbeenunequivocallygreatforairlines.

Today,AmericanAirlinesGroupInc.profitsmorefrom

itsco-brandedcreditcarddealswithCitibankNAand

BarclaysPlcthanfromflyingjets.

Likewise,ina mid-2000sdeal,AmericanExpressCo.

helpedbailoutDeltabypurchasinghundredsofmillions

ofdollarsofSkyMilesthatAmExcouldoffertopotential

cardholdersasincentives.RenewedinApril,thepartner-

shipis expectedtogenerate$7billioninrevenuea yearfor

theairlineby2023.

Couplethiswiththemassiveconsolidationintheair

industryhappeningovermorethana decade—leadingto

fewerfrequent-flyerprogramsandfeweravailableseatsto

book—andit’snosurprisetheeraofbraggingaboutaward

ticketsis mostlyover.

Anestimated4.6billionpassengerswillflyin2019,up

from2.5billionin2009,accordingtotheInternationalAir

TransportAssociation.If thefrequent-flyerprogramtrends

continue,andthere’snoreasontothinktheywon’t,air-

linemileswillsimplybecomea glorifiedformofcash-back

currencywhereeachtypeofairlinemilehasan(almost)

precisecashvalue:about1¢,sometimesless.

Ontheotherhand,flyerswillknowexactlyhowmuch

valuetoexpectoutofanymilestheyearn,andairlineswill

probablymakemorewaysofredeemingthemavailable.

“OurultimategoalisforSkyMilesmemberstohavethe

choicetousemilesanywheretheycanusecashwithDelta,”

theairline’sseniorvicepresidentforloyalty,SandeepDube,

tellsBloomberg.

Butasairlinepricingmodelstiethevalueofmilesdirectly

toairfares,thoseaspirationalpremiumawards—likeflying

in one of Singapore Airlines’ Suites or Etihad Airways’ First

Apartments—will retreat as far out of reach for most consum-

ers as paying cash for them. The great frequent-flyer dream

is crashing. Put on your own mask before helping others. <BW>

CRITIC Bloomberg Pursuits November 25, 2019