Backroom news on frequent-flier programs

By Joel Widzer

Travel columnist

updated 2:38 p.m. ET April 12, 2007

Joel Widzer Travel columnist • Profile • E-mail

I recently attended FFP 2007, the third-annual conference of frequent-flier program (FFP) executives, which was held in Vancouver, British Columbia, at the end of February. I was one of two journalists invited to attend, and I was curious to see how the airlines are dealing with the growing perception that FFPs are dead.

The conference, which was chaired by Ravindra Bhagwanani, managing director of Global Flight and Roger Williams, managing partner of Airline Information, was a gathering of 250 delegates from 60 airlines, including frequent-flier program executives, loyalty marketers, consultants and industry insiders. They were joined, on the last day of the conference, by program partners from the hotel, rental-car and financial-services sectors.

The conversation was candid, especially about dissatisfaction among consumers who are frustrated by the lack of award availability. Happily, the conference organizers were able to report the results of a survey conducted, at their request, through IdeaWorks, which found that nearly 60 percent of the surveyed program directors anticipate increasing award availability this year.

But the big takeaway from the conference — and important information for you, the consumer — is that the economics of these programs are changing. At a time of dwindling ticket revenues, the FFPs have become a profitable source of income for airlines. In fact, airline executives have come to realize that these programs are now generating big bucks for their coffers. As a result, the longstanding rift between the airlines' cost-centric finance departments and their consumer-sided marketing departments is easing, and program directors are gaining the ability to better serve the customer.

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This means you can rest assured that your loyalty programs are here to stay and that the airlines will do more to keep your business. But there's a catch: Your business has to make the airlines a profit. As one vendor at the conference put it, "Don't count the people you reach. Reach the people who count."

How the numbers add up
The conference made clear that FFP consumers fall into two basic categories: those who earn points in the sky and those earn points on the ground. Both groups help the airlines pay their bills. The sky group is profitable because its members fly often and purchase high-premium tickets; in fact, they can account for 85 percent of profitable ticketing revenue. The ground community is profitable, too, even though its members are infrequent fliers who earn most of their "miles" through co-branded credit cards with generous accrual bonuses. This group drives ancillary revenues because the airlines can sell their miles to those secondary markets (for more on this topic, see "Why FFPs Are Important to Top Management").

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Though both groups are profitable to the airlines, they are not equally happy. This is because they are looking for different kinds of rewards. High-flying program participants typically want upgrades, and these are generally available. The ground group typically wants free travel, but award tickets are scarce. The lack of award availability has been a major source of frustration to award seekers but, if the IdeaWorks survey is reliable, this situation may soon see some improvement.

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