OFFICIAL DEFINITION
Frequent Flyer Programs (FFPs) are the airlines’ way of giving something back to their loyal customers, to let them know that they are valued.
RAZER DEFINITION
FFPs are a virus for which there is no vaccine and from which there are few routes of escape. The merest brush with an airline will result in immediate infection; lending institutions pelt the thing at future patients in the hope it’ll distract them from the depth of their debt enslavement.
It is now carried in an always-growing number of everyday exchanges and, yes, I “convert” my Woolworths points to an FFP like a total mug.
I am in the grip of a fever dream of luxury travel that will never take place. I am Part of the Problem.
WHY IT MATTERS
FFPs matter more the more closely they resemble a commodity, or the money commodity. They’re a bit like the Bretton Woods system of gold convertibility: both dollars and points were ostensibly backed by a valuable, finite commodity. But redeemable points (dollars) quickly outnumbered the available seats (gold) they could buy.
It is a deliberate decision by the central banks (airlines) to make their currencies (points) worth less, if not actually worthless. So, opting for a high-interest credit card in order to get points is like investing in a fund that promises only to ever lose you money, or swapping your US dollars for German marks in 1919.
Since FFPs now reward customers based on how much money they spend, rather than the distance they fly, points function like a means-tested welfare payment system in reverse, with the freebies awarded increasing in accordance with one’s ability to pay for them.
They might be taxable soon.
WHO CARES?
Travellers are apparently abandoning loyalty schemes in droves. We’re annoyed by things such as: the depreciation or seemingly arbitrary value of points; requirements that we obtain the right high-interest co-branded credit card; the near-impossibility of actually using points for their ostensible purpose — i.e. buying airline tickets; and the mysterious carrier-imposed surcharges that can render “free” tickets just as expensive as bought ones.
For airlines, FFPs have proved a much more reliable source of profits than flying people around, sometimes exceeding the value of the core business.
RELEVANT FACTS
- The deregulation of the domestic US air transport passenger market in 1978 and the commercialisation of flight reservation systems enabled airlines to launch FFPs.
- The 1978 Airline Deregulation Act limited the laws US states could pass relating to airlines’ operations as well as the types of lawsuits US passengers could file against airlines. States can no longer regulate the price, route or service of an air carrier, and frequent flyer programs may remove members “at their sole discretion”.
- Established airlines developed loyalty programs in the early 1980s as an attempt to defend their market shares as low-cost carriers began entering the marketplace. Results were mixed.
- There were 14.6 million domestic trips taken by Australian airline passengers when the Airline Agreement (Termination) Act 1990 came into effect. By 2015 it was 57.1 million.
THE LAST WORD
The depth of the dive needed to discover the true business of business-to-business points exchange is a guess best left to economists. But any everyday person can quickly learn that the trade has taken on a life well beyond everyday persons.
FFPs are no longer customer loyalty programs, and despite public charges by customers that the programs are themselves “disloyal” to their promise, they are likely to continue in loyalty to themselves.
It would take the simultaneous refusal by a mass to crash the mini-market of FFPs. As a revolution led by the anger of middle management seems unlikely, businesses will continue to trade in these trillions and trillions of promissory points until the last flight is hijacked by the last ticket-holder in history.
READING
Sheftalovich, Z & Castle, J (2018). Frequent Flyer Points—Are They Worth It? Choice, 9 April.
de Boer, E R (2018). Strategy in Airline Loyalty: Frequent Flyer Programs. Cham, Switzerland: Palgrave Macmillan.
Peterson, R (2001). History of Frequent Flyer Programs. WebFlyer, May.
de Boer, E R & Gudmundsson, S V (2012). 30 Years of Frequent Flyer Programs. Journal of Air Transport Management, 24, 18–24.
Reaves, C N & O’Connell, J F (2017). An Examination of the Revenue Generating Capability of Co-branded Cards Associated with Frequent Flyer Programmes. Journal of Air Transport Management, 65, 63–75.
Perhaps there is another angle to ff programs: anticompetitive behaviour. Normally, it is not legal for companies to engage in price setting collusion. Yet two airlines can set up a frequent flyer alliance and code share flights, so that they no longer compete on the same route. Isn’t that anticompetitive?
Good question, HB. I guess it’s contingent on the points being understood as something more than a reward for consumers.
The frequent flyer programs seem to be a hook to a) encourage repeat patronage (fine) but also b) assuage the fact that the partnerships result less competition on key routes, so the general population might not like a move to legislate to prevent the anticompetitive partnerships, in case it could have an adverse effect on their frequent flyer points balances.
Maybe the partnerships result in routes being serviced more optimally (less half empty planes) so that could have a beneficial effect on costs, even if the anti competitive partnerships reduce pressure for those cost reductions to be passed on as lower fares.
I beg to differ. In the past decade 4 trips to Europe, one to Japan and one to the US. Plus a number across the ditch to NZ (booked one last week in fact) all up the pointy end. And any number of on departure upgrades on longer domestic sectors, and even a few on short haul flights as a treat after particuilarly tiring work trips. Couldn’t be happier with my QF FF membership, and yes it keeps me loyal.
There is an art to getting such flights, clearly no one has let Helen in on the secrets.
sure, free flights are nice. but would you let say, mobil and shell make a “petrol alliance” and announce “oh, we’ll be closing down any servo’s which compete against each other on the same route, but don’t worry, you’ll still get competitive fuel prices. Have you got one of our alliance petrol club freebie cards? your company will pay more for petrol, but at least you’ll be able to occasionally fill up your own car for free, if there’s a bowser available.”?
As I said, it could be that the optimised higher occupancy code shared flights do get lower costs, and could result in lower costs being passed on.
Hey, JH. Is it possible that you are a frequent full-fare traveller? As mentioned in the piece, the best benefits tend to go to those who pay the best fares.
I’m also with Qantas. But, a handful of discount flights between Sydney and Melbourne each year, some Woolworths groceries and a modest credit card spend ain’t getting me anywhere!
I enjoyed reading this article on the weekend, Helen, and am glad you wrote it.
Large corporates are great at inverting the sense of words with social significance. The word here is ‘loyalty’, and its inversion is not simply a rip-off but a patronising insult.
Under normal circumstances, loyalty means fidelity: performing one’s social obligations in good faith to a group of which you are a member.
Under that meaning, merchants can exercise loyalty to their community, citizens to their polity and fans to a sporting club. Merchants could also express loyalty to their repeat customers with discounts, gifts and special services. All that makes sense.
But there’s no sense in which customers can be loyal to merchants. Retailers aren’t a club; customers are consumers and not members; by definition a merchant’s brand is not a tribe: tribes limit membership while merchants will sell to anyone.
So straight away, the idea that retailers are lords rewarding subjects for loyalty is both intellectually and socially insulting. That’s not the social contract; in fact it’s the reverse: merchants ought to be loyal to communities that nourish them.
And beyond enduring insult, as members of these perverse unclubs, you agree to be monitored, marketed to, cozened and directed what to buy and when.
In other words, the mercantile idea of ‘loyalty’ is that you sacrifice the one choice that empowers consumerhood and keeps merchants honest: choice of which product from what merchant when; and in exchange they steal your privacy, monitor and influence your consumption and repay you with what?
With goods and services that by definition, you could have saved to buy anyway — only now they tell you when you can have them, in precisely what quality, delivered by whom.
I happen to be a life member of an airline club. For ease of access to comfortable flight lounges I bought a membership back when it was very cheap to buy. I’m happy to pay a fixed cost for access to a particular carrier’s lounge as an expression of consumer choice, and it’s implicit that I’ll prefer that carrier when they have a route that suits me at a price I find acceptable.
I also don’t mind that the carrier allies with hotels and hire cars — I may or may not use those services. It depends on what I need.
But I don’t need an airline’s permission to buy other stuff, or their prod as to when I should. I’ve never used a frequent flier point in my life, have no idea how many I have or when they disappear, and don’t want to be told where to fly and when.
In any case, converting points to bargain flights is just an airline utilisation levelling strategy: their chief indicator of lost profits is empty seat kilometres.
Flights are uncomfortable enough without being treated as seat filler. Thank you, no.
I’m as offended as you, Helen.
Most of my recent domestic flights have been paid from amex point transfers into velocity. Biz seats are available whenever I pick them. Otoh, I’ve never got a flight just from flyer points