KEY POINTS:
We love them, we hate them - we can't seem to live without them. Where
on earth would we be without frequent flyer programmes?
It's almost 30 years since American Airlines launched the world's
first computer-based loyalty programme as a means of tracking
and rewarding its most faithful
customers. It was an inspired
move: today, the airline's scheme has 63 million members.
Soon, most international airlines, including Qantas (1987)
and Air New Zealand (1991), were in on the game. Now, over 100 airline frequent flyer programmes dole out about 14 million free trips yearly. Globally, it's very big business: three years ago, the Econo
mist magazine calculated the stock of unredeemed miles was worth
more than US$700 billion ($1.2 trillion).
On the surface, it seems win-win. But while the airlines come
off looking wonderfully generous, it's hardly no-strings-attached.
Traditionally, award seats are difficult to come by and are often
allocated to odd-hour flights. Black-out dates prevail and not
only must passengers book months in advance to be sure of a
seat, they now find their supposedly free seat is saddled with an
additional fuel surcharge.
Use the Qantas programme to book an Auckland-Sydney return Classic award trip, for example, and you will chew up 36,000 earned miles (perhaps the reward for flying to Europe and back).
But you will also be socked around $400 in surcharges and
taxes. So much for "free" flights: a discount return fare over the Tas
man often goes as low as $440 all-up. And like many relationships,
there is confusion.
"The rules keep changing" is a common complaint and the longer you wait to bank in your points, the more likely they are to de-value.
And after feeling your way through the smoke and mirrors it's virtually impossible to compare one scheme with another. Only when you use your points do you discover their true value.
It can seem very much like the airlines have the upper hand. It is
they, after all, who make the rules (which they may later break).
Yet some airlines are now looking at selling off their programmes. What no carrier probably expected back in the beginning is that frequent flyer schemes - retention of customers aside - are worth huge money.
Last year, Air Canada was the first to sell off its 23-year-old
Aeroplan programme, for US$1.5 billion. In July of this year, Qantas
announced plans to float 40 per cent of its frequent flyer programme, a scheme in which 60 per cent of income is non-airline.
While market volatility has caused the Australian carrier to postpone the initial public offering until next year, preparations for
the estimated A$1 billion ($1.17 billion) sale continue. American
and United Airlines have also hinted at selling up, and 30 other
airlines have been in touch with Air Canada to learn more.
The incentives are obviously there for separate companies to
administer and grow loyalty schemes while retaining cast-iron
links and privileges with the original airline. Effectively, it's
outsourcing with the airline paying an annual fee
for someone else to do the job in a different way.
Since going solo, the value of the Aeroplan programme has more than doubled.
But in offloading such programmes, what effect would such a
sale have on loyalty? Are customers loyal to an airline or to its
frequent flyer programme?
It depends on how you look at it.
Research shows that 80 per cent of European business travellers
are members of more than one scheme. And a recent study at the
University of New South Wales also suggests that if a passenger is
a high flyer in one airline, he or she is a high flyer in another.
"Loyalty is a complicated concept," says David Timothy Duval,
associate professor in the Department of Tourism at the University
of Otago.
Airlines may assume their top frequent flyers are more loyal than
other customers but this may be because they simply fly more than
other passengers, he says. Buying more of a product does not imply
greater loyalty. "It just means you can buy more."
But Duval still thinks the programmes serve a purpose. Though
they may look the same, it is the "subtle nuances of each pro
gramme" that appeal to individual consumers and thus determine
their allegiance.
Frequent flyer analyst Tim Winship believes frequent flyer schemes - whether airline-owned or not - are here to stay. Any airline without one is at "serious competitive disadvantage."
So with a multitude of airlines to choose from, how well served
are New Zealand frequent flyers? How Air New Zealand and Qantas,
stack up?
According to the operators at popular website, webflyer.com,
both Air New Zealand and Qantas are well regarded, with overall
ratings of just under 8 out of 10. But talk to their
reader-subscribers and the ratings are not so good: Air New Zealand
scores 6.12 out of 10, Qantas 5.93.
One local frequent flyer, a member of several programmes and
such an important Qantas customer that he was invited along on
their A380 promotional flight over Auckland in October, thinks they
need improvement. "Qantas and Air New Zealand have poor value
awards compared to international frequent flyer programmes," says
the 35-year-old businessman.
"You can get free flights much more quickly in the US. You earn
as many points or more, and the awards cost less. They also tend to
charge less in fuel surcharges."
The good news Downunder? It's a little easier to attain special
status, which gets you benefits like lounge access, priority check
in, waitlist and boarding.
