| ||||||
|
 |
|
Search | |
 |
|
| ||||||
Subscribe  |
|||
In the decade since American Airlines launched the modern era of frequent traveler marketing in 1981, the programs have compiled some startling statistics and passed several extraordinary milestones: • More than 22 million travelers have racked up more than 70 million memberships in the airline, hotel, and car rental programs. That’s more than three program memberships per traveler. • The airlines alone have an estimated 800 billion – that’s billon, folks – miles accrued in their frequent flyer programs. • An airline (Pan Am) once launched service to a specific destination (Hawaii) primarily to enhance the value of its frequent flyer program. • Another airline (Eastern) has charter flights just for use by award travelers. The frequent traveler programs have fundamentally altered our outlook on life on the road. People have come to assume that all those bonus miles, all those free nights, all those upgrades, are not a bonus at all, but a God-given right. Says Ronald A. Nykiel, senior vise president of marketing at Stouffer Hotels Company: “If there aren’t any [frequent travelers programs] involved, people think they are paying full price, and they don’t like to see themselves as fools.” But along with all the miles, awards, and changes the programs have brought to the lifestyle of frequent travelers, there is also an astonishing amount of misinterpretation and myth surrounding the award plans. As the programs enter their second decade, it’s time to debunk these myths and restate some of the bedrock facts about these plans that consume so much of our time and attention. Herewith, then, are ten truths about frequent traveler programs. I MYTH Frequent traveler programs have outlived their usefulness and are being phased out by airline and hotels alike. TRUTH Frequent traveler programs are here to stay. Period. Even though Wall Street solons and self-proclaimed marketing experts have been predicting the imminent demise of frequent travel programs for years now, the simple fact is that the plans are an entrenched marketing strategy of every major airline company and hotel chain in the United States. They’re as American as Labor Day weekend and as popular as the Macy’s Thanksgiving Day Parade. A recent poll of executives representing every frequent traveler program conducted for the Frequent newsletter revealed unanimous agreement: the plans will continue in the foreseeable future. Does that mean every airline and every hotel will have a frequent travel program in perpetuity? Well … no. Not every airline or hotel chain has managed its program well over the years. Some surely will choose to discontinue plans that are costly to operate and/or unsuccessful at attracting the loyalty of frequent travelers. “Based on cost and allocation of resources, not everyone will have one in the 1990s,” explains Teresa Jay, vice president of Diners Club Rewards, the credit card company’s frequent charger program. On the other hand, occasional reductions in reward levels doesn’t mean a program is headed for the scrap heap. Marriott, for example, recently trimmed its trailblazing frequent guest program. But the less-lucrative reward levels were simply a matter of “gaining a balance of cost and control,” says Ralph Giannola, Marriott’s vice president of business development. But awards need not always be the driving factor in frequent travel program. For some companies it’s a matter of getting back to basics – but doing it in a top-notch fashion. After experimenting unsuccessfully with reward-based guest plans, Inter-Continental Hotels has revived it’s Six Continents Club. Much like the airline VIP programs that predated the frequent flyer programs, the Six Continents club offers frequent guests of Inter-Continental Hotels recognition and special services rather than free travel. II MYTH Corporations have no right to reclaim the frequent travel program awards earned by their employees. TRUTH Corporations have every legal right to attempt to reclaim awards you’ve earned while traveling on business. Since frequent travel programs are first and foremost a way for airlines and hotels to ensure personal loyalty – regardless of who’s footing the travel bills – the plans go out of their way to keep corporations out of the equation the rules of most programs explicitly prohibit corporate membership, issuing awards only in the name of an individual traveler. Unfortunately, just because airline and hotels don’t want corporations involved doesn’t mean employers don’t have the legal right to try to reclaim their employees’ awards. In a case decided by the Supreme Court of New York, corporate claims on frequent travel awards were ruled valid in cases where a company paid for and directed the travel of an individual employee on company business. In other words, if your company insists that you turn over the awards, you can’t just ignore the request. In practice, however, the number of companies successfully reclaiming frequent travel awards from their employees is extraordinarily low. Most have found the process of tracking miles and monitoring awards cumbersome to manage and nearly impossible to police. The companies that have successfully recaptured travel awards are those firms content to share the bounty with their traveling employees. Some firms ask the business traveler to return every other award for corporate use. Others ask the business traveler to share awards with their secretary or assistants. And a few pay cash for every frequent travel award voluntarily returned to the company. III MYTH Frequent travel awards are taxable by the Internal Revenue Service. TRUTH In Theory, this ugly idea has some merit. But in reality – and when it comes to taxes, that’s what it’s all about – the IRS apparently has thrown in the towel. For more than five years, the IRS has intimated that free travel rewards are taxable. Yet the agency has never classified awards as a “tax-free fringe benefit” and has never issued guidelines for taxpayers to follow when filing returns. Earlier this year, in fact, a four-year-old IRS “project” to devise guidelines for frequent travel awards was converted into a longer term “study”. Those wise in the Byzantine ways of the taxman say that’s a bureaucratic signal indicating the IRS can’t figure out what to do about the awards. There are several reasons why frequent-travel program awards are difficult and perhaps impossible to tax. For starters, the IRS doesn’t know who’s earning awards because airlines and hotels are not required to report the winners. Then there’s the matter of airline and hotel awards earned as a result of travel paid for by an individual. Since the individual paid for his or her own travel, the award would most likely be considered nothing more than a price rebate. Rebates aren’t taxable. Awards earned for travel paid for by a corporation are potentially taxable, but there are some fine points that cannot be ignored. While the corporation paid for the travel earning the awards, the company has not paid anything for a traveler’s participation in the programs. Moreover, the option to participate in the programs is strictly a matter of personal choice. Most important, corporations do not pay more for the travel of employees who are members of the programs, nor do corporations have an option to pay less for the travel of employees who are not members of the award plans. These factors, many experts say, may well deprive the IRS of the authorization to tax awards earned from corporately paid travel. If you’re still wary of the taxman, call your local IRS office and ask them for their guidelines on declaring the awards. More often than not you’ll be told that anything having a perceived value of less than $600 is exempt from declaration. Or you’ll get another non-answer answer. IV MYTH Frequent travel award programs radically increase the cost of an airline ticket, car rental, or hotel room. TRUTH Like supermarket “cents off” coupons, automobile rebates, and any kind of print or broadcast advertising campaign, frequent travel programs do indeed affect the cost of travel. But there is no reliable evidence that frequent travel award plans are disproportionately more expensive than any other kind of advertising promotion. As any business executive knows, advertising costs money. And the cost of the advertising is built into the cost of the product being marketed. Frequent travel plans, which are essentially a highly specialized type of advertisement, do increase the cost of buying an airline ticket or staying in a hotel room – just as the $500 rebate you expect the next time you buy an automobile affects the price of the car and the 2-cent coupon for cake mix affects the price of that product. If this all seems a bit complicated and vague – well, that’s the world of advertising. Just how much things cost, and what yields what, is a matter for subjective analysis. But the cost of frequent travel plans – and by extension, the cost the programs add to the price of travel – is especially tough to pin down, even for those wily ad men. A single example will suffice: the airlines don’t really know how much it costs them to give away a free ticket whenever someone wins a frequent travel award. Airlines have enough trouble reliably estimating the cost of an airline seat when you’ve paid for the ticket. Figuring out the cost of giving a ticket away as a frequent travel award is truly a daunting task. Most airlines simply guess at the cost of a free ticket. American, for instance, arbitrarily values its AAdvantage awards at 40 cents for every 1,000 miles. By that calculation, the airline spends $8 for every 20,000-mile award AAdvantage members claim. Forget for the moment that American’s cost estimate is speculative, and just concentrate on how much a traveler pays to win that 20,000-mile award. Ignoring all bonus-mile opportunities and all other routes that American flies, an AAdvantage member would need to buy approximately four transcontinental coach roundtrips to rack up 20,000 miles. According to fares listed in the OAG Electronic Edition in mid-September, four roundtrips between New York and Los Angeles on American cost at least $1,769 (for fourteen-day advance purchase “V” class seats) and as much as $5,248 (for unrestricted “Y” class seats). In most marketers’ books, spending just $8 to induce a customer to spend as much as $5,248 is extremely cost-effective advertising. V MYTH Frequent travelers do not have rights. TRUTH This is America. Of course you have rights. But as is the case with all your other God-given rights, you’d better be prepared to go to court and pay the price of suing to protect them. There are no laws at any level specifically governing frequent travel programs. And the “guidelines” for frequent travel programs promulgated several years ago by the National Association of Attorneys General (NAAG) are just that: suggestions with absolutely no force of law. However, the rights of frequent travelers are protected under a panoply of consumer protection laws, fair trade laws and even general contract law. Several thousand travelers have sued airlines or hotels in the last decade. Many have won out-of-court settlements when they were able to prove a frequent travel program unfairly changed its “contract” with the members of the program. In most cases, the emphasis of the lawsuits was on the cheapening or degrading of the value of the points or miles already accrued in a particular program. In a class-action lawsuit filed in March 1987, for example, members of United’s Mileage Plus took on the nation’s largest carrier. United had increased some award levels in January of that year, but then, after a public outcry, rescinded the increases six months later. Mileage Plus members who had claimed their awards at the higher award levels demanded the return of the excess miles they had to use. When United refused, the award winners sued. More than a year later, United relented and returned the excess miles to the Mileage Plus members in an out-of-court settlement. However, before spending thousands of dollars pursuing lawsuits, remember that the lady with the scales is blindfolded: the courts might rule for the airlines. That’s essentially what happened to the consumer protection guidelines issued by NAAG. The organization’s code would have required frequent travel programs to meet certain stringent conditions – such as honoring a reward request within fifteen days before or after you originally wanted to travel – or be subject to prosecution under consumer protection laws. NAAG did have some early successes – it won a ruling against the OnePass program and laid the groundwork for successful action in Pennsylvania against Marriott’s Most Honored Guest program – before the organization was stymied by a federal court injunction. Currently it is prohibited from enforcing any consumer protection guidelines relating to the advertising and marketing practices of the travel industry. That ban includes frequent travel programs. VI MYTH Miles, points, and free travel are the only important benefits of frequent travel programs. TRUTH For truly frequent travelers, the perks offered by the programs far outweigh the value and desirability of free travel. It’s a cliché, of course, but also true: most frequent travelers are far too busy to take the free trips they’ve earned as a result of their participation in the programs. Many can’t even give the awards away anymore. “All my children and grandchildren have already traveled to Hawaii, Europe, and the Far East with awards I’ve won,” says Richard Eckhardt, a marketing manager for a Boston pharmaceuticals company. “Now they don’t want more free trips, so the awards I rack up just sit in my accounts waiting for the unlikely day my wife and I can use them.” As the frequent travel programs mature – and increasing numbers of frequent travelers get bored with free travel awards – the emphasis is moving to service benefits. In fact, perks are already more valuable than free flights and hotel stays for many business travelers. They’re a lot more interested in airline and hotel upgrades, special check-in privileges, and priority waitlisting. “Perks are becoming more important than points,” says Paul Hanley, senior vice president of rooms, operations, and marketing at Omni Hotels. Hanley should know: he recently helped convert Omni’s frequent travelers guest program from a reward-based plan to a recognition package that offers enhanced amenities. The single most popular award in most airline frequent flyer programs does not involve free travel at all. Year after year, frequent travelers consistently opt for more first-or business-class upgrade awards rather than the free flight awards. VII MYTH Frequent travel programs are only for frequent travelers. TRUTH When speaking of today’s loyalty-based award programs, the terms frequent flyer, frequent guest, or frequent traveler are misnomers. When the airlines launched the frequent flyer programs in 1981, they were aimed at frequent business travelers. Just several years removed from the strictures of government regulations, the airlines were entering a period of intense, free-market competition and were searching for a marketing tool to ensure the loyalty of their best customers. The frequent flyer programs filled the bill admirably. It didn’t take long for the savvy airlines to realize that they had created the most successful marketing program in the history of aviation. Besides building loyalty by offering travel awards, the programs were helping the airlines create a vast database of consumer marketing information. Quickly, and with remarkable specificity, they used the plans to track the buying habits of their consumers. Best of all, the programs allowed the airlines to communicate directly with their customers and target them for special promotions. The airlines took the next logical step: they decided this marketing tool need not be limited to their most frequent travelers. By the mid- 1980s, most frequent traveler plans had been transformed into general marketing vehicles aimed at anyone who flew on commercial airliners and stayed in hotels. Today nearly all frequent travel programs are multi-tiered plans aimed at both the frequent and the infrequent traveler. At the “premier,” “elite,” or “gold” levels, the loyalty of true frequent travelers are secured with a combination of special service amenities and first-class travel to exotic, expensive destinations. At the entry levels, the loyalty of discretionary leisure travelers is pursued with easy-to win domestic travel awards that require just a few airline trips or hotel stays. Hyatt’s Gold Passport, for example, continually runs promotions that offer a free weekend night as a reward for as little as a single stay. VIII MYTH The U.S. government claims its employees’ frequent travel awards as a matter of policy. TRUTH Like private industry, the government has no rational policy when it comes to frequent travel programs. Consider the case of Jack Stovis, a former official with the Department of Housing and Urban Development. For more than a year, he has been urging various government agencies to claim frequent travel awards as a way of reducing the cost of dong the nation’s business. But while he has encountered a thicket of government pronouncements about the elimination of fraud and personal use of frequent travel programs, he has yet to find a single government agency that accepts or uses frequent travel awards. IX MYTH Frequent travel programs – and especially airline frequent flyer plans – are anticompetitive and have prevented new entrants from entering the market. TRUTH Despite a slew of statistics and anecdotes, there’s no proof that any airline or hotel chain has ever been driven out of business by frequent travel programs. As far back as 1986, Frequent Flyer was reporting the key elements of the programs: to “Capture” business travelers and “lock” them in to a particular airline or hotel. No less than the General Accounting Office (GAO), the investigative arm of Congress, concluded after a two-year study that the programs are among the most serious, if least quantifiable, impediments to vigorous competition. A GAO survey of 520 travel agents nationwide revealed that 57 percent of the agents’ business travelers “always or almost always” choose flights on the basis of frequent flyer programs. Another 24 percent choose flights based on frequent flyer plans “more than half the time,” the GAO added. The contention is that smaller competitors without giant frequent flyer programs get squeezed out. It isn’t always so. What, for example, explains the phenomenal success of America West and its FlightFund program? Starting with a limited route structure, America West has grown into a formidable national competitor. FlightFund, which had only 60,000 members a few years ago, now boasts a membership of 1 million. X MYTH With capacity controls, you can’t get there from here when you win an award. TRUTH Really frequent flyers rarely have trouble getting the seats they want when they want them. There’s no doubt that the airlines – and, to a lesser extent, hotels – have tightened up on the availability of free travel. Blackout dates and capacity controls are increasingly becoming part of frequent travel programs. But the seats are out there – if you plan early enough, understand the seasonal nature of travel, and keep in mind that there will be occasional bottlenecks to popular destinations. “Interestingly enough,” says Michael Gunn, American’s senior vice president of marketing, there is not a massive outcry about capacity controls.” While frequent flyers are quick to complain whenever they can’t get exactly the travel itinerary they want, there seems to be plenty of seats to be had. In July, for example, TWA says 40,000 seats set aside for free travel awards went unclaimed. Another 30,000 were not used in August, the carrier says.  
|
|
||||||||
 |
A Frequent Flyer Network site. All rights reserved. |  |