Why Your Next Credit Card Rewards Trip Will Cost More
Two men crash their cars in accidents while driving home from work. One man returns home embarrassed to tell his wife that he wrecked the car. The other man, who happens to be in charge of an airline frequent flier program, greets his wife with enthusiasm. “Guess what honey,” he exclaims, “I implemented a major enhancement to our automotive program!”
Recent events make me believe that this story is entirely plausible. In one instance, I asked an airline executive about recent changes to his company’s frequent flier program that will require more miles and fuel surcharges from customers redeeming awards, which he called a “major enhancement.”
Then, Frontier Airlines announced it would start charging as much as $100 for a carry-on bag and $2 for drinks (other than water) to customers who didn’t purchase their tickets on its web site. In its press release, the airline declared “Frontier Enhances Services for Customers…”
[Related Article: The First Thing to Do Before Applying for a Credit Card]
How The Airlines Think
At the Third Annual Travel Executive Summit featuring a discussion among travel executives, the subject of loyalty programs requiring more points, miles and fees for the same rewards came up repeatedly. Jeff Robertson, Vice President of SkyMiles for Delta Air Lines, said that he personally hoped that fares would rise and that fees would go away. Nevertheless, he pointed out that Delta, which has not been shy about increasing fees, is on track to make a $1.2-$1.7 billion profit this year, including approximately $2.5 -$ 4.5 billion in ancillary fees. Nevertheless, he conceded that this pricing structure is “not ideal for the long term.”
In defense of Delta’s scarce allocation of rewards seats at the lowest mileage levels, Robertson was quick to say that from his perspective, the cost of rewards travel is rising due to rising airfares as a result of planes taking off with fewer empty seats. And as industry observers recognize, we are only seeing higher fares and fewer empty seats due to the series of mergers that have reduced competition.
But the key factor here is how Robertson sees the “cost” of airline rewards. In his view, frequent flier awards requiring the fewest miles should only be available for the lowest-priced seats. Therefore, Delta views rewards tickets as a way of unloading their distressed inventory, rather than a way of rewarding its loyal customers. So when an airline requires more miles for awards on all but the seats least likely to be sold, and makes greater profits from the fees it charges, you can understand why some in the airline industry views these changes as “enhancements,” and why consumers might be disappointed.
Another perspective
Bob Crandall, the legendary former CEO of American Airlines from 1985 to 1998, was also part of this panel discussion. He heard Robertson’s remarks but was adamant that “the industry can’t have a future” if it is giving less value to its customers.
He feels that the airlines have made it harder for people to travel, such that it was as if we [the airline industry] had “invented Congress on our own.” To prove his point, he cited the major carriers that just raised their change fees to an incredible $200.
How credit cards figure into the equation
When an airline requires more miles for rewards and increases its fees, it devalues its loyalty program. This affects frequent travelers as well as those with rewards credit cards that offer frequent flier miles. Credit card users eventually realize that these “enhancements” impact the value of their rewards, and begin shopping for different cards.
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