Are Frequent Travelers a Significant Subset of Customers Compared to the General Traveling Public?

“I n the murky depths of the deal sits the loyalty part of the conversation. Marriott recognizes the fierce loyalty which SPG members display (and there certainly has been a lot of hand-wringing about this potential merger from that camp) and really, really wants to cash in on it. During the investor briefing call on Monday CEO Arne Sorenson suggested that he knows those guests are staying at SPG properties basically everywhere they possibly can and he can only hope they occasionally spill over into Marriott properties when there are no SPG options in town. The merger would almost certainly secure those bed nights for the larger chain. Assuming the members remain loyal, of course, which is a big risk given the significant differences between the two programs.”

In this article pertaining to the “soap opera” that is the acquisition of Starwood Hotels and Resorts, Incorporated by either Marriott International, Incorporated or Anbang Insurance Group Company, Limited, Seth Miller of Wandering Aramean discusses synergies in general and administrative costs pertaining to mergers and skeptically argues that “most major travel mergers haven’t hit these synergy targets recently”…

…but the quote extracted from that article — which is the first paragraph of this article — seems to suggest that “the loyalty part of the conversation” has significance in the overall scheme of the business of travel companies.

Does it?

Are Frequent Travelers a Significant Subset of Customers Compared to the General Traveling Public?

In response to FlyerTalk member Kevin Liu — while agreeing that a frequent flier loyalty program “isn’t the only factor, but potentially” the steady and deliberate devaluation of the SkyMiles program by Delta Air Lines “makes more people want to leave DL though unless you are more or less trap in DL dominate city ….” — FlyerTalk member bubbashow argued that “The average flyer clicks on Kayak and picks the lowest price. Period. The cross section of people on FT and similar sites is nowhere near representative of the general flying public. Stomp up and down, throw more press releases to the NYC – hell on a slow news day, they might pick up another, but it doesn’t change the fact the average passenger DOES NOT CARE.”

That statement would appear to contradict the aforementioned point by Seth Miller; but it does pose an interesting question: if frequent travelers are indeed an insignificant subset of the customer base of companies in the travel industry, then why does it seem like the benefits which frequent travelers have enjoyed are consistently and deliberately being pared “beyond the bone”? As one of many examples, exactly how much of an impact did the use of expired suite upgrades by Diamond elite status level members of the Hyatt Gold Passport frequent guest loyalty program really have in terms of the bottom line?

“In looking at frequent travelers vs. leisure travelers its a bit like the new Batman vs. Superman as both share the concept of Dawn of Justice” which “points out that leisure travelers are now on par with frequent travelers in that the availability of comfort and amenities is clearly the same as a revenue-based program for frequent travelers,” said Randy Petersen, who is the founder of such entities related to frequent travelers as InsideFlyer, FlyerTalk and BoardingArea. “Want More? Pay More. Of course you have to look no farther than the hotel industry for the margins. It has been clear for some time that the hotel brands with the slimmest margins (lowest rates) were the first to offer free wifi, while the hotels designed for the erstwhile frequent traveler continue to charge extra until more recent times when status and the efficiency of communications made for a more equal time.”

The last part of that statement helps to answer the question of why mid-range hotel brands such as Hampton Inn have long offered Wi-Fi access to the Internet for all guests at no additional charge; while more expensive brands such as Hilton used to charge extra for a similar service but — as of July of 2015 — now offer it free of charge — not for all guests; but for members of the Hilton HHonors frequent guest loyalty program.

The significance of frequent travelers to companies in the travel industry can be interpreted a number of ways: two examples are the number of frequent travelers and the amount of revenue they generate for companies in the travel industry. That significance can also be interpreted as to the amount of benefits and amenities are consumed.

Companies in the travel industry are loathe to release specific numbers and statistics regarding their businesses — the number of members of their loyalty programs; the breakdown of percentages of members who have earned elite level status; and the amount of revenue they earn from them are three of a number of examples of mysteriously nebulous secrets — so it is virtually impossible to ascertain what exactly is the truth pertaining to the significance of frequent travelers when compared to general customers.

“It’s accurate to say that each of the top three frequent flyer programs in the world (AAdvantage, MileagePlus and SkyMiles) have +/- 100 million members each of which approximately 27% are active in a given year and +/- 5% are within a level of status with the airline”, according to Randy Petersen. “Status has become a very inaccurate measure of loyalty as ‘status seekers’ flood the internet and channels of each program seeking ‘me to’ and matches that further erode the concept of high flyers. Furthermore, the advent of lifetime status has created a whole new meaning to ‘sleisure’ being that as the baby boomer/flyer generation moves into retirement that they have become ‘Rews’ (retired with status) and fit more and more the typical description of a leisure traveler.”

One Frequent Guest Loyalty Program as an Example

The take by Petersen on this entire argument might be better viewed by stepping back and standing away from the transactions which have occurred during more recent times. “If I’m a seller, I certainly will try and leverage the myth of the loyalty value. If I’m an acquirer and need to defend the acquisition to Wall Street and others not so up close then I’d also point out” that “we are paying for that value.”

Petersen suggests that for much of what the Starwood Preferred Guest loyalty program has grown to become, that growth was likely nothing to do with the program itself; but rather by two factors: ‘coolness’ and social media.

  1. Their invention of ‘coolness’ in an otherwise drab temporary living environment. The Starwood Preferred Guest loyalty program “really took off with the introduction of W Hotels. Member after member could now trade beige for glamour in terms of earn Sheraton, burn W. That single move to eye candy created the first true aspiration in lodging and aspiration became the loyalty that program is known for today, though W is no longer the driver, it was the catalyst for the next generation” for members of Starwood Preferred Guest.
  2. It’s the Social, Stupid. “No one and I mean no one crafted a better lead in the industry than SPG (frequent travelers) when they decided at the urging of FlyerTalk to go where their members were to engage in conversations. Truly, the rest of all the industry was still stuck putting more paper in the fax machine and experimenting with primitive versions of Zendesk when SPG figured out it was OK to pay house calls for customer service. Funny thing, both these elements crafting the legend that exists today for SPG and loyalty, when in fact both were not explicitly driven by miles/points.”

Summary

As the cutting of benefits and amenities may seem to have switched from one extreme — the years where those benefits and amenities were practically given away to frequent fliers — to the other, is there such a thing as a sweet spot between frequent travelers and companies in the travel industry where both can enjoy as close to a mutually beneficial business relationship as possible?

More importantly: exactly how significant is the subset of frequent travelers to airlines, lodging companies, rental car companies, and other companies in the travel industry — and is it relevant to what appears to be an intentional dismantling of the loyalty which had been built as a result of the marketing efforts by those companies for greater than 30 years?

“Maybe not as much as one might think”, replied Petersen. “First, let’s strip away the idea that frequent travelers are the margins in the industry. They are but that’s not the question. So let’s just do a little experiment. Anyone reading this, answer as best you know or believe. Since upgrades represent the passenger descriptor of defining a frequent traveler. Let’s be fair here, if you don’t at least make the billboard for an upgrade at the gate, could you seriously be counted within the masses as a frequent traveler? And the same descriptor for the leisure traveler — the N fare”, which is the “last of the pecking order of deep discount fares”…

…and as to how many upgrades to a seat in the premium class cabin are distributed for a typical airline flight versus leisure travelers flying as passengers on an N fare, the answer according to Petersen is: “statistically speaking, they are even.”

Illustration ©2012 by Brian Cohen.

2 thoughts on “Are Frequent Travelers a Significant Subset of Customers Compared to the General Traveling Public?”

  1. JustSaying says:

    You really have the ability of pandering to your bosses without actually saying anything of substance………why do you bother wasting our time with this dribble…………….

  2. Ryan says:

    Randy has really lost touch. SPG is so popular largely because of the outstanding redemption value from hotel stays to (especially) the huge range of airline transfer partners, and bonus points when doing so.

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