A Return on Investment in Loyalty: Is This a Fallacy?

ravel companies have slowly been chipping away at the benefits and amenities which were once offered for free and have either eliminated them — or now have attached a price to them which must be paid in order to have access to them. This especially affects members of frequent travel loyalty programs, who for many years have been convinced by being told over and over again the importance of loyalty — or, at least, the concept of it — to the point of practically being brainwashed.

You may have heard “Loyalty is a two-way street” mentioned multiple times over the years; but lately members of frequent travel loyalty programs have been feeling as though they are not being rewarded for their loyalty: spending more money to enjoy more benefits and amenities even though it may be more inconvenient, for example.

In fact, there are members of frequent travel loyalty programs who have gone so far as to protest or boycott the companies to which they have been loyal for so many years but now feel betrayed — such as No Fly, No Buy United Day on the first Thursday of every month.

As to why there is outrage against frequent travel loyalty programs, I posed an argument with this thought:

Let’s be honest with ourselves for a moment: many of us have been members of frequent travel loyalty programs for years. Speaking for myself, I have had my share of suites, luxury cars, fine dining experiences, complimentary upgrades to the premium class cabin aboard an airplane, access to lounges in airports and hotel properties — and even free gifts over the years — all at the expense of travel companies such as airlines, whose industry had seen days where billions of dollars were hemorrhaging every year.

I personally never let it get to me as I attempt to maintain perspective, as I am the type of person where if the only nearby parking spots are reserved for disabled people, I am thankful that I can walk far distances instead of grumble about the inconvenience of parking far away. However, I have witnessed fellow frequent fliers who were conditioned to expect their upgrades and benefits every time to the point where if one was not available, they would complain and even demand compensation — and there were times where a company was foolish enough to give them compensation.

Moreover, access to so-called “elite” benefits was cheap and easy. There were people who bragged about spending only a couple of thousand dollars to attain elite level status and enjoy perks whose value easily exceeded that spend. Caviar. Champagne. Lounge access…

…and services were often thrown in at no extra charge in order to further sweeten the deal. Spa and gym access. Limousine services. People waiting on you hand and foot.

How in the world were companies such as airlines “giving away the store” — so to speak — when they were bleeding cash left and right?

How? Simple. Anything to maintain loyalty. Keep the customer happy and spare no expense; and that customer will be loyal to you and keep bringing you business — never mind that losses instead of profits were being tallied.

Posted earlier today in this discussion is this essay written by FlyerTalk member Dovster on the error of Delta Air Lines in supposedly believing its own — well — let’s say marketing hype:

Delta is hurting itself (at least in the long run) because of one simple mistake: It believes what it has been saying for years.

Everybody in the travel industry with an IQ above 90 knows what “loyalty programs” really are. They are not give-aways to reward loyal customers. They are marketing programs aimed at encouraging people to stay with their brand.

As such, they have been remarkably successful. Travelers pay more to fly with Airline A or stay at Hotel Chain B than they would with competing companies because they have status there and get some extra benefits from that.

Delta, however, has fallen for its own line of BS and believes that SkyMiles really exists to reward loyalty. It has decided that it is giving away too much as rewards and wonders why in the heck it should take money out of its corporate pocket just to thank people for having flown with it.

No, Delta, that is not what this money does. That free drink you gave those Medallions who were not upgraded, the FC seat you did not sell for $100 more but instead used to upgrade Medallions, and the few dollars you forked out so that SkyTeam Elite Plus passengers could go into contracted lounges when flying in Y were all investments, not presents.

You were investing a few dollars in the (very often justified) belief that will encourage the recipients to come back repeatedly to you when they want to fly somewhere.

Today, you are saving that money and feeling good about it. Tomorrow, when these Medallion passengers will chose their flights based solely on cost and convenience, your bottom line will see the results.

Taking the customer benefits out of a marketing program is like fishing without bait. There won’t be many willing to bite.

(Please note: Although I have been either Gold or Platinum for the last ten years or so, I am not posting this out of the hope of getting Delta to change its mind for my personal benefit. I am not going to be flying Delta anymore for a much more basic reason — the itinerary I will begin in 2 days will be my final trip to the States. After that, all my travel will be to Europe and Delta does not fly there from TLV. My motive in this post is simple depression at seeing a great airline shoot itself in the foot.)

Although I initially agree with Dovster, unfortunately this is the cause and effect of reduced capacity, a strengthening economy and fewer competitors. Using airlines as an example, there is no longer a reason for them to bow down and shower its customers with costly amenities and benefits. Save money by offering fewer amenities and benefits while raising airfares. Stock prices increase. Investors flock. Anything for a buck — right?

Is Delta Air Lines really hurting itself in the long run by rescinding portions of its practice of rewarding segments of its customer base — or is it actually hurting itself by having offered those rewards in the first place?

Executives at airlines know that they can get away with cost-cutting and nickel-and-diming with a carte blanche not seen in years. They can write their own ticket. Why? Because they know that if and when the “gold rush” slows down or ceases altogether, all they have to do is start releasing those benefits and amenities again as carrots to those who hunger for them and will do almost anything to have them again. They probably suspect that loyalty only goes so far as to “what is in it for me” when it comes to the customer — so why not for the airline as well?

Do you really think that if United Airlines started offering significant complimentary benefits that customers of Delta Air Lines do not have for the cost of the same airfare that those customers would say, “Hey — I do not want those benefits. I am loyal to Delta Air Lines!”? What if it was double elite qualification miles on all airfares offered by United Airlines, with liberal upgrades to a premium class cabin with significantly better amenities and service than what Delta Air Lines offers for the same airfare?

Okay, stop laughing. I am just being hypothetical here. Bear with me and humor me for a moment…

…but think about it: customers might remain with Delta Air Lines for the convenience of non-stop flights; but would you remain “loyal” to Delta Air Lines if United Airlines offered you a significantly better product and experience for the same airfare?

If your answer is “you gotta be kidding me — I would run over to United Airlines in a heartbeat if they did that”, then why would you think an airline would have an obligation to stay loyalty to you? Why should airlines give amenities and benefits to you as an investment in your business in the future if it is that easy for a competitor to sway your loyalty away from them?

People have demonstrated over the years that they want costs to be as low as possible. This is why many items are imported from countries where labor and goods are inexpensive; and yet those same people complain that the products feel cheap and do not last. Is it any different with airfares? Why do you think that Delta Air Lines is looking to expand its controversial basic economy airfares, with no upgrades or refunds or changes?

Rather, it is smarter for airlines and other companies to differentiate themselves in the current business climate — not necessarily invest in customers who may not remain loyal anyway…

…just as more and more customers find that it is smarter to shop around rather than blindly remain loyal to a corporate entity, as they are not receiving the return on investment to which they were accustomed in previous years.

Maybe — just maybe — it is possible that it is the customer who betrayed the mutual loyalty by breaching it based on price; and perhaps in return the airlines and other companies are simply following suit, which then argues the point of the essay written by Dovster

4 thoughts on “A Return on Investment in Loyalty: Is This a Fallacy?”

  1. Michael says:

    You forget that airlines make millions of dollars selling miles to credit card companies, car rental companies, etc. If passengers decide these miles aren’t worth it any more, the airlines will lose an easy, lucrative revenue stream. And that’s just one reason why they need to be nicer. Incidentally, this is the first year I’ve flown more than 75,000 miles and earned no elite status on any airline. What did it get me? More convenient flights that were cheaper. And I regained my sanity.

    1. Brian Cohen says:

      Good points, Michael — and that cannot last forever, either. Thank you.

      I have mentioned multiple times why I would rather use a credit card on which I earn a cash rebate, rather than a credit card where I am beholden to some frequent travel loyalty program which will likely eventually be devalued anyway…

  2. Pat says:

    We can’t have this discussion without differentiating business travelers from the others. They are the most profitable customers, and non-coincidentally, they are what the loyalty programs are designed to lure.

    Within reason, business travelers don’t care how much airfare costs. They want the most convenient route, at the most convenient time. Depending on the flyer’s situation, the same airline usually wins out time-and-again for each trip, and the business traveler fortuitously qualifies for frequent flyer rewards.

    The revenue-based system United and Delta are moving towards doesn’t prevent the above situation from occurring; if anything, they are focusing their programs on this exact type of customer. I understand that the cost-conscious leisure traveler gets the short end of the stick, but they were never the target-demo to begin with.

    1. Brian Cohen says:

      Those are good points, Pat. Thank you.

      There may be some people who would argue that the leisure traveler brought more business to the airlines because of frequent flier loyalty programs — “filling a seat which would otherwise have gone empty” and “perishable product” are two terms which come to my mind that I have heard over the years.

      However, when amenities and benefits are enjoyed for little money in return, that technically does not benefit the airline in return — and could even lose money for them…

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