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How U.S. Airlines Want to Reward Their Most Lucrative Travellers

Feb 17, 2014 9:30 am

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As airlines remake their loyalty programs, they’re differentiating between those who are loyal with dollars, and those who have mastered the art of collecting loyalty points.

— Jason Clampet

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bradjward  / Flickr

Loyalty cards from Delta's program. bradjward / Flickr


With less competition thanks to industry consolidation, US airlines are focused more on profitability than gaining market share, and changes made by legacy carriers to their loyalty programmes underscore that point.

Delta Air Lines Inc was the first, in January 2013, to announce a spending requirement to achieve elite status; United Continental Holdings Inc followed in June of the same year. The spending requirements enable the airlines to better identify and reward their most lucrative travellers. The second change was to offer these elites more perks by joining forces with hotel loyalty programmes.

Again, Delta made the first move, announcing its partnership with Starwood Hotels & Resorts Worldwide Inc in March 2013. United followed suit in July with its partnership with Marriott International Inc. These are likely to be the first steps to reward the industry’s most profitable travellers with more perks and an overall better travelling experience.

Identifying the Most Lucrative Travelers …

The alignment between price paid and miles travelled has diverged significantly over time post-deregulation. Now it is possible to buy inexpensive long-haul flights in economy class, while many short, business routes can be comparatively expensive. As a result, some elite travellers spend relatively little with an airline, spurring Delta and United to introduce spending requirements, in addition to miles or segments, to qualify for elite status for 2015.

Travellers will earn status based on the lower of the two requirements if both are not met, and travellers with cobranded credit cards are exempt from spending requirements as long as they spend at least US$25,000 annually on their cards (the exemption is not applicable to earning Premier 1K on United).

The new spending requirements might cull the ranks of the elite, especially because spending on taxes and fees is excluded (taxes on flights from Europe, for example, constitute a significant portion of the final ticket cost).

This will benefit those that do qualify as fewer travellers will be competing for the perks, although United stated that most MileagePlus “Premier” (elite) members meet both requirements. This is not surprising given that the minimum spending requirements are set at a US$0.10 yield, which is far below the average yield of either airline.

The airlines might benefit slightly from lower costs (fewer free perks) and higher revenues (more cobranded credit cards issued), but the real value is being able to reward the most profitable customers (and perhaps lessen their competition for perks) instead of rewarding the most mile savvy. It is likely that airlines will increase these minimum spending requirements in the future to further narrow the ranks of the elite.

And it’s possible that legacy carriers are evaluating a switch to a spend-based loyalty programme entirely — a model popular with low-cost carriers.

United Continental Holdings Inc Status Qualification Requirements 2014

Status Spending (US$) Miles (Actuals) Segments
Premier Silver 2,500 25,000 30
Premier Gold 5,000 50,000 60
Premier Platinum 7,500 75,000 90
Premier 1K 10,000 100,000 120

Source: Company reports

Delta Air Lines Inc Status Qualification Requirements 2014<s/trong>

Status Spending (US$) Miles (Actuals) Segments
Silver 2,500 25,000 30
Gold 5,000 50,000 60
Platinum 7,500 75,000 100
Diamond 12,500 125,000 140

Source: Company reports

… and Rewarding Them Lucratively

While the spending requirement for elite status could thin the ranks of the elite, the new partnerships between Delta and Starwood as well as United and Marriott increase them.
In March 2013, Delta and Starwood launched the Crossover Rewards programme.

Delta’s elite members earn one mile in the SkyMiles program for each US dollar spent on a room with Starwood, in addition to earning Starpoints. Delta’s Platinum and Diamond members (the highest elite tiers) get other perks such as late checkout, free internet and elite check in.

Starwood’s Platinum and Gold elite members earn one Starpoint for spending on eligible Delta flights. Platinum elites receive priority check in and boarding, their first checked bag free and free upgrades.

United and Marriott followed suit in July 2013 by announcing their RewardsPlus programme. United’s Global Services, Premier 1K, Premier Platinum and Premier Gold elites will automatically receive Gold status with Marriott. As a result, they receive perks such as free breakfast, free internet, upgrades and priority late checkout. They will benefit from a one-to-one transfer of miles to Marriott points.

Marriott’s Platinum Elites will receive United’s Premier Silver status. This entitles them to perks like complimentary upgrades, a free checked bag, priority access and boarding and 25% bonus miles on United flights.

It remains to be seen if these programmes will be effective in increasing loyalty as there might already be significant overlap in the elites of these companies, and it is not clear if the reciprocal perks will be enough to woo elite travellers from other programmes.

Joining brands could also damage brand perceptions if one partner does not have a similar reputation to the other. However, the partners will have access to more data on their elites based on their enrollment into the programmes and could offer better joint promotions. Most importantly, though, is that the airline loyalty programmes’ value may increase in the eyes of their most lucrative customers thanks to the additional benefits, especially Crossover Rewards, which allows travellers to double their earning power on a trip.

Euromonitor International is the world’s leading provider for global business intelligence and strategic market analysis. We have over 40 years of experience publishing international market reports, business reference books and online databases on consumer markets.

We deliver market research solutions to support strategic planning for today’s increasingly international business environment. Our research offers in-depth market analysis on consumer goods and services industries worldwide, as well as economic, demographic and socio-economic data and insight on countries and consumers.

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