First Free Story (1 of 3)Join Skift Pro
On September 27 to 28, nearly 1,000 of the travel industry’s brightest and best will gather in New York City for the third annual Skift Global Forum, the largest creative business gathering in the global travel industry. In only two short years it has become what media, speakers, and attendees have called the “TED Talks of travel.”
This year’s event at Alice Tully Hall, Lincoln Center will feature speakers including the CEOs of Marriott International, Carnival Corp., Expedia, TripAdvisor, Etihad Aviation Group, Club Med, and many more.
The following is part of a series of posts highlighting some of the speakers touching on big-picture issues that may begin in travel, but also impact businesses and industries beyond the sector.
When Brian Kelly started The Points Guy in 2010, many of the world’s airlines were in precarious financial situations.
Many were finally making money, having recovered, at least in part, from the twin shocks of 2008 — a spike in the price of oil and a drop in demand. But fuel was still expensive, and it was not clear the industry soon would start reporting record profits.
It was, however, an auspicious time to collect and use points. With airlines struggling to retain customers, carriers were giving away lots of miles, both to repeat and occasional travelers. And since airlines that cannot sell seats are more likely to give them away, it was also a good time to redeem free flights.
Six years later, the situation has changed. Airlines are making massive profits, and many have gutted frequent flier programs, making it more difficult for most travelers to earn and redeem miles. Only passengers buying the most expensive tickets still earn substantial miles by flying.
But Kelly is a miles-collecting professional, and he still finds many opportunities. He argues now is a fine time to play the points game, though he acknowledges most travelers earn more miles today through credit cards than from buying airline tickets.
Kelly will appear Sept. 27 at the Skift Global Forum, where he will debate George Hobica, founder of the discount airfare website, Airfarewatchdog.com. They will discuss which approach benefits travelers more — everyday low fares or a strong frequent flier program.
To preview the discussion, we spoke to Kelly recently about his opinions on recent changes in the mileage game.
Skift: Are airlines being rational in cutting frequent flier perks? Or will this eventually cost them customers, as passengers learn there are fewer benefits to loyalty?
Kelly: I think they are rational in the sense that they have shareholders who would prefer they not give things away. But they are pretty safe in doing it because all the majors are copying each other. Now, I do think there will come a time — if they devalue too much — that people will definitely start gravitating toward better airlines and a better experience. If you no longer have the opportunity for a first class upgrade, why are you going to fly an old United plane when you can fly JetBlue? But airlines are pretty profitable, and [their strategy] seems to be working. Consumers haven’t really punished any of these programs for these changes. If consumers aren’t going to vote with their wallet, we will continue to see this negative change. But I do expect we have seen the worst.
Skift: With recent changes in mile programs – most airlines only reward the biggest spenders today — is it a tough time to be a road warrior?
Kelly: For business travelers and road warriors who spend a lot, this could be the best time in terms of earning miles. I see it two ways. Yes, airlines are giving away fewer free upgrades. But there are more opportunities to buy first class tickets and to use miles and points. The credit card game is more lucrative than ever. I don’t think think is terrible for everyone by any means.
There are still so many ways to get ahead in this game. I still travel all around the world. I flew Singapore Airlines recently for $23 in Suites Class with one sign-up bonus. The game is far from dead. You just have to be a little bit smarter.
Skift: American last month said it had reached two new credit card deals with Barclays and Citi that could produce more than $1.5 billion in revenue over the next two and a half year. Are you surprised at how profitable it is for airlines to sell miles to credit card issuers?
Kelly: The biggest surprise was that American re-upped its contract with both Citi and Barclays. Exclusivity is usually the name of the game. I think American juiced out two really good deals. I think we could see that potentially with the Starwood-Marriott deal. The credit card contracts are as strong as ever and sign-up bonuses are higher than ever and consumers are spending more than ever. As long as that is happening, I don’t think the airlines would not want to change too fundamentally.
Skift: Many frequent flier programs have complicated charts, based on geography, that help customers learn how many miles they need to redeem awards. But Southwest is different. Its redemptions are based on how much a ticket costs. In what’s called the ‘revenue model,’ pricey tickets require more points, while cheap ones require fewer. Should more airlines adopt the easy-to-understand Southwest’s model?
Kelly: No. That is the doomsday scenario. If airlines do go to the revenue based, there will be a huge backlash. Why would any consumer want to get a Delta SkyMile credit card if they can get 2 percent cash back with another card? I think airlines need to be careful. I think they would lose a big amount of business from their credit card deals. More points are generated from credit cards than from flying. Because credit cards are so lucrative, the airlines don’t want to devalue their programs so much to where credit card companies don’t want to buy their miles. The credit card companies really do hold a lot of the power in making sure these programs don’t further devalue.
With these [major airline] programs, you can travel like a millionaire and not be one, which is amazing. If you take the aspiration out, I think people would be much less likely to use airline and hotel branded credit cards.
Skift: As far as earning miles, there’s only one larger U.S. carrier that still has kept the old paradigm, where travelers earn one mile for each mile they fly. Do you think Alaska Alaska will continue its approach?
Kelly: I think they need to be different. They always have been a little different, like not joining an alliance. They are profitable, and I think they will stick with the ‘if it’s not broken, don’t fix it’ model. I think they need to keep a competitive advantage. My guess is that they will stay traditional for the near future.