Airlines in Descent: How Frequent Flier Programs Are Losing Customer Loyalty

Hello and Happy Tuesday!

We’re not even through January, and I’m five trips into 2024. Thankfully, tomorrow’s keynote — which you can register to watch for free here, courtesy of my friends at CityCurrent Memphis! — is within driving distance, so I don’t have to fly for another week. ??

If you travel a lot like me, you know the struggle of trying to achieve or maintain your ‘status’ with (sometimes multiple!) frequent flier programs. It’s like playing Tetris, trying to determine which trips to book on which airline to add up the right number of miles flown. At this point, I’m pretty familiar with all of these “loyalty” programs and I have to say.. they all kind of suck. At least in the way they’re communicated to customers.

They used to be like slot machines, straightforward as can be. You pull the handle and when the rows match up, you win. Now, a zillion restrictions and rules have been added, all designed to make winning harder. And, while we’re at it, why are we even still using “miles” as a currency? The airlines certainly aren’t.

Have you ever tried to redeem an airline reward and it just… worked? ??♀?

The intricate qualification requirements, elusive benefit conditions, and the fluid nature of these programs make it nearly impossible to understand what, exactly, you’re going to earn, and often obscure the use of your so-called rewards.

But don’t just take my word for it.

The U.S. Department of Transportation (DOT) recently opened an investigation into such airline programs.

Senators Dick Durbin and Roger Marshall cited the “unilateral contracts” of frequent flier programs that permit them to modify the terms at any time (!!). They wrote, “These programs incentivize consumers to purchase goods and services, obtain credit cards, and spend on those credit cards in exchange for promised rewards—all while retaining the power to strip consumers of those rewards at any moment.”?

Last September, Delta announced major changes to its SkyMiles program, eliminating two of the three avenues for accruing points and doubling the amount passengers would have to spend to qualify for the same status in 2024.

Customers were so outraged that CEO Ed Bastian was forced to retract some of the new changes, but all he did was slightly lower the new qualifying thresholds for certain tiers. (FWIW, Delta is the only major carrier I don’t have premium status with.)

American Airlines similarly updated its AAdvantage program in 2023, making it more difficult for customers to achieve its lowest tier. Such drastic annual changes to earning thresholds that move the goalposts undermine trust for passengers.

Thankfully, I have Million Miler status with American so (unless and until they change the rules!), I’m grandfathered into Gold-for-life status and usually quality for Platinum Pro or Executive Platinum when annual flying and credit card spending is factored in.

I started wondering if airlines were making more from their credit card partnerships than from flights since that’s the behavior they seem to be incentivizing most. After some research, it seems like that’s the case.?

These loyalty programs are actually massive profit centers that funded billions of dollars in loans during the pandemic… which is why the Southwest Airlines credit card I opened in October was more beneficial for me from a status standpoint than the 43 flights I took on the airline last year.

Long story short:

• Credit card companies and other merchants buy miles upfront from airlines and then encourage customers to spend thousands of dollars to earn them?
• With all of the changes to the qualification structures of these airline programs, it’s much harder to earn miles by flying. 58% of miles are earned “on the ground.”
• Airlines can devalue miles at any time, which means…
• Credit card companies are happy because consumers keep spending to earn more
• On average, only 8% of earned miles are redeemed across major airlines (Southwest had the highest rate of 14%)

While airline revenue is soaring, passenger trust is taking a nosedive. Because these “loyalty” programs are driven more by third-party spending than flight activity, airlines are hardly creating repeat customers - and certainly not superfans.? This short-sighted approach may boost profits in the short term but seriously damages customer relationships and brand affinity over the long run.?

By the way, it isn’t just airlines giving customers the runaround. Don’t even get me started on the joke that is hotel rewards programs (I’m looking at you, Hyatt) — even the ones that make some sense (Marriott and IHG) leave a lot to be desired.

To successfully change these trends, airlines (and hotels, and other hospitality-industry partners) must prioritize customer needs at least as much as corporate profits. This means simplifying the qualification and redemption structure, eliminating unfair restrictions, and aligning customer behaviors with the program’s objectives.?

Most importantly, frequent flier programs need transparency and consistency to rebuild passenger goodwill. The focus of loyalty programs should be the direct relationship between the airline and the customer, not brand partnerships that value third-party interests over the passenger experience. Otherwise, call it what it is: a profit center, not a loyalty or rewards program.

Even when airlines try to paint changes as good for customers (like in October when Southwest announced “Big changes coming to Rapid Rewards!”, or just last week when American unveiled its updates), the constant changes erode customer confidence and breed frustration, impatience, and even apathy.

What does this mean for you?

Regardless of what you’re selling, your customers want to feel appreciated for their continued support.??

• Make sure your qualification or accrual system is aligned with consumer behavior.
• Keep the rules and restrictions to a minimum. The harder it is to use or understand, the less likely your customers will feel compelled to return.
• Offer personalized, high-quality perks that will force your customers to brag about you to their friends?

By prioritizing the customer's interests and consistently delivering value, loyalty programs can foster long-lasting relationships and increased customer satisfaction.

Catch up on The SUPER AMAZING Show!

Last Thursday (1/18) was the first #gettoknowyourcustomersday of 2024, so Shep and I posed a challenge for you to complete: Ask your customers what you can do to make their lives easier! If you haven’t done so already, use this quarterly reminder to check in with your clients and see how you can serve them better.

Watch episode 3 here:

This week, Shep and I talked about the impact of diversity on customer experience. Representation matters. The more you have in common with the people helping you make decisions, the more likely you are to miss something that might be glaringly obvious to another audience.

Check out episode 4 here:

"When the customer comes first, the customer will last." — Robert Half