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Wednesday, May 18, 2016

The end of frequent flyer programs

For 35 years, airlines have offered their most loyal customers a deal: fly with us as often as possible, and we will reward you with perks and free tickets. While conforming to the travel policies of my employers, I have received numerous benefits from this deal. It has made tolerable what would otherwise have been a very arduous aspect of my career. But the deal is being revoked, not just from me personally but from all road warriors in the U.S.

At the outset of frequent flyer programs, airlines typically operated their flights half full and therefore had many seats to give away. These days the average load factor has risen to 70-80%. Naturally the airlines have less inventory to give away. The net effect is that airlines have raised, and keep raising, the number of miles necessary to get a free ticket. Meanwhile they have restricted, and keep restricting, the accrual of miles in their programs. Furthermore they have added, and keep adding, fees to use free tickets. The consequence is that truly free tickets are far less plentiful to obtain and less convenient to use. Strike one.

As for in-flight perks, some of them cost the airline nothing — such as the right to "pre-board" (what a term!) the aircraft while the overhead bins are still empty. But the most valued perks have been upgrades to a higher class of service and selection of the best seats in economy when you cannot get an upgrade. Alas, these perks are gradually ending. The best seats in economy are being individually priced, and access to those seats at no charge by frequent flyers is being cut back. Likewise, airlines have re-learned a lesson from the advent of deregulation: if they simply price first-class domestic seats at an affordable premium above economy seats, they'll be able to sell those seats for real dollars instead of giving them away. Strike two.

Airlines and hotels experimented with affinity credit cards and discovered that they could make a handsome profit without actually having to sell a ticket or a hotel room. It's easy money for the airlines, and consequently they are granting perks to card holders that were formerly reserved for frequent flyers. The more people who receive those perks, the less valuable they become. Strike three.

I will play the game as long as possible, and I have an accrual of miles and points to consume even though they are depreciating rapidly and using them requires ever-increasing flexibility and creativity. But let's be clear: for someone starting a business career that will require frequent travel, the gravy train has ended. Either spend your personal money to travel comfortably or be satisfied in cattle class. I dislike the phrase "race to the bottom", but we clearly are moving into an era when you don't get what you don't directly pay for.