2004: A New (Better) Year for Elites

‘Twas the night before Christmas, and the marketing elves at some of the world’s largest frequent flyer programs were working late in their mileage workshops, fine-tuning changes to their elite programs, poring over the fine print of the gift cards they would be e-mailing their loyal but grumpy minions.

When the news reached members’ inboxes, there was first a stunned hush of disbelief among the over-traveled and under-appreciated, followed by a rising chorus of cheers the likes of which hadn’t been heard from frequent flyers in years.

Because, for once, the news was good:

• Full elite credit for restricted fares from Northwest
• More elite bonus miles from United
• Quicker elite qualification from American
• Unlimited free upgrades from Delta and US Airways

Suddenly, the new year, 2004, was looking up for elite members of the major airlines’ frequent flyer programs.

But wait, the inner Scrooge cautioned. Good news? From the airlines? What’s going on here?

Two sides of the loyalty divide

More on elite program changes: Finally, positive elite program changes on four airlines

To understand the rationale behind these changes, we must take a step back in time and look at the recent history of elite programs. For the past year and a half, there’s been a battle brewing on the elite levels of the nation’s frequent flyer programs. On one side of the conflict are those carriers (Continental, Delta) that focus on rewarding customers for purchasing expensive tickets. On the opposing side are airlines that recognize and reward travelers primarily according to the frequency with which they fly.

While the debate has tended to focus on Delta, the first move was actually made by US Airways in August 2002, when the airline included the following in a notice to members of its Dividend Miles program:

“Customers ticketed on non-refundable fares will continue to earn full Dividend Miles credit. Effective for travel January 1, 2003, and beyond, miles and segments earned on most non-refundable fares will not count toward Dividend Miles Chairman’s Preferred, Gold Preferred, and Silver Preferred status.”

To be clear, “non-refundable fares” are the advance-purchase coach fares used by 90 percent of all travelers. So US Airways’ move would have radically altered the face of elite status, putting elite perks forever out of reach of all but a small, and shrinking, group of business travelers who routinely purchase pricey walk-up fares.

US Airways found itself condemned from every quarter—customers, industry analysts, the media—instantly becoming the poster boy for the arrogance that had driven the major airlines to the brink of extinction.

Two weeks later, chastened and rightly embarrassed, US Airways rescinded the policy change.

After such an ignominious defeat, one might assume that the idea would be relegated forever to the back shelves of the Library of Bad Marketing Ideas.

Delta draws a line in the sand

In early December 2002, Delta dusted off a variant of US Airways’ revenue-based approach to awarding elite perks, announcing that beginning in 2003, only 50 percent of actually flown miles would count toward elite status.

Even as the hue and cry that rattled the windows of US Airways’ Virginia headquarters was subsiding, Delta became the object of a firestorm of consumer rage.

SkyMiles members expressed their outrage in every conceivable medium: letters, faxes, e-mails, print ads, websites, rolling billboards. But Delta turned a resolutely deaf ear to the criticism, likely fortified by the conviction that its move would be matched by other airlines, thereby deflecting and diluting consumer criticism.

It wasn’t until September 2003 that another airline, Continental, announced it would be following Delta’s lead. Continental, it should be remembered, is involved in a trilateral alliance with Delta and Northwest, and is expected to join the global SkyTeam alliance, of which Delta is a founding partner. So Delta was in a position to bring considerable pressure to bear on Continental. And that, it appears, is exactly what happened.

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Against that same backdrop, then, Northwest’s announcement in November came as a shocker: It would not revise its elite-qualification policy to be consistent with its marketing partners.

That effectively isolated Delta and Continental, turning the tide in the elite skirmish from anti- to pro-consumer, and setting the stage for subsequent changes by other carriers.

United, American reach out to elites

The first in a string of elite-program enhancements came from United and included an extensive list of extra perks for Mileage Plus elite members. Prominent on that list: Beginning January 1, 2004, class-of-service bonus miles and segments will count toward earning elite status. (Members earn a 50 percent mileage or segment bonus for first class and a 25 percent bonus for business class.)

Next up was American, which in early December revised its elite qualification scheme to allow those traveling on full coach fares to earn elite status faster. Unlike Continental and Delta, across whose bow this shot was fired, American’s approach manages to reward those paying higher fares without penalizing those traveling on discounted tickets.

Delta and US Airways offer unlimited upgrades

Stubbornly, Delta continued to resist pressure to back down on its elite-qualifying policy. But on December 18, it made a notably conciliatory gesture toward disaffected Medallion elite members, offering them unlimited, complimentary upgrades on most Delta flights within or between the U.S. (excluding Hawaii) and Bermuda, Canada, the Caribbean, and Mexico, subject to availability, when purchasing most published fares.

In addition, Medallion members will be able to process upgrades automatically and upgrade travel companions. Plus, Delta increased the minimum number of elite-qualifying miles, from 500 to 750 per segment.

And in the very last days of 2003, the story comes full circle, back to US Airways and its first major elite announcement since it rescinded the misconceived policy that precipitated this particular chapter in the history of mileage programs.

Datelined Arlington, Virginia, December 19, 2003, the announcement begins:

“US Airways announced today that with travel beginning March 1, 2004, all of its Dividend Miles Preferred members will be able to upgrade to First Class free when traveling in the U.S., Canada, Latin America, and the Caribbean, which is a program currently offered only to its Chairman’s Preferred members.”

In just over a year, US Airways had swung from withholding elite credit for restricted fares to showering elites with unlimited free upgrades.

The Grinch gets his due

Amid the celebration and forward-looking optimism, there is a cautionary note that must be sounded.

It is one thing to promise unlimited free upgrades. It is another thing altogether to deliver on that promise. The upgrades in question are, after all, space available. Airlines are not increasing the number of first-class seats on their planes. If anything, as smaller aircraft are increasingly substituted for wide-bodies, the universe of first-class seats is shrinking. And judging from what I’ve seen over the past year traveling around the country, the demand for first class already outstrips the supply.

So there’s a real concern that the promise of more elite perks for more travelers may be empty, the visions of big seats and complimentary champagne illusory.

The coming year will tell whether we have a net gain or a net loss in satisfaction among elite members of the nation’s airlines.

If the airlines have misjudged—if they over-promise and under-deliver, rather than the opposite—the anger that US Airways and Delta know all too well will look tepid in comparison to what is in store for them when elite members realize they’ve been duped.