More Miles, Fewer Smiles in the New Year

I’ve made plenty of predictions over the years, with about as much success as anyone else who indulges in crystal ball-gazing. In other words, I get it wrong almost as often as I get it right. This year, instead of outright prognostication, I thought I’d try a more modest approach to grappling with the future. Rather than focusing exclusively on specific events I expect to come to pass, I’ll step back and take a broader view, identifying a few key areas where important developments will play out. Within those areas, I’ll discuss some possible scenarios.

More miles

Let’s begin with the overarching trend in loyalty programs, which will continue through 2007 and beyond. The programs will keep growing their partner rosters, affording consumers ever more opportunities to earn miles.

American, the industry’s first mileage program and the largest, now boasts more than 1,000 partner companies. The list has grown to encompass far more than the obvious travel-related companies. Canny mileage collectors can earn American miles for purchases of almost any imaginable product or service. The same is true for members of the programs of other mainline carriers.

The resulting increase in outstanding miles sets the stage for other developments taking place this year.

The award forecast is gloomy

For all the millions of award tickets issued annually, capacity controls on award seats stymie many program members when they try to cash in their miles. Let there be no doubt: The airlines will continue to ignore this problem.

The situation will most likely get worse before it gets better. With the aforementioned trend toward adding mileage accrual partners, ever more program members will be earning ever more miles, increasing demand for award tickets. The airlines are not adding more flights to accommodate that demand, and if the number of complaints I receive is any indication, the airlines are less willing than ever to designate seats for award use, especially when those seats might be sold.

This year will see more program members, with more miles in their accounts, chasing after fewer award seats. That combination is a sure recipe for frustration and disappointment.

The Feds to the rescue?

A closely related question concerns the airlines’ willingness to be forthcoming with their customers and allow their programs to be judged on merit. A Department of Transportation report issued in November confirmed what most travelers already know—that consumers do not have access to meaningful data that would help them choose one mileage program over another.

What are your chances of being able to cash in American AAdvantage miles for a free trip? How does that compare with your odds at Continental, Delta, United, and other carriers? If you manage to reach elite status with Northwest, say, how often can you expect to be upgraded? What’s the upgrade rate at other airlines? The airlines are silent when it comes to the most basic questions concerning their loyalty schemes.

Can we expect better in the new year? I’m not optimistic, especially if the matter is left to the airlines’ initiative. The fact that the DOT has raised the subject, and with it the possibility of federally imposed sanctions at least gets the conversation started—much to the discomfort of the airlines—and is a step in the direction of the sort of transparency consumers have every right to expect.

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The nonmystery of disappearing miles

Over the past year, we’ve seen a flare-up in activity surrounding mileage expiration after years of relative stability.

Among the low-cost carriers, JetBlue and ATA both extended the life of points earned in their programs from one to two years. In both cases, the changes almost certainly came in response to competitive pressure from Southwest, which liberalized its points expiration policy in 2005.

While the discount lines moved toward liberalization, the legacy carriers headed in the opposite direction. Delta advised SkyMiles members that, beginning in 2007, their miles would expire in two years if there is no account activity within that time. [%1605287 | | US Airways %] went even further, stunning Dividend Miles members with the news that, effective January 31, 2007, the life of miles in inactive accounts would be slashed from three years to just 18 months.

More such “meeting in the middle” is likely to occur during 2007, with other discounters following Southwest, JetBlue, and ATA in extending the life of miles, and full-service carriers tightening up their policies.

Free stays more costly

While developments in the airline program sphere command the lion’s share of travelers’ attention, at least one noteworthy shift occurred among the hotel programs. Beginning in June, Hilton made wide-ranging adjustments to its HHonors award chart, resulting in price increases for the great majority of free stays.

Then, in late December, Hyatt followed suit, substantially revising its Gold Passport award chart. The net effect, as with Hilton’s changes, was an increase in the number of points required for award stays. This coming February, Starwood will make major modifications to its award levels—again with the overall effect of making free nights more expensive.

With award price increases in place or in the pipeline from three of the major hotel chains, it’s a safe bet that Marriott Rewards, Priority Club, and other loyalty program members will experience similar changes.

2007 will be like 2006

When the history of 2007 is written, the theme of the year is likely to be the same as in 2006: the falloff in value of travel rewards programs.

The airlines are playing a dangerous game of chicken with their best customers, devaluing their miles little by little, feeling their way to the limits of customer tolerance. How much more will travelers endure before they turn away from the programs in droves? Might 2007 be the year that the tipping point is reached, that mileage programs finally lose their allure?

As much as I’d like the airlines to stop chipping away at their programs, I don’t anticipate any significant improvement in 2007. Realistically, the best we can hope for is that 2008 is the year the programs’ decline reverses.