Are we entering a new ‘Golden Age’ of creativity with loyalty programmes?

Sep 7, 2020

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The world of loyalty programmes has been upended by the ongoing coronavirus pandemic. With virtually every major airline and hotel programme extending elite status — and several launching promotions to spur new business — it’s hard to predict exactly what these programmes might look like in the future.

However, some recent announcements point to an encouraging trend.

Is it possible that in the midst of all of the challenging, awful things many of us are dealing with in 2020, that the small sliver of the dark cloud is that we’re entering a new “Golden Age” of loyalty programmes?

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In This Post

Innovations in frequent flyer programmes

Recently, we learned details of Air Canada’s long-anticipated new Aeroplan programme, slated to officially launch on 8 November 2020. While it wasn’t all positive, there were several new developments worth getting excited about:

  • A new option to add stopovers for 5,000 points, even on one-way award tickets
  • A new family sharing feature
  • The removal of all fuel surcharges from award tickets
  • A firm commitment to keep published award charts — a rarity in today’s world of dynamic award pricing.

The Aeroplan programme already showed this penchant for creativity early in the outbreak. It not only extended status for its loyal travellers but allowed existing elites to gift status to a friend or family member. It also gave non-elites the option to earn status through non-flight activity.

Some of the award chart changes in the new programme aren’t nearly as positive, but Air Canada has clearly shown an outside-the-box mentality — and one can certainly hope that it continues.

Making stays simpler, more all-in-one

The last decade has brought with it a move to a la carte pricing model in the world of travel … even award travel when you are using your miles and points to be rewarded for your loyalty.

Added costs — from resort fees, parking fees, extra-guest fees, seat assignment fees, carry-on bag fees and fuel surcharges (to name a few) — have become the unwelcome norm. But in recent months, there’s been a glimmer of hope that, unlike the airlines, hotels at least may be making a shift.

The World of Hyatt already didn’t charge resort fees on award stays, or even parking fees on award stays for its top-tier Globalist guests. But right now, Hyatt isn’t charging parking fees for any of its guests who are staying on points. Combined with no resort fees, that makes for a fee-free stay.

The World of Hyatt also introduced a buy-one, get-one promo for those staying on points at its all-inclusive, wellness-oriented Miraval properties. In that scenario, your meals and many activities are also included. And when the high-end Alila Ventana Big Sur property became all-inclusive, it stayed on the standard award chart at 30,000 Hyatt points per night.

While not definitive proof of a simpler path with hotel stays, it’s hope.

Miraval Berkshires (Photo courtesy of Zach Griff/The Points Guy)
Miraval Berkshires (Photo courtesy of Zach Griff/The Points Guy)

Options to convert travel funds to miles

Another notable (and creative) opportunity came from Southwest Airlines and Alaska Airlines in America.

Southwest Airlines was the first major carrier to launch a funds-to-points conversion option — which was announced as part of extending Rapid Rewards elite status and formally launched on 10 August. And while that opportunity won’t make sense for all travellers, it’s a way to keep things simple with one pile of points, rather than different credits here and there.

Then Alaska Airlines took things a step further.

Some members were targeted for a conversion rate of $1 = 100 miles, which is essentially using your wallet credits to “purchase” Alaska miles at 1 cent apiece. This is not only well below TPG U.S.’s most recent valuations; it’s also a big drop from the lowest price we’ve ever seen on buying Alaska miles (1.72 cents during a 60% bonus, though the carrier will launch a 70% bonus on Oct. 5).

Reports from TPG readers and others indicated three options:

  • Conversion to miles (ranging from $1 = 40 miles to $1 = 100 miles)
  • Conversion to elite-qualifying miles (ranging from $1 = 4 EQMs to $1 = 10 EQMs)
  • Conversion to a certificate that can’t be used until mid-2021 with a bonus $ amount (ranging from 10–50%)

Here’s how an Alaska Airlines spokesperson described these new options in an email to TPG:

“We’re exploring ways to give our guests more options for their existing travel credits if they don’t have plans to travel right away.”

And the certificate conversion? It’s essentially an airline Certificate of Deposit (CD), where you lock away your money for a year in exchange for interest (in the form of bonus value, anywhere from 10%–50%).

Points for creativity all around — especially with funds that may simply sit in a member’s account, unused, for months or even years to come.

Southwest-737-at-Los-Angeles-AIrport-LAX
(Photo by Ryan Patterson / The Points Guy)

More paths toward elite status

Perhaps the most innovative announcement we’ve seen since the world turned upside down comes from a programme across the pond.

Starting 1 September 2020, Virgin Atlantic will begin counting select award tickets toward elite status qualification with its Flying Club programme — a massive departure from the normal procedure. While most major hotel chains include award nights in qualifying for elite status, this is the first airline programme to take this step.

While creative, it also has a solid business case behind it.

In the simplest financial terms, outstanding miles are classified as a liability on an airline’s balance sheet, and the carrier recognizes revenue when they are redeemed. For Virgin Atlantic-operated awards — the only ones that will count toward Flying Club elite status at this time — there’s even more of a profit component: fuel surcharges. Even economy award tickets will add these, though Upper Class redemptions can carry much larger fuel surcharges eclipsing $1,000.

Additionally, keep in mind that elite perks only really cost the airline money if they are used. And to make use of the elite perks, the traveller would have to fly more on Virgin Atlantic, which would again be a win for the airline.

Could this all be temporary?

Virgin Atlantic is permanently changing its approach to award tickets, but with other adjustments stick around? (Photo by Nicky Kelvin /The Points Guy)

In its announcement, Virgin Atlantic indicated that counting award flights toward elite status was (in fact) a permanent change to the programme — though most carriers’ contracts of carriage (essentially) allow them to make any update, adjustment or overhaul to their respective frequent flyer schemes at any time. But how likely is it that these will stick? And will other carriers begin looking at creative ways to reward loyal travellers?

Well, they may have to.

Some analysts are estimating that global air travel won’t rebound until 2024 — four years from now. With one valuation pegging a popular U.S. loyalty programme somewhere between $18 and $30 billion, it’s clear that these currencies have significant value for their corporate parents. In fact, the credit card issuers pre-purchasing points and miles is providing major assistance to cash-strapped companies in the travel industry.

With demand still way down and operational profitability a long way off, leaning into a loyalty programme may be one of the most significant strategies an airline or hotel chain can use to set itself up for long-term success.

Bottom line

Most of us probably wish we could go back to our pre-March lives and routines.

But, since that isn’t an option right now, the small upside may be a renaissance of creativity from loyalty programmes that have every incentive to keep their programme members engaged. In some cases, the frequent flyer programme themselves are much-needed, multi-billion-pound assets to the airlines … but that only remains true if the programmes can retain relevancy and engagement in an ever-changing world.

Featured image by Taro Hama @ e-kamakura/Getty Images

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