Loyalty & Rewards

Airlines Raise The Price Of Loyalty

Airlines Raise the Price of Loyalty Rewards

In the digital world, loyalty can work as a differentiator, a way to keep consumers amid fierce competition from many merchants. But loyalty also comes at a price, and as airlines enjoy strong demand, one major carrier is upping the cost for its top customers to earn the best benefits.

American Airlines has changed the rules of its frequent flier program. Achieving AAdvantage Executive Platinum status — the top tier of the carrier’s program — now requires $15,000 worth of ticket purchases annually, up from $12,000, according to reports. The change takes effect on Jan. 1.

“This move shows the airlines continue to see healthy demand,” Susan Donofrio, airline analyst with Macquarie Group, told CNBC. “We are seeing no softness in ticket prices and all seats on a plane now have greater value.” Or, to put it another way: “That means it now costs airlines more to award a seat to a frequent flyer. So the more members who have top-tier status, the more seats airlines will have to award in the future.”

American Airlines follows the example of United Airlines in requiring frequent fliers to spend $15,000 to reach top status, which is also the longer-standing threshold amount for Delta’s Diamond Elite level.

Loyalty Importance

Those changes come as U.S. carriers are bringing in more from loyalty and credit card programs. In the second quarter of 2018, for instance, major carriers in the U.S. earned more from loyalty and credit card programs than they did in the same period the prior year.

And that is happening amid an anti-cash trend among airlines. American Airlines, which stopped accepting cash payments for snacks and drinks on flights in 2010, also wants to eliminate cash for checked or overweight bags, as well as other fees.

Airlines aren’t the only part of the travel industry undergoing changes in loyalty.

In response to passengers’ increasing use of ride-hailing apps like Uber and Lyft, many airports – seeking parking-generated revenue – are launching or developing loyalty programs that offer free parking after customers use an airport lot for a certain number of days. In addition, some airports are also allowing drivers to reserve spots close to terminals, and also offering half-off sales and even free coffee for loyal travelers.

That includes Dallas Fort-Worth International Airport, where parking’s share of the facility’s revenue recently declined to 32.4 percent of its overall income from 34 percent a year earlier. That’s why the airport now allows travelers to reserve specific parking spots online, as well as pay ahead through the airport’s website or mobile app. The airport also introduced a pricing model that rises and falls with demand.

“Just like an airline seat or hotel room [that goes unsold], it’s perishable,” said John Ackerman, who heads global strategy and development for the airport. He said that DFW might also introduce perks like a free Starbucks coffee for those who park at the airport often.

Loyalty Revamp

Starbucks, of course, is often held up as a model of how to do loyalty in a fast-moving retail environment that is increasing dependent on mobile. Active Starbucks Rewards memberships grew to 15.3 million in the last financial quarter, up 15 percent from last year and the strongest growth rate in seven quarters, according to Starbucks President and Chief Operating Officer Rosalind Brewer in a recent call with analysts.

But one need not sell upscale coffee to grasp the potential positive impact of loyalty. Subway, in a sense, is on an opposite part of the spectrum, but even that food chain recently revamped its own loyalty program to keep up with the times, as described in the new PYMNTS Restaurant Readiness Index.

Subway launched its digital and in-store MyWay Rewards program for North American customers in March 2018, and the program has been growing rapidly. MyWay, which replaces an older, more limited version, comes with features that are online or mobile-only. The updated program is a result of more consumers expecting to have greater interaction with their chosen brands, and that this interaction will save them money.

Whether with QSRs, airports or carriers, loyalty is vital to continuing success — but don’t count out more changes to loyalty programs as technology develops and the economy shifts.

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