Frequent Fliers vs Frequent Spenders: The Shift in Airline Loyalty Programs

Frequent fliers or frequent spenders? Is there a difference as they relate to airline loyalty programs?

The airline industry is facing increased scrutiny over its loyalty programs. Frequent fliers are frustrated by devalued points, more stringent elite status requirements and diminishing returns on their travel investments. This dissatisfaction has led many to question the value of these programs and to explore alternative travel options.

Airlines like United and Delta continue to adjust their loyalty programs, often implementing changes that erode the value proposition for frequent fliers. These adjustments, such as altering the criteria for earning miles and restricting access to certain perks, can leave travelers feeling undervalued and may push them to seek more rewarding travel experiences elsewhere.

Shift to Profitability Through Loyalty Programs

PYMNTS spoke to several industry experts about the current state of airline loyalty programs and the logic behind their offerings. Mark Ross-Smith, CEO, Loyalty Status Co. said the economics can be challenging with typical operating margins from selling a seat domestically around 12%, and less in coach.

“For that margin the airline has to accept payments, check you in, provide airport facilities, employ thousands of staff, have gate agents, tag your checked bags and deliver them to you after you land, employ customer support agents, feed you on the plane, comply with a growing list of mandatory safety regulations in all markets they fly to versus running a loyalty program, which sells points and miles to banks, enjoys a 30%-80% operating margin, employs much less staff, and has no airplanes to maintain, no pilots, and no unions,” Ross-Smith said. “It’s insanely attractive to move toward rewarding people who spend more and contribute toward the part of the company (the loyalty program) that ultimately underpins the value of the airline group. Who needs frequent flyers when you have frequent spenders?”

Customer Experience Still Matters

Chris Lewis, head of research at FinanceBuzz, offered a different perspective.

“Airlines obviously have to be profitable, but I think they’re quickly realizing that the way to do that isn’t by skimping on the customer experience,” he told PYMNTS. “The public discourse about air travel is hugely negative and a lot of the major airlines are bearing the brunt of it. In a customer’s mind, they’re expecting to have a bad flight or delays on Spirit or Frontier, but if they have one on a more premium airline and they’re paying more, it’s doubly offensive. The major airlines are catching onto this and finding ways to make that experience better for customers who are choosing them over cheaper options.”

Frequent Fliers as ‘Brand Ambassadors’

Frequent fliers should be viewed as “brand ambassadors,” John Taylor Garner, founder and CEO of Odynn, told PYMNTS. “Airlines are very low margin businesses and regularly lose money, so it’s no surprise they are focusing on profitability. However, doing so at the expense of frequent travelers who do not necessarily spend as much as others who may have the airline’s co-branded credit card is also a bad idea. These frequent travelers should be looked at as brand ambassadors, essentially an extension of marketing. They are the ones that if they are having a good experience will tell their friends, family, and co-workers about it and they will influence what airlines those people chose to book in the future.”

Missed Opportunities for Long-Term Loyalty

As American Airlines shifts its strategy toward maximizing direct bookings and in-ecosystem spending, it may miss a critical aspect of customer loyalty. By focusing solely on direct bookings and in-ecosystem spending, American Airlines might inadvertently overlook the long-term value of these loyal customers and their powerful word-of-mouth marketing potential. Last year American Airlines revamped its AAdvantage loyalty program, changing its focus from flight miles to loyalty points.

Ross-Smith contends U.S. airline profitability now depends more on credit card partnerships and high-spending customers than on frequent flyers. He points out airlines like American Airlines reap the benefits from making frequent spending more valuable than frequent travel, which raises concerns about customer satisfaction and the long-term sustainability of traditional loyalty programs.

“American Airlines, for example, is only profitable because of the AAdvantage loyalty program,” he said. “AA is fundamentally a credit card marketing company that flies planes.”

Premium Offerings Becoming Popular

This move toward profitability through loyalty programs is prompting many airlines to introduce premium offerings (like business bundle) to attract more customers and encourage higher spending.

“In a lot of cases, business travel is primarily paid for by companies and the miles, points, and status get awarded to employees,” Jagdish Ghanshani, managing partner, travel and hospitality industry lead at Publicis Sapient, told PYMNTS. “But in the case of business bundles, it’s incredibly hard to ‘expense’ them unless companies have flexible expense and booking policies. To maximize the effectiveness of these bundles, airlines must work with corporate travel agents to offer business travel bundles at the corporate level, ensuring they align with corporate expense and booking policies.”

The demand for premium product has never been higher, Ross-Smith noted, “and we’re seeing many airlines in the U.S. and globally installing more premium (business/first class) capacity to cater for the growing demand in premium leisure and business travel. The trend we’re seeing like the business bundle is another step in the evolution toward catering to the near unlimited-money of corporate flyers.”

As airlines focus on premium offerings, customer loyalty becomes more challenging, especially considering how much consumers are spending on travel. According to the PYMNTS Intelligence report, “The Last Transaction: Family Spending Habits Reveal Merchant Opportunities in Retail and Travel,” married consumers with children at home may have less disposable income than their childless counterparts, spending $326 on travel in the past 30 days according to the 2024 survey, down from $361 in 2023, and $389 in 2022.

Balancing Status Perks and Profitability

Airline officials understand that making status too easy to achieve can lead to too many people demanding perks, especially in mid-tier levels where upgrades and other benefits become less accessible, causing dissatisfaction, Lewis noted.

“Airlines also probably realized the need to diversify income streams and be more profit-centric without cutting the customer experience, but to do that they need to reward something that’s going to affect their profitability,” he said. “Make the airline more profitable and they’re going to be more likely to reward that through status. Especially when one airline makes a shift in this direction, it’s much easier from a PR standpoint for another to without overly upsetting customers.”