Frequent flyer programmes have become big business. Considered the most popular form of loyalty marketing, they have also become text book examples of relationship marketing - but not necessarily with the customer. Today's frequent flyer programme consists of dozens if not hundreds of partnerships - both airline and non-airline - that get the sale of air miles down to a fine art.
When American Airlines introduced the first mileage-based frequent flyer programme in 1981, it did so with relative simplicity. You fly American, you earn miles. Within the first year Hertz and Hyatt Hotels became partners to the programme, offering miles more for the convenience of American's travelling customers than for its financial gain.
In contrast, the basis for today's partnerships is often the sale value of the miles issued by an airline. A cost or price is typically attributed to every mile issued and, within a strategic partnership, carriers are compensated when free miles are redeemed as a flight on their services. In practice money will only change hands if an imbalance occurs.
A closer look at these partnerships reveals that they often fall into one of four categories: related, direct, mutual and exclusive.
1 Related Partnerships. These partnerships are similar in nature to that between American Express' Membership Rewards loyalty programme and a particular airline. Each partner has its own base of loyal customers, yet one is purchasing currency (miles in this case) from the other. Unlike mutual partnerships the customer base of each remains separate. Each will market its own programme independently of the other; moreover, they both spend a lot of time building on their databases to promote the relationship. The key to these types of relationship is that they are in related businesses, but not competitive.
2 Direct Partnerships.These partnerships are usually confusing for members of FFPs because they exist only on either an accrual or a redemption basis. To make matters worse, there are varying degrees of cooperation between the programmes and the relationships between them are not always reciprocal.
Currently Aer Lingus is a partner in the Finnair Plus programme, for example. Members of the Finnair plan can earn points when flying with Aer Lingus and claim free reward flights on Aer Lingus. However, members of Aer Lingus do not have the same privileges on Finnair. This relationship might change as negotiations between the two airlines continue. These direct partnerships are usually based on financial considerations and do not fall within the confines of a strategic alliance.
3 Mutual Partnerships. This is the favoured type of FFP alliance now developing around the globe. Essentially it represents a 'mile-share' of marketing programmes where members of any of the alliance partners' programmes receive equal mileage accumulation opportunities according to the rules of their base programme. Essentially, each honours the others' members for mileage accrual. However, it must be understood that these mutual partnerships do not always share extended benefits, and that award redemption is still handled on a traditional basis - that of the value of miles accrued versus miles redeemed, with financial compensation if an imbalance develops.
Furthermore in many alliances airlines will often specify on which flights members can earn miles on the partner airline. In these partnerships when the airlines share a route, members of the key programme often cannot earn miles on the partner airline. There are other factors involved when it comes down to choosing the routes on which miles can be earned, and the process is ongoing. More developed cooperation tends to allow mileage accrual on all the partner's routes.
It is up to the members of the programmes to ensure that the flight they are taking on a partner airline will earn miles on their preferred scheme. In the past, it was common for airlines to specify where members could begin their flight to be able to earn miles. For example, a member could earn miles on a Virgin flight only if it originated in the UK, but not if it originated in France. But with the globalisation of programmes, most origination restrictions have been lifted.
4 Exclusive Partnerships. These relationships are category killers. The most prominent one today is the credit card relationship that Citibank has with American Airlines. Other than a smaller relationship with Diners Club, Citibank owns an exclusive right to market its credit cards to the estimated 30 million members of American's AAdvantage programme. It's by far the most successful relationship among the airline/credit card alliances. Another exclusive partnership is in telecommunications, where MCI has a dominant position over AT&T and Sprint. Programmes rarely have exclusive relationships with other airlines or hotel or car hire companies.
Alliances aren't often exclusive because airlines have opted to establish either strategic mutual FFP links with at least one partner or direct partnerships. The latter are often referred to by carriers as 'tactical' linkups.
Four of the most developed mutual partnerships are those between American/BA, KLM/Northwest, Lufthansa/United, and Delta with Swissair, Sabena and Austrian Airlines.
American AAdvantage
The American AAdvantage programme was the first frequent flyer programme and is the largest with 30 million members. Even though the proposed alliance with British Airways is at a stand-still, the carriers' frequent flyer programmes are offering extended benefits to members of either scheme. However BA and AA do not compete for frequent flyers on transatlantic routes.
The American AAdvantage programme is known for its broad approach to mileage accrual. For example, members in the US will be able to earn miles this autumn when they watch select ABC television programmes.
AAdvantage does not offer an enrolment bonus. Class of travel bonuses for travel on American and its airline partners include a 25 per cent bonus when flying business class and a 50 per cent bonus for first class flights. Members can earn miles through car rental partners; staying at partner hotels; credit cards (Citibank MasterCard/Visa, Diners Club, RoyalBank AAdvantage MasterCard); MCI telephone services; the AAdvantage Dining programme; and by purchasing from a vast range of consumer goods in the US.
Members of AAdvantage can earn credit towards elite status when flying American Airlines, British Airways, Reno Air, Midway or Canadian Airlines. Gold status is reached when 25,000 miles or 30 segments are flown. Platinum is reached at 50,000 miles or after 60 segments. Members must qualify for these levels within a year and fly with more than one partner airline for at least one flight segment during that period.
For 25,000 miles members may claim one free weekend night, including breakfast for two at a Marriott hotel. And 40,000 miles will claim a business class flight between the UK and Europe in zone three which includes Istanbul, Kiev, Moscow and Tel Aviv. At 340,000 miles a first class ticket between selected AA European gateways and South America can be claimed.
BA Executive Club
British Airways Executive Club members can take advantage of the Air Miles programme, which is unique to FFPs and gives members a vast number of earning possibilities. However, it is more difficult to earn elite status in this programme than in many programmes.
British Airways Executive Club does not offer an enrolment bonus. Bonuses for different classes vary by route flown. Members can earn miles through car rental partners; staying at partner hotels; credit cards (Coutts Gold Card, CouttsClassic Card, Diners Club, NatWest Gold MasterCard and Visa, Ulster BankVisa); AT&T telephone services; and British Airways Travelphone. Other ways to earn Air Miles include buying wine at the Wine Rack, petrol at Shell filling stations, and groceries at Sainsbury's.
Members of British Airways Executive Club can earn credit towards elite status on BA and American business class flights. Silver card status is reached when 700 Executive Club points are earned and Gold level is reached at 1,700 Executive Club points earned in a year.
One thousand Air Miles will claim one economy class ticket from London/Gatwick to Bordeaux; 5,000 Air Miles an economy class ticket from London/Heathrow to Tel Aviv; and 11,000 Air Miles an economy class ticket from London/Heathrow to Johannesburg.
KLM Flying Dutchman
KLM Flying Dutchman does not offer an enrolment bonus. Most business class flights earn double points. Members can earn miles through hotel and car hire partners; credit cards (Eurocard/MasterCard in the Netherlands); and the Unisource phone card. Members can also earn points at Tax Free Shops at Schiphol Airport. If you are a member of the Air Miles programme in the Netherlands you can claim free flights on KLM.
Members of KLM Flying Dutchman can earn credit towards elite status on KLM and Northwest flights. Silver Wing membership is reached when 15,000 points are earned or 20 one-way flights are flown, and Royal Wing membership is reached when 24,000 points are earned or 40 one-way flights are flown within one year.
Twenty five thousand points will earn two nights' accommodation for two at a first class hotel in the German countryside; 50,000 points will claim six nights for two people in a four star hotel on a tropical Caribbean island; and 160,000 points will claim a seven-night tour of Egypt with a Nile cruise for two people.
KLM does not market its programme in the US because of the alliance with Northwest.
Northwest WorldPerks
Northwest Airlines and KLM, were the forerunners of close transatlantic frequent flyer relationships.
Northwest WorldPerks does not offer an enrolment bonus. Class of travel bonuses on Northwest and most of its airline partners include a 25 per cent bonus when flying business class and a 50 per cent bonus for first class flights. Members can earn miles through car rental and hotel partners; credit cards (Diners Club, First Bank Visa in US, Citibank MasterCard or Visa in Asia); MCI telephone services; a dining programme; and other shopping in the US. Flight credits on Northwest and KLM count towards elite status.
WorldPerks Preferred is reached at 25,000 miles and Gold at 60,000 miles flown. The new International Gold elite level is offered to residents in North America and Asia-Pacific who accrue 24 points. Points are awarded for international flight segments in first class or World Business Class on Northwest, KLM or Northwest designated partner flights. Qualifying routes include those between Asia-Pacific, Africa, Europe, the Indian subcontinent and North America. Each segment flown earns one point and an extra point is earned for flights between Asia- Pacific and North America.
At 25,000 miles an off-peak companion ticket can be claimed from Europe to the US, while 50,000 miles claims an off-peak economy class ticket from Europe to the Caribbean and 150,000 miles claims a Round the World trip with Northwest and KLM.
Lufthansa Miles & More
Lufthansa is a member of Star alliance along with United Airlines, Air Canada, SAS, Varig and Thai Airways.
Lufthansa Miles & More does not offer an enrolment bonus. Class of travel bonuses include a 100 per cent bonus when flying business class and a 200 per cent bonus for first class flights. Members can earn miles through car rental partners and partner hotels (500 miles for most stays). Miles are not available from credit card or telephone use.
Members of Lufthansa Miles & More can earn credit towards elite status flying with Lufthansa, United, Air Canada, Thai Airways, SAS and Varig (as of October). Frequent Traveller elite status is reached when 50,000 status miles are earned, and Senator level is reached when 100,000 status miles are flown within a year.
With 25,000 miles an economy class domestic ticket can be claimed within Germany or another European country; 50,000 miles earns a business class ticket within South America; and 225,000 miles claims a one and a half day programme in BMW motor training given by motor sport professionals.
United Mileage Plus
United Mileage Plus alone has over 23.5 million members. United claims to assign more seats to its frequent flyers than any other airline.
United Mileage Plus does not offer an enrolment bonus. Class of travel bonuses for travel on United Airlines and most of its airline partners include a 25 per cent bonus when flying business class and a 50 per cent bonus for travelling in first class.
Members can earn miles with car rental partners; partner hotels; credit cards (Diners Club and First Chicago Visa in the US, and regional credit cards in Asia and Europe); a dining programme; and other US consumer opportunities.
Members of United Mileage Plus can earn credit towards elite status on other Star Alliance partners. Premier status is reached when at least 25,000 miles or five transoceanic segments are flown within a year, and Premier Executive is reached at 50,000 miles or 10 transoceanic segments. The highest level, Premier Executive 1K, is reached at 100,000 miles or 20 transoceanic flights. Mileage Plus members who reach the 1 million mile mark will receive lifetime Premier Executive status.
An economy class ticket between the UK and several European destinations can be claimed at 15,000 miles; 50,000 miles will claim an economy class ticket between North America and Europe; and 180,000 miles a Round The World Saver Award in economy class.
Qualiflyer
Qualiflyer, the programme of Swissair, Austrian Airlines and Sabena, is one of the more sophisticated frequent flyer programmes. Qualiflyer has evolved around its members' needs and was relaunched earlier this year to incorporate Sabena, bringing the total number of members to 1.2 million. Qualiflyer formed a transatlantic partnership with Delta Air Lines in June last year.
There is an enrolment bonus of 1,000 miles. Business class customers receive 50 per cent of the effective mileage and first class customers are rewarded with double miles. Members earn at least 500 miles in economy or 1,000 miles in business class for every international flight taken with Swissair, Austrian Airlines, Sabena, Crossair, Tyrolean Airways or Air One.
Members can earn miles through car rental partners and while staying at any of the 3,000 participating partner hotels. Qualiflyer members can maximise miles using the Global Calling Card or the Swiss Telecom Card. Affinity credit cards include American Express, DinersClub, Qualiflyer Eurocard/MasterCard, Austrian Airlines Diners Club Card and the Diners Club/Sabena Card. Members can also earn miles when buying duty-free aboard flights or in duty-free shops in Geneva or Zürich.
Members of Qualiflyer can earn credit towards elite level status with Swissair, Austrian Airlines, Sabena, Crossair, Tyrolean Airways, Delta Air Lines, Sabena Hotels or Swissôtel. Residents in Switzerland, Austria and Belgium must fly 50,000 miles or 40 flight segments to become a Travel Club member. For all other countries membership is offered after 40,000 miles or 30 flight segments are flown. Members must qualify for these levels within a year. The recent relaunch included an elite-level threshold bonus of 2,500 miles for every 10,000 accrued.
For 20,000 miles members may claim an economy class ticket anywhere within Europe or North Africa; 50,000 miles will claim an economy class companion ticket to North America; and 120,000 miles will claim a 10.4 carat diamond stone cut and polished in Antwerp!
There are various rewards exclusive to Travel Club members, including 'Rendez Vous' culture breaks or Travel Club breaks such as three nights for two people at the Grand Hotel Victoria-Jüngfrau, Interlaken for 100,000 miles.
Source: Airline Business
