New Loyalty Programs To Putbums On Seats
The Age
Saturday October 1, 2005
The trouble with most frequent-flyer programs is that they're a smoke-and-mirrors trick. On one hand, the airlines are offering a reward to their customers for loyalty but, on the other, attempting to avoid the cost and liability of "free" seats.
The logical, sustainable way of approaching the exercise would be to charge a premium on ticket prices, then set that aside to pay for the frequent flyer seat when it is redeemed. But that isn't what happens.Effectively, the liability is a book figure - not cash in the bank - so that the frequent flyer trying to book a seat earns the airline nothing and effectively goes to the back of the queue, behind those paying real money to fly.And, as fuel prices soar, the airlines want to sell more and more seats per flight - aiming for up to 90 per cent on average on some routes, particularly to the most desired holiday destinations - so there are fewer and fewer seats left for freebies. Qantas also sells seats to retailers and credit-card providers for their own loyalty programs and the money it earns from that arguably puts its own frequent flyers even further down the queue.At the same time, the airlines are using the surcharging syndrome - externalising what were previously just internal operating costs for fuel, airport charges and taxes - to slug frequent flyers as much as $500 on the return leg of a long-haul trip.In Australia, the situation hasn't been helped by the fact that the only frequent-flyer scheme that can offer a domestic and global network belongs to Qantas. The opposition Star alliance can get you to Los Angeles or London or Auckland but there's no way of earning Star points flying around Australia. Qantas effectively has a frequent-flyer monopoly. And, twice in three years, it has simply devalued its frequent-flyer point values to make it harder to get to the most desired overseas destinations (although it has made it easier to redeem short interstate trips).It is not unusual for frequent flyers to look up to a year out from the date they want to travel and not be able to find seats.But the monopoly is about to be challenged. Virgin Blue has begun hiring specialists to run the frequent-flyer program it has resisted for years. Its challenge is to come up with a program that sweeps away the long-standing complaints about the Qantas scheme - lack of seats to the most sought-after places - but doesn't end up costing the airline more than it's worth.In fact, Virgin Blue has already devised the broad framework of the program and is now working on putting in place the alliance partners necessary to give the program global reach and strong customer appeal. To be announced in detail by year's end, it will be, Virgin Blue chief executive Brett Godfrey says, a "category killer" (marketing gobbledegook for "it works" and "the punters like it").More importantly, Virgin Blue spokeswoman Heather Jeffery said this week that the program will be "genuinely different" and make the other carriers sit up and take notice. In other words, it is designed to win over Qantas frequent flyers and trigger a competitive response from the Qantas program.There are already signs that this may be happening. Cliff Reichlin, managing director of the independent website frequentflyer.com.au, which has developed software to enable Qantas frequent flyers to quiz the Qantas program, says he has been surprised by the number of seats coming into the Qantas system recently.Mr Reichlin has surveyed blocks of dates for travel between Sydney and London in August, September and October this year and has found, apparently for the first time, that frequent-flyer seats (economy class and business class) are being put into the system at the last moment - a week or two before the travel date.A regular gripe of frequent flyers has been that they've been denied a seat when they want to travel, then paid for a ticket only to find empty seats on their flight, particularly in business class. If Mr Reichlin's observation is correct, it might mean that Qantas' frequent-flyer managers are finally talking the backroom boys and girls into applying what is called yield management - making sure seats that would otherwise fly empty aren't being wasted.A competitive response to the impending launch of the Virgin program? Perhaps not. But, if they haven't started already, Qantas' frequent flyer managers will have to come up with something if Virgin really has devised a programthat threatens the dominance of the Qantas program.You can expect the same Virgin cheek Sir Richard Branson's group came up with when it launched Virgin credit cards and Virgin mobile phones. But, unless the new venture ticks two key boxes - user-friendliness and global reach - it will be a fizzer.clivedorman@hotmail.com
© 2005 The Age
