SW RR may be going bye-bye

[greatam]

A business associate just emailed me this link:

 

http://www.smartertravel.com/blogs/up-front-with-tim-winship/southwest-says-there-no-mileage-program-in-your-future.html?id=2638498&source=milealert&value=2008-08-05+00%3A00%3A00&u=3E73D17D50

 

SW can't sell miles the way the other airlines do. There is no incentive for people to use credit cards to accumulate miles for a SW flight, when the legacy carriers fly internationally, have upgrades, and even first class on domestic flights.

 

It just plain isn't a good deal to use miles for a $300.00 domestic flight. If you get the flight via flying and accumulating SW RR credits, fine. But if you get the miles via credit card usage, most would choose the expensive flight to Alaska, Hawaii or internationally over a flight from LAX to ISP.

[DanJ]

What I had heard a few weeks ago is that with the coming partnership with Canada's Westjet (which doesn't have a FF program at present), that SW was planning a revamp of Rapid Rewards and that Westjet might possibly use that as their new plan.

[jla418]

I certainly don't read into Mr. Kelly's statememt that the Rapid Rewards program is going away, certainly all frequent flyer programs change over time, but I don't think it means elimination of the program.

 

SWA also has a Chase card that allows people to earn credit in the Rapid Reward program, and I believe also that you can convert American Express points into Rapid Reward certificates, so SWA does have some deals with credit card companies.

 

SWA international agreements are also close on the horizon with WestJet just the first of several possibilites announced.

[heartofamerica]

A business associate just emailed me this link:

 

http://www.smartertravel.com/blogs/up-front-with-tim-winship/southwest-says-there-no-mileage-program-in-your-future.html?id=2638498&source=milealert&value=2008-08-05+00%3A00%3A00&u=3E73D17D50

 

SW can't sell miles the way the other airlines do. There is no incentive for people to use credit cards to accumulate miles for a SW flight, when the legacy carriers fly internationally, have upgrades, and even first class on domestic flights.

 

It just plain isn't a good deal to use miles for a $300.00 domestic flight. If you get the flight via flying and accumulating SW RR credits, fine. But if you get the miles via credit card usage, most would choose the expensive flight to Alaska, Hawaii or internationally over a flight from LAX to ISP.

 

If SWA were to abolish the RR program, I would give Delta, American, Continental and all the others about 1 week before they did the same thing. IMHO, the FF programs are nearing the end of their life...if the one financially strong airline eliminates their program, then IMHO, the rest will follow...fast.

 

The "elites" like to claim that the FF programs are "moneymakers" for the airlines, but they apparently aren't enough of a moneymaker to show them a profit. Price and convenience will rule. I am sure that there are a few diehards who will sit at the airport and watch 5 Southwest flights depart to their destination before their one flight on the airline giving them "miles", but for most...and more importantly, the BOSSES of those road warriors, they won't find hanging at the airports to be a good use of the money they are paying their employees.

[fbgd]

The "elites" like to claim that the FF programs are "moneymakers" for the airlines, but they apparently aren't enough of a moneymaker to show them a profit.

 

:confused: Frequent flyer programmes are one of the most consistently profitable sectors of the airline's portfolio. Just because airlines don't turn a profit it doesn't mean the frequent flyer schemes aren't profitable, the airlines would just be in deeper doo-doo without them.

 

Air Canada sold off Aeroplan a few years ago for a princely sum and I know Mileage Plus is one of United's best performing portions of the company. Airlines sell off miles to dozens of affiliates and make hundreds of millions of dollars in the process.

 

As a top tier elite in two frequent flyer programmes and mid tier in two others I find more and more value in holding elite status. If I'm flying economy I avoid baggage fees which in today's environment adds up quite a bit now and I avoid paying other fees I've lost track of. That's before I include other benefits I get if flying economy like lounge access, priority check-in etc etc. I'll certainly fly my preferred airlines before looking anywhere else and don't mind paying a little extra for my ticket, or flying a little out of my way if I have to.

 

If you don't believe frequent flyer schemes are influential in flying behaviour then go over to Flyertalk and the US Airways Dividend Miles forum. Since US are scrapping elite bonus miles (along with everything else) the regulars are flocking faster than they ever were before.

[FlyerTalker]

If you don't believe frequent flyer schemes are influential in flying behaviour then go over to Flyertalk and the US Airways Dividend Miles forum. Since US are scrapping elite bonus miles (along with everything else) the regulars are flocking faster than they ever were before.

I have always wondered about the "calculus" in thoughts about scrapping or devaluing a loyalty program. At least to my way of thinking, there must be some advantage to have and keep one customer who buys 20-30 tickets a year rather than find 20-30 once-a-year customers who will likely buy on price alone. A loyal customer base that isn't purely price-driven has to be a marketer's heaven. But it seems that US is intent on tossing those higher-yield customers to the winds - saying "well, you're just as important to us as that annual flyer who shops prices for 6 months before buying".

 

Must be something in that Arizona water, or at least in parts of Arizona.....that stuff in the Tempe pipes doesn't get as far west as you, Greatam,....eh??

[nho9504]

If SWA were to abolish the RR program, I would give Delta, American, Continental and all the others about 1 week before they did the same thing. IMHO, the FF programs are nearing the end of their life...if the one financially strong airline eliminates their program, then IMHO, the rest will follow...fast.

 

The "elites" like to claim that the FF programs are "moneymakers" for the airlines, but they apparently aren't enough of a moneymaker to show them a profit.

 

What are you talking about? FF programs have been the best performing segment in legacy airlines businesses. I am sure you understand a business have several segments and in the airline business, there are at least 4 major segments I can think of - Passenger traffic, Cargo traffic, other travel-related bookings, and FF program. One can even add now online shopping portal is also a segment or at least a sub-segment of the FF program. Without the cash FF programs brought in, the airlines would be in much worse shape than they are now.

 

Do you realize FF programs have been the money makers for all legacy airlines even during the days in bankruptcy? The FF programs are consistent cashcows, as evidented by the latest United / Chase deal announced on 07/22.

 

I am sure Chase value Mileage Plus very highly so much so it not only is willing to pay good money for advanced purchase of United miles, as well as drastically lowering the credit card processing fees that UA was required to withhold in the past. 1 billion cash infusion is not chump change. As long as Chase does not make the same mistake AMEX did (by doling out 2 miles for each $ spent), United's Milieage Plus can avoid the problems Delta SkyMiles currently face as described in the second half of the article below. I dont think Chase would make the same mistake as Chase is known even taken back the miles if you have credit balance on the Mileage Plus Visa.

 

Read on. Facts are far more informative than comments without knowledge.

 

UAL rallies as investors applaud latest moves

United parent secures a $1 billion boost to liquidity, posts solid resultsBy Christopher Hinton, MarketWatch

Last update: 5:13 p.m. EDT July 22, 2008Comments: 15NEW YORK (MarketWatch) -- UAL Corp. has reached a new financial deal that could bolster its cash position by an additional $1 billion, strengthening the company's liquidity in the face of record-high fuel prices and ahead of the typically weaker winter travel months.

The parent of United Airlines, Chicago-based UAL (UAUA:ual corp com new

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4:00pm 08/06/2008

 

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UAUA 10.10, -0.14, -1.4%) also reported better-than-feared second-quarter results Tuesday, tallying a loss of $1.19 a share after excluding mostly noncash charges.

Analysts polled by FactSet Research had expected, on average, a quarterly loss of $1.85 a share.

Shares of UAL soared as much as 67% to $8.35 and at last check stood at $7.48, up nearly 50% on the session. Last week, they touched $2.80, their lowest point since the carrier came out of bankruptcy early in 2006.

Under an agreement in principle with Chase Bank and its Paymentech business, United will get $600 million from Chase, its co-branded bank-card partner, from the advance purchase of frequent-flier miles. The carrier expects the deal to also improve cash flow by about $200 million in the next two years.

 

In addition, United's reserve requirement under its credit-card processing agreement with Paymentech has been reduced to $25 million, which will release about $350 million in tied-up cash.

The deal should infuse United with $950 million in cash in the short term, which is an addition to the $550 million raised from new transactions in the second and third quarters. Altogether, the carrier's position now stands at $4.24 billion, compared to $2.92 billion at the end of the first quarter. The move impressed Standard & Poor's, which upgrade UAL shares to hold from sell, saying liquidity is now less of a concern. United's liquidity gets a needed boost, but at what cost?

The deal between United and Chase Bank is similar to one reached a couple of years ago between Delta Air Lines (DAL:delta air lines inc del com new

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4:02pm 08/06/2008

 

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DAL 8.73, +0.03, +0.3%) and American Express Co. (AXP:American Express Company

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AXP 37.99, -0.73, -1.9%) , according to Henry Harteveldt, an analyst with Forester Research.

Delta got an immediate boost to its cash position, which helped it postpone bankruptcy, but at the cost of tarnishing its frequent-flier program, Harteveldt said. Passengers who were getting points for frequent flying began competing for upgrades and other perks with those occasional fliers who received points by making purchases with their credit cards.

It could be worse for United as it rolls back capacity and service between city pairs, limiting supply and potentially increasing the indifference of frequent fliers toward such award programs, he said.

"With only 29% of leisure travelers, and 37% business travelers, viewing themselves as being loyal to any one airline, you already have a very low level of loyalty," Harteveldt said.

Surprise results; deeper job cuts loom

For the second quarter, UAL reported a loss of $2.72 billion, or $21.47 a share, compared to a year-earlier profit of $274 million, or $1.83 a share. Excluding one-time items, the carrier reported loss at $1.19 a share, narrower than had been projected.

Helping the carrier was $208 million in out-of-period hedge gains and lower operating expenses, according to J.P. Morgan analyst Jamie Baker, making the loss only "slightly better" than what he had expected.

The country's second-largest airline operator in terms of assets, UAL said operating revenue rose 3% to $5.37 billion from $5.21 billion last year. Wall Street had been looking for top-line growth to $5.41 billion.

UAL said its fuel bill in the second quarter increased 53% to $1.85 billion.

"Our industry is challenged as never before by the unrelenting price of oil, and United is taking aggressive action to offset unprecedented fuel costs and to strengthen the competitiveness of our business," said Glenn Tilton, United president, chairman and chief executive.

To offset its massive fuel bill, UAL said it would reduce its work force by 7,000 -- greater than the 1,600 previously forecast. It also announced the retirement of its entire B737 fleet as well as six B747s.

In total, the company said it would bring down fourth-quarter mainline capacity by 15.5% to 16.5%, compared to a year ago.

Also reporting Tuesday were US Airways (LCC:US Airways Group Inc

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4:07pm 08/06/2008

 

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LCC 6.66, -0.04, -0.6%) and JetBlue (JBLU:jetblue airways corp com

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JBLU 5.61, -0.17, -2.9%) . See full story.

Christopher Hinton is a reporter for MarketWatch based in New York.

[scottbee]

A business associate just emailed me this link:

 

http://www.smartertravel.com/blogs/up-front-with-tim-winship/southwest-says-there-no-mileage-program-in-your-future.html?id=2638498&source=milealert&value=2008-08-05+00%3A00%3A00&u=3E73D17D50

 

SW can't sell miles the way the other airlines do. There is no incentive for people to use credit cards to accumulate miles for a SW flight, when the legacy carriers fly internationally, have upgrades, and even first class on domestic flights.

 

It just plain isn't a good deal to use miles for a $300.00 domestic flight. If you get the flight via flying and accumulating SW RR credits, fine. But if you get the miles via credit card usage, most would choose the expensive flight to Alaska, Hawaii or internationally over a flight from LAX to ISP.

 

Interesting read.

 

However, the title is somewhat misleading; SW is actually Air Namibia, whereas you probably wanted WN, which is Southwest :D

[DanJ]

Interesting read.

 

However, the title is somewhat misleading; SW is actually Air Namibia, whereas you probably wanted WN, which is Southwest :D

 

It's OK, this isn't Flyertalk. We don't have to use timetable codes here.

[wrp96]

Interesting read.

 

However, the title is somewhat misleading; SW is actually Air Namibia, whereas you probably wanted WN, which is Southwest :D

 

 

On this board if you use WN, a majority of the posters wouldn't know you are talking about Southwest.

[heartofamerica]

NHO...nice stuff...but interesting things you might have missed in that - I am American Express. I pay Delta or American to "buy miles" for my members, and I reward them for using MY product. They might not fly much, but they have shown a willingness to buy lots of stuff using my card. But with flight cutbacks and shrinkage, the airline is finding their customers who fly all the time (often at a loss to the airline) competing with MY customers, who may fly rarely, but are racking up the miles you "sold" me. Who does the airline prefer in that case?

 

If it's not the AMEX customer - if the "value" of the "product" (miles) is diminished for my customers, shouldn't I demand a reduced rate for future miles since they are "not the same miles" as those accrued by an airline customer? And if the revenues from selling those miles dips because the folks redeeming those miles gave little if any business (remember, my customer gets credit on YOUR airline for buying a ticket on a competitors airline because he used my card), but your airline still has to honor my clients flight to Singapore on your airline, how profitable will it be?

[Globaliser]

But with flight cutbacks and shrinkage, the airline is finding their customers who fly all the time (often at a loss to the airline) competing with MY customers, who may fly rarely, but are racking up the miles you "sold" me. Who does the airline prefer in that case?

 

If it's not the AMEX customer - if the "value" of the "product" (miles) is diminished for my customers, shouldn't I demand a reduced rate for future miles since they are "not the same miles" as those accrued by an airline customer? And if the revenues from selling those miles dips because the folks redeeming those miles gave little if any business (remember, my customer gets credit on YOUR airline for buying a ticket on a competitors airline because he used my card), but your airline still has to honor my clients flight to Singapore on your airline, how profitable will it be?

A mile is a mile. In most schemes, where the mile comes from doesn't matter. The airline prefers those who are in the right place at the right time when they want to spend their miles. It really is that simple.

 

And do you really think that the dilution effect is ignored when the miles are priced? Does it creep up on everyone by surprise? And do you think that the airline doesn't have good reasons for taking whatever they take for each mile that they sell? And have ways of making sure that those miles don't adversely affect cash revenue?

[heartofamerica]

A mile is a mile. In most schemes, where the mile comes from doesn't matter. The airline prefers those who are in the right place at the right time when they want to spend their miles. It really is that simple.

 

And do you really think that the dilution effect is ignored when the miles are priced? Does it creep up on everyone by surprise? And do you think that the airline doesn't have good reasons for taking whatever they take for each mile that they sell? And have ways of making sure that those miles don't adversely affect cash revenue?

 

So the airlines will do with the sale of their frequent flyer miles what they have done with the sales of their seats...something is better than nothing? Because when a "loyal customer" of United or American tries to use his miles, but he is bumped because a person using their credit card for airline miles took the seat that was available, isn't that loyal customer going to be a bit peeved? With flight cuts, thus fewer available seats, won't the competition for those seats get a little tighter? Wouldn't greatam be a little ticked if AA told him "we have no seats to Brussels but we've got quite a few to Boise?

 

USAir is taking heat because those lowly credit card users are getting preferred status without ever setting foot on board the aircraft. What's a person to do if that "non-flying preferred" passenger bumps them out of a business class seat to Europe? If the airline tries to favor the "loyal customer" in redeeming awards, then the "loyal customers" that had been buying those miles might start refusing to pay the asking price - reducing the revenue generated by the FF program. But...some money is better than none I guess. Do you know what Continental carries on their balance sheet for potenial FF reward redemtions? Almost $2 billion dollars. That ain't chump change either.

[fbgd]

So the airlines will do with the sale of their frequent flyer miles what they have done with the sales of their seats...something is better than nothing? Because when a "loyal customer" of United or American tries to use his miles, but he is bumped because a person using their credit card for airline miles took the seat that was available, isn't that loyal customer going to be a bit peeved?

 

Well if American is anything like BA that probably won't happen. As a top tier frequent flyer with BA I get better availability for award tickets on BA than non-Gold card holders.

 

Besides I don't think the airlines/frequent flyers are that bothered by this. Frequent flyers know how the system works, there are only limited seats at the lower redemption levels and you need to book way in advance if you want to get them. Miss out and you use double the miles for an anytime seat or whatever they're called...that's where your 100% elite bonus miles come in handy...unless you are a US Airways flyer ;)

[ohioNCLcruiser]

thereare only limited seats at the lower redemption levels and you need to book way in advance if you want to get them. Miss out and you use double the miles for an anytime seat or whatever they're called...that's where your 100% elite bonus miles come in handy...

 

One interesting thing. I just looked up reward avail for next week using Continental onepass.

 

Flights to Tokyo showed up using the base miles in coach and businessfirst. Also flights to London using basic miles for Virgin Atlantic upper class. I was surprised but you don't always need advance purchase!

[FlyerTalker]

One interesting thing. I just looked up reward avail for next week using Continental onepass.

 

Flights to Tokyo showed up using the base miles in coach and businessfirst. Also flights to London using basic miles for Virgin Atlantic upper class. I was surprised but you don't always need advance purchase!

True....however, it can be tough for many to make arrangements for a full-blown trip to Tokyo or London in less than 1 week. For those with NonePass mile balances in the zillions, it's a way to grab some sushi for the weekend.

[nho9504]

CO has always been that way, it releases award inventories much closer to departure dates. The 330 days myth does not work with CO at all, hence it receives the nickname of NoPass. However, if you can leave for a trip at the drop of the hat, CO is great.

 

As for other airlines, folks who have to make plans several months ahead, would be better off to try the 330day booking if they are going after the longhaul, high season, travels. However, even such, if you are going after Premium Cabins, you can find inventories much easier 2 to 3 months ahead of departure dates, esp on premium partner airlines such as SQ NZ CX ANA etc Though it is reportedly UA tends to block LH awards thru the summer season if you dont try the 330day booking you would be out of luck for LH flights between July and Sept. There are so much discussions on the StarNet blockage by UA I am sure you can google it for the tidbits.

 

As for the DL miles devaluation - the biggest devaluaton happens at the basic 25K domestic awards - for such is the most popular ones, especially among those non-flyers who earn their miles via CC spendings. What they have found could very well be, a 25K award would actually cost them 40 to 50K because only the "Anytime" type awards available - hence the big devaluation.

 

I agree with Global, a mile is a mile, does not matter where it comes from. Also, remember it is the "potential" liability of the award miles carried on balance sheet - keyword "Potential" - many such miles would expire especially now most airlines put a 18month life span on it - lots of casual flyers would forget to generate activities to keep their miles alive (really very very very easy to do) and their account balances turn to 0. Then if they want to get their miles back at least AA offers a "cheap" rate for them to do so... Another revenue generator.

 

Finally, award seats are subj to inventory control and cost very very little to the airlines, esp they now even charge fee to book award online (in AA's case), not to mention the long existing phone booking fee, late booking fees etc etc Such fees should be more than enough to cover all the admin and labor costs associated with award bookings in my opinion. Essentially, selling miles is a 0 cost revenue generator.

 

DL cannot be happier to have its AMEX users who only accumulate their miles thru spending to fly other airlines - for such casual flyers tend to shop for prices and fly very infrequently - the bread and butter of the airlines come from the businss flyers who mostly value their FF miles a lot. Unless a company initiates a program to share the cost-savings with employees, there is very little incentives for employees to fly on prices / schedules outside their preferred carriers if the differentials are minimal. However, if the company has incentives for the employees to choose flights on prices by putting money into employees' pockets, yes, such would be enough to swing the employees to choose, say, WN over UA, especially in markets WN covers heavily, such as CA and the west.

 

The move of US to eliminate the perks enjoyed by its elites is truly dumb-founded - why would a company alienate its most loyal customers in favor of an "equal" treatment for everyone? Besides, I dont see HOW non-flying CC holders of US can "BUMP" a paying customer from Business Class seat to Europe. The Upgrade inventory comes from the same inventory for award seats. However, Top Tier FFers have priority and yield management often makes inventories available for Top Tier FFers when asked.

[Globaliser]

Because when a "loyal customer" of United or American tries to use his miles, but he is bumped because a person using their credit card for airline miles took the seat that was available, isn't that loyal customer going to be a bit peeved? With flight cuts, thus fewer available seats, won't the competition for those seats get a little tighter?

Depends what you mean by "bumped". I can't imagine that a person holding a confirmed award booking for an airline seat is going to be bumped (in the sense of having their booking cancelled or being denied boarding) in order to make space for another person who wishes to make a confirmed award booking.

 

But if all you mean is that competition for the available award space is going to get tighter, then everyone is equally peeved. No frequent flyer is going to know whether the reason he can't get award space is because it's already been taken by other frequent flyers, or by credit card spenders.

 

Your proposed dichotomy is also false, because many frequent flyers with a particular airline will also be using credit cards that accrue points in the same airline's scheme. Thus, the "us and them" situation that you posit is too simplistic. Even if you were to exclude all non-frequent flyers from earning points via credit cards in that airline's scheme, there would still be competition between miles earned by flying and miles earned by credit card (and other sources).

USAir is taking heat because those lowly credit card users are getting preferred status without ever setting foot on board the aircraft. What's a person to do if that "non-flying preferred" passenger bumps them out of a business class seat to Europe?

I don't know what is happening at US. Are they getting higher tier frequent flyer status simply by earning non-flying miles? If so, then I agree that that is absolutely crazy. But then US seems to be doing crazy thing to their higher tier frequent flyers anyway.

 

However, I again don't know what you mean by "bumped". The frequent flyer who has a confirmed award booking is not going to have it cancelled in order to provide space to someone who wants to book award space with credit card-earned miles. But if it's just a question of who gets to the award space first, well it's always been like that. And the frequent flyer isn't going to know who beat him to it.

[fbgd]

One interesting thing. I just looked up reward avail for next week using Continental onepass.

 

Flights to Tokyo showed up using the base miles in coach and businessfirst. Also flights to London using basic miles for Virgin Atlantic upper class. I was surprised but you don't always need advance purchase!

 

Airlines do occasionally release award availability closer to the date of travel but it isn't a guarantee.

 

However, for the most part you'll find inexperienced frequent flyer members complaining they can't use their miles to travel to Hawaii...in peak season...one week before they fly.