When Doug Parker, CEO of US Airways Group, told the National Post in late March that frequent flyer programs have hurt the industry — too many free trips, you know — it barely made a blip on the traval radar.

Frequent flyer programs aren't grounded yet

“The amount of our product we give away is not consistent with generating returns for shareholders and providing stability for employees,” he told reporters. Yet frequent-flyer miles are now a staple of U.S. travel. so airlines can’t retreat, and thus are trying to recoup lost revenue with the checked bags charges. That’s an estimated $500 million in US Airways’ pocket this year.

It’s certainly what most consumers have assumed for the past 18 months; as a travel agent, I’ve seen a marked decline in enthusiasm for racking up frequent flyer miles. A large chunk of Americans simply don’t trust the programs to be around when it’s their time to cash in — consider them the Social Security set up of the travel industry.

However, Rick Ferguson was listening, and as the editorial director of COLLOQUY, the custom magazine that interprets research from the loyalty marketing consultant of the same name, he certainly disagrees.

First, loyalty marketing is a way to use perishable inventory, i.e. empty seats on a scheduled flight. Every unbuckled seat belt lying across a cushion you can use as a floatation device in the case of a water landing represents a missed opportunity to flatter, impress and reward. As Ferguson points out, the only real costs on a balance sheet for filling this seat at the last minute is the extra fuel for the person and his lugggage  which they charged him for — a bag of peanuts nd a Diet Coke.

Second, airline executives have confided to Ferguson that they’ve made more money selling airline miles to partners than they do flying planes. Robert Sahadevan of United Airlines told attendes at the Frequent Travel Marketing Association conference that only 37 percent of the miles issued within its Mileage Plus program are actually used for ticket purchases. The other 43 percent are sold to third parties (credit card partners, hotels, etc.), which makes frequent flyer programs a valuable cash flow soarch approaching $5 billion by some market analysts’ calculators.

That’s a tad more than the luggage fee idea.

“The airline and the loyalty program are conjoined twins, sharing a heart and circulatory system. You might be able to separate them, but the surgery would be risky, and one or both of the twins might not survive,” Ferguson writes in COLLOQUY. “I may not know anything about running an airline, but I do know it’s usually not wise to mess with a good thing.”

Photography: Cliff1066

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