Why loyalty programs are dead — and why that’s good news for almost everyone

Gui Jun Pen/Shutterstock
Gui Jun Pen/Shutterstock

Loyalty programs as we know them are dead.

After years of playing the game, frequent customers like John Peppin are saying, “enough is enough.”

Peppin, the director of a medical center in Lexington, Ky., said he wondered about the endless bait and switch airlines pull — demanding absolute loyalty in order to be treated with a little dignity.

He often flies to China on American Airlines, to which he has given his business in exchange for the possibility of an upgrade to business class.

“I’ve wondered if I spent the time looking for the cheapest ticket, perhaps I could afford those first class flights and still save money in a year,” he told me. This dawned on him recently when he had to change one of his flights and the airline rewarded his devotion with $1,200 in change fees.

“I wonder about your assessment of the frequent flier programs,” he says. Maybe, he adds, I’m right.

Well, guess what? I am right.

In the first few weeks of 2013, I’ve documented a precipitous decline in the value of award programs, which has left tens of thousands of frequent air travelers with next to nothing to show for their years of loyalty.

The changes aren’t limited to airlines. Hotels like Hilton and Marriott also restructured their loyalty programs, making it harder for some frequent guests to redeem their points.

The downgrades have angered travelers like Robb Gordon, a loyal Marriott guest. Just days after receiving a notice of the devaluation, he got another email from the hotel chain asking for his vote in an upcoming frequent flier award.

“Now that’s chutzpah,” he said.

End of days for program apologists

All over the industry — and even outside of the travel business — customers are waking up to a harsh reality: loyalty programs are little more than a set of empty promises. The rules can change at any moment, the points may be impossible to redeem and at the end of the day, they don’t even belong to you.

My colleague Jared Blank said it best when he declared that technically, loyalty programs don’t exist anymore.

“They are not loyalty programs,” he wrote on his site. “A loyalty program would reward loyalty. Airline and hotel points programs do not reward loyalty; they issue a currency.”

And currencies, as he noted, can be devalued — which is exactly what’s happening now.

But you could be forgiven for thinking that there’s never been a better time to join a loyalty program. Board a flight, and a crewmember will offer you an application for an affinity credit card. Go online and it’s easy to find a blog dedicated to making the most of your miles.

Most of these loyalty program advocates are not in touch with reality because their judgment is clouded by money. Pay attention to the affiliate links on their sites and you’ll see that their rewards don’t come from the programs they promote, but from the generous bonuses they receive when someone signs up for an affinity credit card they hawk. (Also, look for their whiny, defensive comments at the end of this post.)

The cheerleaders will continue pushing these programs until the bottom falls out of them. A vast majority of them don’t care about you. They are the emperors fiddling while Rome burns. They are like the last men standing at the top of the pyramid scheme, insisting that everything is fine.

But everything is not fine.

Good news for almost everyone

For most travelers, loyalty programs are not worth the effort anymore. That’s because, as I’ve previously explained, they have a negative value. Put differently, by the time you’ve collected the points, and gone through the effort of redeeming them, you will have spent more money than if you’d just bought the product without any consideration for loyalty.

Sure, for some very frequent, so-called “high value” customers it may still make sense to participate in a frequent-flier or frequent-stayer program. I think Delta Air Lines’ new program correctly identifies those customers and gives them the perks they deserve.

And I think that’s fine.

But the rest of us should pay no attention to award programs. At best, they’re a distraction, but at worst, they will warp your judgment and make you spend more money on a lesser product. Now, more than ever.

Are loyalty programs really “dead”? In the sense that they reward your loyalty, they’ve actually been dead for a while.

Maybe these programs are rewarding the companies that offer them with legions of uninformed customers, blindly spending their companies’ dollars on overpriced goods and services. Maybe they are rewarding a select group of bloggers with bonuses that buy their endorsement.

But they have not — and they may never have — truly rewarded the average customer.

We should be grateful that the ruse is finally over. People like Gordon and Peppin can now make a clear-headed decision about their travel purchase, based on value and convenience — not on empty promises.

Are airlines loyalty programs worth belonging to?

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Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or contact him at . Got a question or comment? You can post it on the new forum.

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  • http://elliott.org Christopher Elliott

    Loyalty programs definitely entice members to spend more. See: http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2370.2011.00314.x/abstract

  • djp98374

    The issue that Chris is concerned about has to do with the infrequent traveler and consumer misinformation. If you are a business traveler who are earning miles and not putting in your own money then have t it their is no rik for you. If you are a consumer who might fly one a year the idea of getting enough miles for that dream trip will take a long time. Going in you think you need 60K miles for a trip but in10 yrs that 60k could shift to 75k. This will continue like an animal chasing food tied to a string.

    In general consumer don’t follow common sense and they have blind loyalty where they fly xxx airline for miles but it mean paying $100 more per ticket.

    The other part of this is that status gets you for free thing that used to be free for all. It’s sort of a rich get richer argument.

  • http://www.facebook.com/CarverFarrow Carver Clark Farrow

    Thanks

  • http://www.facebook.com/CarverFarrow Carver Clark Farrow

    Misinformation is certainly inappropriate in any business venue. But I must disagree with the rest of the post.

    “In general consumer don’t follow common sense and they have blind loyalty where they fly xxx airline for miles but it mean paying $100 more per ticket.”
    What numerical or analytical information do you have to support that contention?

  • http://www.facebook.com/CarverFarrow Carver Clark Farrow

    Ummm. I’m not a professor and I couldn’t access anything more than the abstract. Not particularly persuasive.

  • http://www.facebook.com/CarverFarrow Carver Clark Farrow

    I remember joining the Hyatt program when I was taking the California Bar Exam as I was staying at the hotel. By merely joining I received complimentary access to the lounge. For a poor recent law grad, being able to turn the lounge food into dinner was a blessing.
    I didn’t stay at a Hyatt again for ten years.

  • TonyA_says

    Well, how about AMEX Travel Membership Rewards?
    Is there any downside to joining this even if you do not travel often?
    Not all airlines are travel partners, but at least your points do not expire.
    You don’t need to go crazy chasing any particular airline reward.

  • TonyA_says

    Use the DL codeshare of AF on W class to ARN (then AF to NIM).
    You will be ticketed on Delta stock, and comply with your federal money grants.

  • TonyA_says

    Re:If a person flies one or two times a year, there is no or little value in joining a airline frequent flyer program
    That might be true if they are flying domestic flights.
    Majority of my clients (and myself) fly very long flights to Asia.
    Simply flying twice a year can earn Silver Marco Polo in Cathay Pacific (equivalent to Ruby OneWorld). That allows one to use Cathay (and some partner) lounges.
    And if you ever experience the crazy check in and boarding conditions for most Asian destinations, that Marco Polo card gives you a separate line for checking in as well as boarding any time you want.

    Same with your luggage. You get it earlier- a godsend for international travel.
    If you are traveling about 15k miles per journey (even just twice a year), you’d be crazy not to register your miles to whatever Frequent Flyer Program the airline offers.

  • djp98374

    There are numerous studies and books written on consumer behavior, making choice, decision making, habits, and loyalty. From teh paradox of choice to the poer of habit and numerous ones in between.

    You see it in consumer behavior with brand loyalty…consumers always buy Ford, use tide detergent, do their shopping at Safeway.

    Safeway occasionaly runs promos that if you purchase certain items or if you spend so much money you will get a discount on gas prices. Your purchases may equate to saying $0.50 per gallon of gas. If you buy 10 gallons you saved $5. If you did consumer shopping at different stores and compared prices you would have saved more than the 45 you save doing all the shopping at Safeway.

    Buying an airline ticket is no different. If you are accumilating miles in one airline when you buy tickets you are focusing on earning miles with them.

    If you are at 23,000 miles with delta you are looking at getting to that 25,000 miles reward level. The consumer may see a cheaper fair on American but opt not to buy it because they have miles with delta. To gain those miles they may be willing to spend $100 more per ticket for the airfare on Delta.

    I am guilty of that..i dont fly American unless its a code share Alaska flight. If I look at fares i will look at the airlines and pay a little more for a carrier I have miles with than another carrier. I would not pay $100 more. Maybe $10-$15 more I would pay. there re some consumers that would pay $100 more.

    Hotels are the same way. If its coming out of your own pocket do you cost compare for hotels? If you were a hilton gold would you spend a little more to stay at a hilton than a best western or Clarion? If so how much more would you pay? Knowing you want to maintain your status.

    Consumer look at the reward they t for the purchases but not the differences in prices of them. If you are going to purchase XXX and you see there is a deal where you will get 1,000 miles if your purchase it from company A but no miles from company B —most customers will purchase from company A because of the miles and not looking at the cost differences.

  • djp98374

    Dont forget AmEx has an annual fee.

    True–but many consumers dont behave rationally. The mileage for airline rewards dont expire but do you know for certain that the mileage rates will stay at the levels they are now 10 years from now? The standard award domestically is 25K. Who is to say that wont change to 35K in 10 years.

    I dont have an issue earning points. Just do it wisely and dont let it rule your behavior in how you book your travel.

    As you saw this spring many of the hotel chains reset their hotel points/categories where most of the hotels cost more than last year. Thus to be bale to use those award like you planned you now have to wait an earn more points.

    Some consumers buy product XXX just to earn points through company YYY even if they dont really need XXX.

  • Crissy

    Being as it’s free to belong to most programs, whether you use the services or not, I don’t know how you can say it’s not worth it. Is entering your reward number that much work?
    As for chasing the miles. Well that depends on your circumstances – how much you travel and what hubs you’re near. If you travel a lot, then yes it makes sense to at least earn the miles you’ll earn from your travel. If one airline does most of the flights out of your local airport, then it’s pretty easy to pick an airline, even if you only travel a couple times a year, since most of your travel will be with that one airline or it’s partners.
    If half of your travel is earning miles just so you can get status, then you either have an issue with priorities, or it’s just a hobby. Just as some people like guns or classic cars, for some people this is their hobby. Hey, at least they have a hobby, something to be interested in.
    As for redeeming miles, it’s all about expectations. Most of us know that it’s hard to do, and is part of the challenge for the “hobbiests.” But even for the average person who is earning a chunk of miles from travel, you either need a goal (and know your options) or be willing to roll the dice with whether you’ll get what you want, when you want it. You might not get it for this trip, but you might get it for another trip. The problem is for the novices when they see the commercial, or mailing telling them that 25,000 miles will get you a round trip flight, but fail to mention that their are tons of exclusions, blackout dates and pages and pages of small print.
    I’ve gotten a couple reward flights in the past, I can’t always get what I want when I want it. But if you travel enough you’ll find you can get what you need some of the time. As long your expectations are in line with what they offer, it can be a winning proposition.

  • brianguy

    if one wants to get into debates over in what impacts loyalty programs have on a company’s accounting, it would serve to point out that is not the only way the balance sheet is tilted. when loyalty customers don’t redeem mileage and they expire, the company balance sheet benefits. same thing if a loyalty customer dies or retires or moves to a land far far away and never does anything with them. just like a teenager with a gift certificate to the Gap who never uses it because they went there and decided they didn’t find anything they liked. that $50 GC then deteriorates (via inflation) eventually to $0. meanwhile the company can reinvest or earn interest on that $50 of whatever accumulated funds they have from unredeemed but not expired GC’s.
    when airlines sell mileage points to get to the next level, they win. when customers earn miles on a CC without an annual fee, they win and the airline “wins” by getting repeat business, hopefully selling them upgrades or additional tickets for companions, luggage fees, entertainment charges, etc. when customers redeem them, the airline in a sense loses since they have to pay for that wholesale fare out of a general account, but hope to make up for it with additional loyalty by the same customer later, as well as word of mouth or “goodwill” publicity. and sometimes via fees or other factors involved to redeem said points.
    it’s all a big game, you can either choose to play or not. the airlines choose to, but like Chris, their customers don’t have to. if they do, they may “win” or they may not. but the bottom line is that some do while some don’t. but paying a higher fare doesn’t necessarily get you what those rewards might eventually. and that’s the gamble.

  • TonyA_says

    I have a small disagreement with people expecting that the miles needed for a reward ticket must be frozen forever.
    Even my money loses value over time.
    A few years ago, I would fly to Asia for 900 bucks. Now that same ticket is at least 1200 bucks.
    How rational is it to expect absolutely no inflation effects when it comes to mileage or points?
    Inflation affects mostly everything puchased with currency. Most airline input costs are increasing. Hence it takes more points to travel.

  • PsyGuy

    I find loyaly or FF programs useless. Given I travel light and seldom check a bag, and I am just under 5’9″ and weigh 150 lbs. I have no interest or see any value in first class seats. I find coach seats very comfortable.

  • BobChi

    I just got back from Europe on one award trip, and will be headed to Asia in June. On many aspects of travel, Chris is knowledgeable, but when it comes to loyalty programs he simply has biases which prevent him from really understanding how valuable they can be. On my salary, I could seldom afford to fly the world, but thanks to these programs I can make several trips a year. I am not an elite anything and never will be. I know Chris is wrong, simply from personal experience. And why does Chris think that when people disagree with him it is a “personal attack”. I realize he writes for a general audience, most of which is not very knowledgeable about this, but even considering his audience, when he uses provocative headlines he should expect some disagreement.

  • BobChi

    Chris simply is writing for his unsophisticated general audience which is not very savvy financially. He makes the assumption that belonging to a loyalty program warps a person’s judgment and they then fixate on pursuing the points and miles to their own detriment – say buying a $500 seat to get the miles rather than an available $300 seat on another carrier. I would say that that is the minority. Most of us who follow these programs educate ourselves on the pluses and minuses, and wind up benefiting from the advantages and steering clear of the pitfalls. It’s not that hard.

  • BobChi

    Exactly correct. The NUMBER of points you need to buy a reward will inflate with time, but so does the VALUE of the reward. If it takes 25,000 points to buy a $500 seat today, but 30,000 points to buy a seat that then costs $600 in a few years, the nominal value of the points has deflated, but their general purchasing power of the currency has not.

  • BobChi

    I’m surprised. You put down Flyertalkers often enough that I’d think you would do a little research.

  • http://elliott.org Christopher Elliott

    I think you’re reading the wrong blog. I don’t talk about the site and don’t read it.

  • David Brown

    It’s free to apply for these loyalty programs. I travel by air maybe one to
    three times a year, but I’m still a member of three different
    programs. I generally don’t have enough points for a trip, but there
    are other redemption items.

  • properthwacking

    I am glad you like their new program despite the fact that they devalued their points by 15% this year to help THEIR bottom line. Evidently it didn’t phase you one bit that your 7 earned flights are now automatically taken down to 6… or 5 or 4 if fares continue to inflate due to mergers and lower capacity on all remaining flights.
    Meanwhile their “standard awards” almost never have seat availability anymore, except once in awhile on an unpublished 2-stopper, or if you book 4 months in advance when fares are only in the $130 range.

    And I LOVE Southwest but these things are true and prove the article is right about the loyalty currency devaluation and you’re delusional if you think otherwise.

  • properthwacking

    How many times do you have to stay with Hilton before you reach the 80k points needed for a free night these days? Has anyone even bothered to check? By the time I reach that goal, I’ll more than likely have expired points.

  • bodega3

    You don’t have to use those miles for air travel. You can use them for hotel stays, cruises, rental cars. Sad that Chris gives such a negative light to these programs, when they actually are good for those who participate in them.