Five Signs of a Frequent Flyer Rebound

My cousin Carol recently stopped over to visit me in Los Angeles.

She lives in San Francisco, and was returning from a trip to New York to see her daughter who’s in college there. So her journey comprised three airline flights: from San Francisco to New York, from New York to Los Angeles, and from Los Angeles back to San Francisco.

What was noteworthy about her trip was that she flew on three different airlines. And she used a mix of cash and frequent flyer miles to pay for the trip.

For the San Francisco-New York flight, she used 12,500 frequent flyer miles for a one-way United award flight. United recently began allowing Mileage Plus members to book one-way award flights for half the number of miles required for round-trips, which suited my cousin just fine—she didn’t have 25,000 miles for a round-trip.

For the flight between New York and Los Angeles, she purchased a one-way ticket on Virgin America.

And for the final leg of the trip, from Los Angeles to San Francisco, she used 12,500 frequent flyer miles to fly American, which, like United, now offers award flights priced on a one-way basis.

While there’s nothing new about the ability to purchase even the cheapest fares on a one-way basis from Virgin America—which like most discount carriers (and unlike most full-service carriers) routinely prices even its cheapest tickets as one-ways—being able to book one-way awards on major airlines is new. And it’s just one of a number of signs of a hopeful trend among airlines to make it easier for frequent flyer program members to redeem their miles.

1. One-Way Awards

It was a long time coming, but in February, when United followed the lead of American and Delta, the three largest U.S. carriers were finally united in allowing members of their loyalty programs to redeem miles for one-way flights, for half the number of miles required for a comparable round-trip.

Although allowing one-way awards may seem like a minor or obvious change, their beneficial effect is outsized, especially when trying to book capacity-controlled awards, as most frequent flyers do.

Under the old round-trip-only policy, a single flight segment with no award availability forced the mileage-redeemer to either pay twice as many miles for an unrestricted round-trip award ticket, or to compromise his travel plans to accommodate the airline’s spotty seat allocation.

Now, faced with a flight leg with no available coach award seats, the traveler has the option of paying more miles for an unrestricted seat on just that segment, or just booking a restricted first-class seat for the same number of miles required for unrestricted coach.

The result: More frequent flyers will be able to book more award trips for fewer miles.

2. Cash and Miles

As alluded to above, cousin Carol used United’s new one-way-awards capability because she didn’t have enough miles for a round-trip award ticket. As it happens, she had another option for booking a round-trip: mixing miles and cash.

Not coincidentally, United introduced its Miles and Money feature hand-in-hand with its one-way awards. With Miles and Money, Mileage Plus members can use a combination of cash and miles to book restricted round-trip coach awards on United and United Express. So, for example, a round-trip flight between San Francisco and New York could be booked for 25,000 frequent flyer miles, or, using Miles and Money, for 15,000 miles plus $120. So in effect, you are buying 10,000 miles for 1.2 cents apiece.

Based on additional test bookings I made, the effective price of miles varied from just under 1 cent to just under 2 cents—not bad, considering that the airlines generally sell miles for around 3 cents each.

Delta offers members of its SkyMiles program a somewhat similar benefit, dubbed Pay with Miles. But it’s only available to holders of American Express credit cards linked to the program. And in most cases, the miles have a value of just 1 cent each. On the other hand, seats booked with Pay with Miles are not capacity controlled, so the hassle factor is all but eliminated.

As with one-way awards, the ability to combine cash and miles to book awards adds to the value of miles, by making it easier to redeem them.

3. Award Discounts

Another way to help loyalty program members use their miles: Make award travel cheaper.

Of course, awards are not getting any cheaper in the long run. On the contrary, award prices are continually inching up. The discounts are offered exclusively on low-demand routes, during low-demand periods.

Still, the temporary discounts are a win-win. Travelers fly for fewer frequent flyer miles. And the airlines get the mileage liability off their books, and earn some goodwill equity from members of their loyalty programs.

Alaska has been a pioneer in discounting award travel, regularly offering members of its Mileage Plan program at least a couple of award-travel promotions every year.

But the new industry leader in award discounts is United which over the past 18 months has offered eight award discounts.

Award discounts are more than just good value. They’re also a signal to consumers that there’s optimal award availability on particular routes at particular times.

4. Non-Flight Awards

If one-way awards and miles-and-money options aren’t enough to circumvent the award seat bottleneck, perhaps it’s time to look beyond free flights for redemption opportunities.

Non-flight awards aren’t new. But they’ve been in short supply in recent years, mostly because it costs the airlines more to give away an Apple iPod, say, than it does to award a free seat that would have gone unsold anyway. So non-flight awards were priced high and represented inferior value.

That value problem persists, but airlines nevertheless are expanding their catalogs of alternative awards.

Delta just this month rolled out its SkyMiles Marketplace—an online portal where SkyMiles members can redeem their miles, or a combination of miles and cash, for more than 6,000 items, including hotel rooms, car rentals, consumer electronics, clothing, jewelry, and so on.

And United late last year began allowing all Mileage Plus members to cash in their miles for hotel stays and car rentals.

While these are best viewed as options of last resort, they are nonetheless options and welcome as such.

5. New Program Model Scraps Award Restrictions

The capacity controls that so bedevil consumers trying to redeem miles for restricted awards are an integral part of the programs operated by the full service carriers.

Under that model, you can get solid value from your miles by cashing them in for a restricted award—25,000 miles, say, for a round-trip coach domestic ticket—if you’re willing to endure the frustration of booking around the airline’s capacity controls. Or you can resolve to let go of twice as many miles to gain access to all the airline’s unsold seats.

There is an alternative approach to mileage-based loyalty programs that is gaining traction: the revenue-based program.

As the name suggests, members of such programs earn points in direct proportion to the price they pay for their tickets. And when it comes time to redeem their points, the award prices vary in lockstep with the fluctuating prices of paid tickets.

The benefit of such an earning and burning scheme is twofold. First, there’s no need for capacity controls, since awards are simply priced according to supply and demand. And second, they provide a measure of transparency absent from mileage-based programs.

You may never get spectacular value by, for example, redeeming 25,000 miles for a ticket that otherwise would have cost $1,800, as you might in a traditional mileage program. But in a revenue-based program, you can count on predictably decent value, and unrestricted availability.

When Virgin America launched its Elevate program in 2007, vowing to start with a clean slate, it was as a revenue-based program. And when JetBlue overhauled its JetBlue program in late 2009, it converted to revenue-based earning and awards as well.

More significant, in terms of its potential impact on the industry, is the rumor (credible in my view) that when Southwest launches its revised Rapid Rewards program later this year, it will also be a revenue-based scheme.

Behind the Changes: Carrots and Sticks

The current trend toward enhanced mileage program generosity runs paradoxically counter to the nickel-and-dimeing and generally consumer-unfriendly behavior that have made commercial air transport the industry everyone loves to hate.

What accounts for the change in direction?

It’s partly business. As consumers shake off the torpor of the recession and again take to the skies, airlines want to be better positioned than their competitors to benefit from the rebound. And better loyalty programs drive more loyalty.

Plus, a cynic might say, the more customers you have, the more revenue you can generate from nuisance fees.

There’s also a political component to the intensified focus on award availability.

The new administration has made it clear that it’s much more inclined to lean in the direction of protecting consumers’ rights, implementing sweeping regulations when necessary. And in particular, Senator Chuck Schumer (D-N.Y.) has asked the DOT to look into airline loyalty program policies and practices, expressing concern that “airlines and credit card companies continue to fly off with hard earned frequent flyer miles.”

Whatever is driving the airlines’ recent detour down the road to mileage beneficence, frequent flyers are left enjoying the ride, and hoping the acceleration isn’t unintended.