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I read this answer from Hilmar:

Airlines have devalued their loyalty programs a lot in recent years.

Why have airlines devalued their loyalty programs a lot in recent years?

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    Is the answer not obvious? Because they are saving ,money. It is not like loyalty programs are totally free to run - between bad business and extreme competition there is a limit on what one is willing to spend.
    – TomTom
    Dec 29, 2020 at 12:45
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    @TomTom why in recent years and not before? Dec 29, 2020 at 12:46
  • I feel people have complained about new restrictions on reward miles for years, so I don't think it's a particularly new trend.
    – pboss3010
    Dec 29, 2020 at 13:21
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    Voting to close as off topic...
    – minou
    Dec 29, 2020 at 13:21
  • @FranckDernoncourt You mean, why they feel the pressure of the raising low cost carriers now that where not there in this way and size before? Unless you live under a rock you should be able to see how lots of low cost carriers expanded extremely brutally the last years eating into the traditional market. And how companies move more and more of their people into those to save money. Not many people afford business or first class these days.
    – TomTom
    Dec 29, 2020 at 13:35

1 Answer 1

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The answer is (quite likely) supply and demand.

Let's break this down a bit: The goal of a Frequent Flyer (FF) program is to gain customer loyalty through perks and benefits, so that a customer will choose your airline, even if it's not the most convenient and/or cheapest ticket. The "rate of return" of an FF program is really the incremental profit divided by the cost of the program.

Initially these programs were based on "miles flown", which includes the implicit assumption that "miles" is a stand in for revenue & profit. With dynamic "on-demand" pricing models getting more and more aggressive (and bizarre) that assumption went out of the window.

Let's look at an example (United, 2014 or so). You could make highest status (1k) with just six flight per year from the East Coast to China (HKG, PVG). That came with significant perks, free E+ seating, free domestic upgrades, 6 international upgrades, plus a whopping 220,000 award miles which corresponded to about 9 domestic roundtrip tickets. At the same time, that's a highly competitive route, so the average price of an economy ticket was maybe $800 and it has low profitability since it's LONG: you need two full crews and lots of fuel. That's a LOT of perks for $5000 of revenue.

Compare that to the passenger who flies business Boston to Chicago twice a month. The revenue & profit for United is MUCH higher, but the accrual for the passenger is a lot less (even with business multipliers & segment counts factored).

So the airlines were realizing that they are rewarding the wrong type of customers and have since switched to a revenue based rewards program. The exact details have been extremely convoluted and are still in flux.

Competition plays a big role here. If (US market) Delta decides to de-value the program American and United have the choice to keep their program as is in the hope of increasing revenue by attracting some customers away from Delta OR they follow suite, lower the cost of their own programs. So far they all have followed suite.

The final state of this will be determined by supply and demand and Covid has thrown another massive curve ball into all of this, so we are not going to see some sort of "steady state" for the next year or two.

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  • Basically your initial assertion that they have devalued their programs only applies to the small percentage of travelers that happened to be rewarded too greatly relative to the revenue they brought the airline. Airlines still compete for and reward loyalty, I don't think the claim that they have devalued their programs is supported outside of aberrations.
    – Hart CO
    Dec 29, 2020 at 16:21
  • @HartCO: I respectfully disagree. Over the last 8 or so years the benefits have been drastically reduced for most travelers. I think they overshot to a point where many target travelers really didn't care any more and recently at least United has improved their program again.
    – Hilmar
    Dec 29, 2020 at 19:33
  • I guess the assertion felt anecdotal to me, it's probably hard to put solid numbers to. I've mostly tracked Southwest and their program hasn't seemed to change much in recent years so I was skeptical that in such a highly competitive space the loyalty programs would be devalued significantly. Also, recent is relative, I was thinking last few years but in the last 20 there have definitely been some significant changes.
    – Hart CO
    Dec 29, 2020 at 20:00

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