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.

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