Warning! Soon, airline loyalty will cost you

delta7Like many frequent travelers, Glenn Haussman recently received an e-mail from Delta Air Lines about an “update” to its SkyMiles loyalty program. It was so understated that some passengers didn’t bother to read it. But Haussman did.

“I was not thrilled,” says Haussman, who works for a hotel industry Web site in New York. “It made me feel less valuable to Delta.”

How can a loyalty program make passengers feel unappreciated? Delta is the first legacy airline to tie the value of its frequent-flier program to the amount of money you spend, as opposed to the number of miles you fly. Beginning Jan. 1, 2014, the airline’s frequent fliers will earn “elite” status, which gives them access to upgrades and other perks, through a combination of miles or segments flown and annual spending on Delta flights.

It’s the latest in a series of unpopular but necessary reforms that are leaving some travelers questioning the value of the travel industry’s rewards programs. “When they peg a dollar amount to my travel, it seems as though they’re penalizing me for planning my travel well in advance of others,” says Haussman.

The reason for the change is simple: The program as currently constituted is unsustainable.

Jim Knisely, Delta’s general manager for SkyMiles strategy and operations, says that the old rewards program worked when the distance flown aligned with the price of a ticket, as it did three decades ago, when loyalty programs were created. “But that’s no longer the reality of our industry,” he told me.

“The objective here is merely to try and keep a program successfully running as originally designed,” says Krista Paul, founder of UsingMiles.com, a loyalty Web site. Delta had too many elite-level fliers competing for a limited number of perks, and “something needed to be done.”

Airlines can change the terms of their loyalty programs anytime, for any reason, according to their program rules. They can even eliminate their programs, because the fine print says that the miles don’t belong to you; they’re the airline’s property. That may be why some Delta customers feel betrayed by this “update”: They say that the airline is breaking a promise to reward them for their business.

“It’s not a miles program,” says Nancy Dickinson, a Web site editor in Palominas, Ariz. “It’s a money-for-Delta program. At least they’re no longer hiding it.”

Air travelers should get used to it, according to airline loyalty expert Tim Winship. JetBlue Airways, Southwest Airlines and Virgin America already offer frequent-flier programs that reward air travelers based on how much they spend, he says. Delta is the first legacy airline to adopt a similar model. “There’s still some value to be squeezed out of the programs,” he says. “But it’s becoming increasingly difficult.”

Winship and others say that the idea that passengers who spend the most should get the most will be a standard for loyalty programs of the future. US Airways, which is considering a merger with American Airlines, is thought to be considering similar changes, says Winship.

United Airlines has made no secret of the fact that it thinks that its program is, in the words of one of its executives, “too generous.”

The revisions make sense, says Erin Raese, the president of Loyalty 360, a loyalty marketing association. “I don’t know a chief financial officer who would allow a company to give great value to a customer who is consuming a lot and paying less,” she says. “It’s not a profitable move for the organization.”

But how far will airlines go? In travel, prices change so often that it would be difficult to use dollars spent as the sole criterion for rewarding customers, says Raese. “For example, I know the value of the reward I’ll receive when I reach a certain spending threshold with Staples,” she says. And it’s consistent, no matter how many products she buys or where the purchase is made. “But can you tell me definitively what an airline mile is worth in dollars? Probably not.”

For that reason, experts predict that a hybrid model, in which loyalty is measured through a combination of miles flown and dollars spent, will be used. Such a program would most benefit business travelers who fly frequently; these are the so-called “high-value” passengers whom airlines like Delta want to recognize as elite.

But changes like this have a way of making other air travelers rethink their loyalty. Kim-Marie Evans, a Delta Silver Medallion frequent flier, says that this is just the latest in a string of disappointments from the airline. It recently took away her free checked bags benefit and her lounge privileges. “Even though I log a ridiculous amount of miles with Delta, I feel completely unvalued,” she says.

Other travelers, who won’t have a problem qualifying for elite status under the new program, don’t have any trouble with the changes. Bill Doran, a consultant based in Greensboro, N.C., who has lifetime Gold Medallion status, says that Delta will continue to get his business because it offers reasonable fares and generous upgrades, which are useful on long-haul flights. But on balance, he acknowledges, the updates “benefit Delta more than they do the customer.”

As painful as these changes are, they make sense. Air travelers who may be tempted to give their loyalty to an airline like Delta now won’t cling to an empty promise that they can reach elite status any other way than by spending their way there. Some will refuse to participate and will instead purchase a ticket that makes sense for them, and not for their loyalty program.

Also, airlines will no longer find themselves in the awkward position of having to reward customers who don’t deserve it. That includes travelers who exploit loopholes in loyalty programs by engaging in end-of-year mileage “runs” designed to rack up enough miles for elite status. Those customers contribute little if any real value to the airline and consume perks that probably weren’t intended for them.

One by one, airlines seem to be restoring a little reason to their rewards programs. What took them so long?

Should airlines base their loyalty programs on the amount of money a customer spends?

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