The new air battle

1478
February 03, 2017

Frequent-flyer programs and global airline alliances have become front-line weapons in the fight by the world’s oldest airlines to stave off unprecedented market disruption and price competition from new competitors.

Despite predictions that ballooning contingent liabilities would kill off frequent flyer programs, they’re still going strong four decades after their invention and global alliances have cemented them at the heart of the relationship between airlines and their customers.

The world’s oldest alliance, Oneworld, will this year celebrate its 20th birthday as the networks of frequent flyer programs it stitches together hold the line against new long-haul low-cost competitors and market disruptors like the three Persian Gulf-based hub-and-spoke carriers, Emirates, Etihad and Qatar Airways.

Of the three, only Qatar Airways belongs to an alliance (Oneworld): the other two, including the world’s biggest international carrier, Emirates, have declared their independence from alliances and instead have pursued bilateral relationships – like the Qantas-Emirates joint venture, which was launched in 2012, and this week’s co-operation agreement between Etihad and Lufthansa.

Each of the three major alliances – Oneworld, Star and Sky Team – carries 550-650 million passengers a year, in total about half of the 3.6 billion passenger trips by air globally in 2016.

Nowhere is the battle of the alliances more hard fought than in Europe between one of Oneworld’s founding members, British Airways, and Star Alliance mega-carrier Lufthansa.

Though their frequent flyer programs are dwarfed by the 100 million members who belong to Oneworld giant American Airlines’ AAdvantage after the merger with US Airways, they’re still among the biggest in the world outside of America.

In 2014, it was claimed that Lufthansa’s loyalty program, Miles & More, had 25 million members, but Lufthansa Manager of Program Marketing, Bastian Neumann-Semerow, told AirlineRatings.com Miles & More now has 10 million active members. (“We don’t talk about our members in total,” he says.)

That’s considerably more than the seven million members claimed by British Airways’ loyalty program Executive Club – headquartered at London Heathrow airport, just 650 kilometres (less than an hour’ flying) from Lufthansa’s fortress, Frankfurt Main airport – though fewer than the 11.4 million frequent flyer members, for example, at Oneworldcarrier Qantas’s Qantas Frequent Flyer, which has extensive retail inter-relationships.

Most of the world’s frequent-flyer program have been overhauled in the past five years to give more benefits to travellers according to the amount they spend rather than the volume of miles or kilometres they fly.

That has led to a backlash from once-a-year travellers whose points buying power has been reduced.

But airlines like British Airways have been listening to their Executive Club members – in particular, to the long-standing, widespread gripe among frequent travellers everywhere that award seats in the past have been too hard to obtain.

“Reward seats are extremely popular with customers and we guarantee that at least nine million reward seats are offered across BA operated flights every year,” a BA spokesman told AirlineRatings.com.

“Some of the changes we have made to our loyalty program include guaranteeing a minimum number of seats available on every flight  (and) ensuring that customers who have paid more for their ticket … collect more Avios (points).”

Customers flying on the cheapest economy class tickets now collect 25 per cent Avios per mile flown; customers on mid-range economy class tickets collect 50 per cent Avios per mile flown; and customers on flexible economy class tickets receive one Avios per mile flown. 

For Club World business class/Club Europe business class and First, the spokesman says, Avios earned now either stay the same or increase by up to 300 per cent, depending on the cabin and type of ticket purchased, the BA spokesman says.

Introducing off-peak pricing means that for two thirds of the year, customers need fewer Avios for their reward flights. On average, a customer would need 26 per cent fewer Avios for an off-peak booking in economy. 

“The key to frequent flyer programs is ensuring that benefits are easily accessible to members,” the spokesman says. 

“In recent years we have seen a change in how loyalty schemes are run. We’ve made changes to provide more opportunities for members to spend Avios on reward flights as well as to ensure that the Executive Club continues to deliver a competitive and rewarding loyalty program for the future.”

Like other airlines loyalty plans, Lufthansa’s Bastian Neumann-Semerow says Miles & More is no longer just a frequent-flyer program but a multi-partner program that can deliver many benefits beyond flight redemptions.

“We are continuously working on further improving the attractiveness of Miles & More for our sophisticated members,” he says.

In the past two years, he says, Miles & More has added new partners in the premium segment and continually expanded premium offers for earning and redeeming award miles “in all key areas of life”.

Crucially, the program has reduced surcharge prices for award flights within Europe operated by Lufthansa and its subsidiaries, Austrian Airlines, Brussels Airlines and SWISS.

In addition, a new option, “Cash and Miles”, allows members to pay for any flight booked with a Lufthansa Group airline at LH.com using miles, either wholly or in part.

 Neumann-Semerow says Miles & More is adding new members every day.

“Miles & More is the expert in successful customer retention,” he says. “Due to its easy handling, the attractive incentives for earning and redeeming award miles and its award flights there are Miles & More members all over the world.”

 Indeed, the geographical spread of Miles & More members is impressive: while a third live in Germany, Austria or Switzerland and the next most popular catchment is the rest of Europe, Americans are the third-largest group and Asians the fourth largest. 

“Customer retention is important and will be as important in the future,” Neumann-Semerow says. “It will always be essential to provide relevant and attractive offerings. Miles & More is working continuously to achieve these objectives. We have our eye on our members’ needs.”