Frequent-flyer programmes are now more than 30 years old. It was way back in 1981 that American Airlines launched its AAdvantage programme on to an unsuspecting world. The speed at which it won business from rivals meant that every other carrier had to follow suit and, now, it would be inconceivable for any airline not to have one.
Since they were first created, frequent-flyer schemes have grown enormously in size and scope. The total number of unredeemed miles is now estimated to be more than 17 trillion, nearly enough to get you to Proxima Centauri, our closest star other than the Sun. In 2008, a JP Morgan analyst reckoned that Qantas’s frequent-flyer programme would be worth A$2 billion if spun off from the airline.
The number of points or miles issued has reached dizzying heights while the programmes themselves have been expanded to enable members to earn points in myriad ways, such as staying in hotels, buying things on credit cards and even shopping in your local supermarket.
Travel buyers have long been concerned that travellers have had their booking behaviour altered by generous loyalty schemes. However, despite anecdotal evidence to support this, a Barclaycard survey from 2007 did not bear this out – it found that just 2 per cent of travellers chose their airline based on their frequent-flyer membership.
Since that survey was carried out, travel policy and enforcement have become stricter, too, making it much more difficult for maverick travellers to choose an airline based on the health of their mileage balance.
While the economic downturn has caused this tightening, loyalty schemes themselves have become typically more generous in a bid to woo high-spending business travellers. Blackout periods have become narrower or disappeared, airlines are offering more special bonuses, such as double or triple points, than ever before while
others, such as British Airways, have introduced new membership tiers to open loyalty schemes up to more passengers.
Company benefits
That sweetening of schemes has again raised buyer concerns and some companies are taking measures to address it. One travel buyer from a large retailer said his company has also made it clear that it expects employees to use the rewards from individual schemes towards future business travel for the company rather than on personal trips, although he says that it is very difficult to police in practice.
However, buyers are embracing a new generation of loyalty schemes that have sprung up in recent years. The crucial difference is that their benefits accrue to companies rather than individual travellers.
Such company-targeted schemes are now widespread and tend to focus on small- to medium-sized enterprises (SMEs) which do not have the level of spend that would enable them to access the corporate deals available to larger companies.
The schemes tend to operate in a similar manner – although they are focused on companies, all of them require travellers who take part in the programme to also be enrolled in the airline’s individual frequent-flyer programme. Company rewards are given on top of any individual benefits.
Each company nominates an administrator or two to manage the scheme and they are issued with a scheme number which can be attached to bookings in the same way as an individual frequent-flyer number. Companies can also usually nominate travel management companies (TMCs) which can make bookings using the scheme number on their client’s behalf.
Points are earned by taking flights (occasionally through other partners) and can be spent in many of the same ways as individual frequent-flyer points: flights, upgrades, lounge access and hotel rooms among other things.
Star Alliance Company Plus (SACP) was founded in 2004 and 13 of the alliance’s carriers now participate. More than 100,000 companies are members of the scheme and a spend of €1.5 billion passed through the programme last year. SACP’s UK and Ireland manager, Frank Wagner, says: “The UK is one of the most dynamic markets. Every month we have hundreds of companies joining.”
He adds: “SACP is very much a contracting tool. We like to believe it creates loyalty for the airlines. It’s also a means for pooling the incentive, so that rather than going to negotiate contracts with each individual airline, companies can manage all the incentives in a single tool.”
However, the SME focus is changing. “Some large companies have a contract in place with airlines and have relied on corporate net rates within the published fare structure,” says Wagner. “Yet they have become less attractive because many companies have changed travel policy to a best-fare-on-the-day basis, meaning that net rates are not as attractive as they used to be. In the UK and Ireland, it is definitely the services that have a direct impact on the final cost of travel that are proving most popular.”
British Airways’ On Business programme is also growing fast, according to BA sales boss Richard Tams. “Membership is well into the tens of thousands and is growing on a day-to-day basis. We have done an enormous amount of analysis and the companies are incredibly diverse,” he says.
On Business became considerably more attractive in February this year when the airline announced the creation of its Business Bespoke fares scheme, which sits alongside On Business, and offers discounts to companies that are unable to negotiate their own volume concessions. On Business members can now get a 5 per cent discount on a range of flexible fares which do not need to be booked significantly in advance of travel, and do not incur change or cancellation fees.
Tams says the scheme is flexible, too. “One of the great things about Business Bespoke is that we can potentially do tactical offers where we can promote a specific offer on a particular route.” He says redemption for free flights is the most popular way of using points earned through the scheme.
“We work closely with our TMC partners who actively sell On Business to their clients. We have certainly noticed that the TMCs are concentrating more on the SME market, and this has given them a greater focus,” he says.
CASE STUDIES
A case of logistics
A MEDIUM-SIZED logistics company with around 100 employees and two branches in the UK is typical of the sort of company that becomes a member of airline loyalty schemes. Although its employees travel infrequently, it still wants to get best value for its travel.
The firm is enrolled in BA's On Business, Virgin Flying Co and Star Alliance Company Plus, and has nominated its TMC to book flights through the scheme, which it does on behalf of the logistic company’s clients. The company uses the points accrued in this way to purchase flights for its own staff visiting clients and conferences. “We use the points exclusively for flights rather than other rewards on offer,” says the firm’s travel buyer.
High street savings
MEMBERSHIP OF British Airways’ On Business has helped one well-known high street name shave 1.5 per cent of its air spend. The company has a multimillion-pound travel spend, a large proportion of it domestic, manages travel budgets at a departmental level and has managed to negotiate membership of the scheme, even though it already has route deals with the airline. It is also a member of the Star Alliance and Virgin schemes.
The firm’s travel buyer says: “Our approach is to hold back points accrued until the end of the calendar year and then use them to support departments that have run out of budget, and apply them to the most expensive trips. As an example, if we had 10,000 points, we would use them on an international trip rather than on four domestic ones.”
The company’s designated TMC administers the scheme on its behalf in order that flights booked this way are including in the management information. The travel buyer says membership of the schemes is not principally about loyalty. “We have always taken a view that if we can earn some points and realise benefit that we would otherwise not see, then that is great.”