Issue 71: October 1991

The basic concept of an airline hosting a frequent flyer program is excellent. It obviously engenders instant loyalty amongst any airline’s bread and butter traffic – the frequent full fare (and often premium class) business traveller. Unfortunately what happens in the real world is that every other airline must do exactly the same or lose much of its vital high yield business traffic.

This is of course what has happened here. Though both airlines would shriek and yell at the mere mention of their launching a frequent flyer program, both realised earlier this year that that was exactly what their competitor was up to. And so, just like their announcement of business class upgrades earlier this year, both carriers went public on the same day. Even though the Two Airline Policy is now dead and buried, its ghost lingers on amidst the corporate towers of the Heavenly Twins!

Australia’s schemes fortunately exhibit a number of crucial differences to their US counterparts. The biggest bugbear with the US system is that points can be accumulated to the extent of allowing many business flyers to end up taking multiple around the world trips in either their leisure time or retirement. Great for the consumer but bad for the airline, as what this translates to is significant yield erosion, particularly if the traveller uses his or her credit to book first or business class travel. An airline doesn’t make much money out of an FOC (free of charge) relaxing in a first class seat.

The other problem, and the worst, is if an airline begins to look distinctly unhealthy in a fiscal sense (and who isn’t?) then it can actually precipitate a run on the airline by nervous frequent flyer members eager to use up their accumulated mileage before the host carrier disappears.

This has been a major problem for both PanAm and its scheme members. Several years back it was mooted that the airline might be forced to abandon its frequent flyer scheme and declare all of its outstanding free travel liabilities null and void. When this hit the press, there was naturally a run on the airline that during the peak summer traffic period saw the airline’s reservation system overloaded with people burning up their soon to be extinct mileage credits. This robbed PanAm of much cashflow through having to refuse paying passengers as its aircraft were literally full with FOC travellers, and actually accelerated the demise of the carrier. The exact opposite reason for the carrier’s floating the idea of opting out of its frequent flyer plan in the first place.

Nowadays TWA is having the same problem while Continental, America West and Midway are also seeing their yields erode further as participants rush to make good their credits before the airlines exceed their ‘use by’ date. So evident is this trend that Lloyd’s of London have recently developed AwardGuard, an insurance policy specifically created to offer the consumer protection against loss of credits if your airline should decide to emulate Eastern!

In Australia though it will be different and our airlines deserve credit here for some common sense in an industry not always noted for same. Firstly both the Ansett and Australian plans cost money to join (unless you are already a Golden Wing or Flight Deck member) and secondly the points accumulated are good for just one year. In other words, use it or lose it. This will ensure that members stick to the one airline more than perhaps they would in the US and the contingent long term liability of the carrier is limited. A very smart move and one that, like our load factors, must have some US airline chiefs green with envy.

So what will Compass do?

Almost in the tradition of how Alan Bramson’s ‘little’ Virgin Airways continually baits the giant British Airways, Compass seems to be able to effortlessly win the PR battle against its much larger competitors. A fortnight after AN and TN swamped the media with their big budget frequent flyer launch, Compass simply took full page press ads headlined – “Now our rivals want you to fly halfway around the world to earn a toaster”. The ad then went on to say that by the time you had earned enough points on either carrier to earn a toaster, you would have saved around $630 flying with Compass, enough to buy 18 toasters! If that wasn’t cheeky enough, the airline then went on to offer two free equivalent value tickets for each full fare ticket purchased before 21 September and valid for a full year thereafter.

Also winners are the participating hotels in both carriers’ schemes. Hyatt, Parkroyal, Centra and Travelodge feature heavily in both schemes and as they are all owned by the Pritzker family then this clan will surely be set to enjoy a boost to the bottom line as US experience has found that there is usually at least a 15% increase in business for hotels participating in airline frequent flyers schemes. While the Pritzker’s may be smiling all the way to the bank one segment of the community that will understandably feel left out of the action will be those many business execs and government employees who do the flying but do not have any entitlement to the eventual booty. This appears to be the present situation with many major companies and true certainly for the Commonwealth Public Service though AA believes a frim policy decision on this is imminent.

This actually brings to mind the surprisingly unpublicised court challenge by a member of the Attorney General’s Dept who last year had the good fortune to win the Rolls-Royce car that was the centrepiece of an Australian Airlines promotion. Rather than have the Roller disappear into the vaults of ‘consolidated revenue’ our naturally peeved public servant has decided to fight the system. We wish him well.