For many years airlines have run fare sales as a way to generate cash. In recent years this has become so normal that consumers don't even think about it. If you track this sort of thing as the Professor does - then you can see patterns emerging. For example I can almost predict certain airlines' cash flow position just by tracking the frequency and type of their fare sales. Its a bit of fun.... it provides a window into the minds of the revenue chaps.
In recent years airlines have started to sell their future capacity through the sale of Frequent Flyer miles.
Effectively the deal is as follows: Airline X will sell future frequent flyer miles as a currency (with an apparent significant discount rate) that in turn the purchaser can use as an incentive or currency of its own. Example: Delta sold $ 2 Billion worth of FF miles for 3 years when it needed to raise cash. American recently did the same with CitiCorp raising over $1 Billion in the process. This week even BA has started to do this with the offer of a bonus directly to its consumer base. Buy miles now and we will give you a bonus of 25%.
For airlines this has been a safe bet. Why? Well they still control the inventory and therefore they have their finger on the revenue switch. Also the historical perspective notes that the actual usage of FF miles in both the pipeline and miles that will never be used has grown to a Squillion Dollar amount.
Enter the tax man. This has the ability to de-stabilize the whole equation. There are several laws in several countries that effectively provide for a way to tax them. However Governments are going to be reluctant to do any sharp tax implementation. Why? There are two very well known cases of miscalculation. In the 1980s Pan Am attempted to force redemption of its outstanding FF miles. It pushed the airline to a huge loss as the overhang was snapped up by punters anxious to avoid losing their miles. The other famous case of a miscalculation was the sale of vouchers for Hoover and their vacuum products. The vouchers were more valuable than the products and had no restrictions. Bad move all round.
While airlines are on this persistent hunt for "found revenue" this may be one that will come back and bite them hard. I caution because if the customers try and use their miles and find them useless or too difficult - then they will rebel. There is nothing worse than a pissed off customer in today's viral world.
And perhaps this is a point to mention. Airlines always talk about how much they value their brands and what they do to build them up and maintain them. In today's transparent web based economy the ability to obfuscate and hide is vastly reduced. As one punter FF interviewed about the new United bundling program stated unequivocally - that Airline was selling in effect its former rewards for heavy users - its ultra frequent flyers - to anyone who wanted it. And guess what - he was walking - to another airline. With no easy way to measure the long term brand damage that the impact of these revenue "enhancing" tools such as the sale of FF miles you have to think that indeed the airline is selling itself short. Does this mean that Ryanair is right all along and that people only deal in price? I think that this is becoming more of the issue than airlines have come to appreciate.
Selling Britain by the pound? BA is probably doing just that, selling itself and its so previously high valued brand by the pound. The fees it charges for redemption of its FF miles are often GREATER than the total cost of a discount ticket on the same flight. I have documented this frequently. And don't get me started on the 200 pounds to buy a Silver tier membership... So does that make for a good and highly valued brand. It would be REALLY interesting to see how heavy FF flyers feel about their chosen airlines brand service. If you would like to enjoy some vitriol just head on over to Randy Petersen's Flyertalk.
Cheers
No comments:
Post a Comment