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Airline frequent flyer programmes, taking a new role, add a face

When frequent flyers like Up in the Air's Ryan Bingham and Alex Goran finish one-upping each with various 'platinum ultimate double special elite cards', their conversation turns to a new marketing approach from American Airlines' frequent flyer programme, AAdvantage, generally credited as the original FFP.

AAdvantage president Maya Leibman hosts a seemingly frank video message about recent developments in the programme. She jokingly admonishes viewers for not reading her email updates, shoes pop up in a thought bubble when she speaks of non-flight rewards, and she jokingly offers a set of Ginsu steak knives before the legal department "calls" her and says she cannot offer them. "Legal can be such a downer," Ms Leibman remarks.

The question asked is this: has American found a new non-fluff and personal way to market its cash-important FFP, or has a step into the realm of relaxed social media become a transgression?

Not discussed is the metamorphosis in role and purpose of a FFP from awarding its frequent flyers free flights to now driving revenue via numerous streams. As Ms Leibman remarks, American wants to have "a compelling rewards and recognition programme" – frequent flyer what?

It is a topic addressed in this month's cover story of CAPA's boardroom airline magazine, Airline Leader, which examines the changing role of FFPs and how they are for both love and money. You can read the article online here, or here if you prefer a web version of the magazine, or here for a PDF.

The first item Ms Leibman mentions is a new AAdvantage credit card with Citibank – an unsurprising move given how prominent billings from partners, such as credit card companies, are in the bottom line of a FFP. The Amadeus 2011 Yearbook of Ancillary Revenues estimates United and Continental generated USD3 billion in 2010 from credit card partners that purchase points for their members.

"I can't stop thinking about all the great things our members are going to get with this card," Ms Leibman says. At the board room, however, the thought changes: all the great billings American will receive.

The USD3 billion from United and Continental was more than their USD2 billion from ancillary sources like baggage fees, expedited security and boarding, and lounge passes. It makes sense then for the new American credit card to offer a free baggage allowance, queue jumping, and lounge access. In return for potentially giving up those ancillary fees (although chances are a healthy chunk of cardholders are elite members who already receive those perks), American gets a share of spending on the card, and, presumably, part of the USD450 annual fee.

The bank-airline relationship extends beyond the basic reward programme. By purchasing points, which airlines set a variable value to, banks can effectively prop up airlines during downturns and bankruptcy, as was the case during United's and Delta's chapter 11 proceedings, the Airline Leader article notes.

Offering cardholders elite perks, previously only attainable by flying, exposes another changing facet of FFPs: the programmes can be tailored to individual preferences for the traditional perk of free seats, and the emerging perk of status and its associated preferential treatment as service on average declines. Newer and more stringent security protocols make the need for expedited queues greater. Introducing or significantly raising change fees generates demand to have such fees waived.

Ms Leibman, in her fireside video, also announces American's recognition of members who earn over one million miles, a previously undocumented perk that could be attained via any earning opportunity, including credit card miles. Now American is formalising the programme and will only offer Million Miler status on, basically, flown miles – or, reflecting the importance of billings, any miles on the USD450 credit card until 01-Dec-2012. (The new rules are more generous than those of other airlines where airline partner miles do not count.)

Achieving a goal and attaining its tangible benefits is leading some members to pursue elite status for a specific and immediate gain. Qantas offers its most basic elite members access to domestic lounges, complete with free food and drinks. US carriers only grant middle tier and above elites access to lounges, where food and drinks are not free-flowing. United's elites earn coveted access to economy plus, which offers additional leg room.

Delta, Qantas and Virgin Australia have recently introduced new top tiers in their FFP

If the frequent "flyer" concept is being challenged, so too is loyalty. Now FFP members may hold elite status with two or more carriers. Reasons for this vary. Additional perks in the top tier may not be that much greater, top tier may already be achieved (Delta, Qantas and Virgin Australia have recently introduced a new top tier), clamping down on corporate travel policies may mean consumers are flying on more than one carrier and uncertainty over a carrier's finances or improvement prospects may mean it is time to don a lifejacket.

Other times the mileage needed between a middle tier and top tier is so great that mid-tier status could be achieved with the same number of miles on another airline. To prevent this siphoning, airlines like American offer rewards to those who come close to making a higher tier. They may receive bonus miles, elite miles for the subsequent year or gifts.

To those who double dip, a status match, quietly offered between airlines, grants elite status on a member with the assumption the person could attain it based on their proven history, but granting perks at the onset sweetens the deal. Sometimes status matches are not quiet: the re-branded Virgin Australia set up a status match booth in a Sydney mall as part of its quest to win more of the corporate market from competitor Qantas.

Virgin Australia status match stand in Sydney's Westfield mall: 25-Aug-2011

In that instance FFPs have maintained their traditional role, even if – like in Qantas' case – there are new, greater non-flying-related opportunities to enhance a programme's bottom line. Elsewhere, the flying aspect is gone. Ms Leibman's changes to American's Million Miler programme created a mini rush to accumulate a million miles before the new, stricter rules took place. The Points Guy blogger pointed out credit card bonus offers could collectively fetch 225,000 miles that "will get you nearly 25% of the way there without stepping foot on a plane!"

That may not bode well for an airline's seemingly core business: flying. It underscores the argument – so far exercised only by Air Canada and nearly by Qantas – to spin-off the FFP into a separate company where the FFP's value will become more apparent; the parts are greater than the whole. FFP members are putting tremendous effort into earning miles on the ground. Meanwhile, traditional flying is a race to the bottom where profits are few and far between.