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The Honolulu Advertiser
Posted on: Sunday, February 19, 2006

FREQUENT FLIER
Smaller carriers can be creative

By Tim Winship

In the world of frequent-flier programs, bigger can be better.

American's AAdvantage program — the oldest and largest of the airline mileage schemes — boasts more than 1,500 program partners. Members earn miles for flights on a multitude of airlines, stays at all major hotel chains, car rentals, Internet access, home mortgages, tax preparation, purchases on a growing network of online retailers, and so on.

When redeeming those miles, the larger programs also have the most award options.

But the sheer size of American's program, and of other mega-carrier programs, can have a limiting effect. With so many members, so many partners, so many rules and procedures, even a minor program change poses a daunting administrative and operational burden. In other words, size can put a damper on creativity.

Which helps explain why program innovation is linked to smaller airlines' programs rather than to their jumbo counterparts.

Two recent changes at Honolulu-based Hawaiian Airlines, the nation's 16th-largest carrier, illustrate the point.

Hawaiian added a third category of award seats in between the restricted and unrestricted categories. Now, HawaiianMiles members can choose among SuperSaver, Saver and AnyTime awards (translated as highly restricted, somewhat restricted and unrestricted awards, respectively).

Under the new policy, a one-way Transpacific award ticket is priced at 17,500 miles for a SuperSaver ticket, 25,000 miles for a Saver and 35,000 miles for an AnyTime. The benefit: With the additional tier, at least some members who were unable to book an award seat at the SuperSaver level will find award seats available at the intermediate level, thus realizing a considerable savings over the price of an AnyTime award.

Second, Hawaiian now permits HawaiianMiles members to book one-way award flights, which means award types and services may be mixed and matched to create a single roundtrip itinerary. Miles might be redeemed for an AnyTime coach seat on the outbound leg and a Saver first-class seat on the return, an impossibility under the rules of competing programs.

Other programs also force members to forfeit the same number of miles whether they intend to fly one way or roundtrip. So Hawaiian's new rule is an improvement in that respect.

MARKETPLACE CLOUT

While the changes are positive for consumers, they are evolutionary rather than revolutionary. There's no technical obstacle to their being adopted as industry standards.

Will other airlines follow Hawaiian's lead?

Unfortunately, Hawaiian doesn't have enough market-place clout to exert serious pressure on the major airlines to offer one-way awards. On the one hand, one-ways clearly would enhance the programs, allowing more members to obtain more awards, at lower average cost. On the other, more award travelers reduce the airlines' seats available, potentially diluting revenue.

The tiebreaker will be the large carriers' aforementioned inertia, leaving members of the programs of American, Continental, Delta, Northwest and United envying their HawaiianMiles counterparts.

The hope is that innovations from small-company Davids will trickle up, becoming standard features of the programs of the industry Goliaths.

However, Goliaths tend to simply ignore the up-and-comers. And in any case, small size and innovation don't always correlate. There are plenty of small-carrier programs which operate more as afterthoughts than as vital marketing schemes.

JetBlue and Midwest Airlines both enjoy strong loyalty among their customers attained by offering superior products — low fares and seat-back TVs in JetBlue's case, premium inflight service in Midwest's — and not by distinguishing their mileage programs, which are considered also-rans in their competitive universes.

SOUTHWEST INNOVATION

Growth has a way of wringing creativity out of upstarts.

Since its inception, Southwest's engagingly quirky Rapid Rewards program had featured a novel and customer-friendly policy: When a member earned enough credits for an award, she had her pick of any available seat on any flight. That's in stark contrast to the very limited supply of award seats on offer at most other airlines, which increasingly has made booking award travel an exercise in frustration.

Even as Southwest grew from a maverick regional discounter into a mainstream carrier, gaining considerable marketplace influence in the process, other mainline carriers kept their capacity controls firmly in place. Southwest finally succumbed to the industry's lowest-common-denominator policy, imposing restrictions on award seat availability for travel this year.

Links between size and quality yield more exceptions than rules. Sometimes more is less; other times less is more. And sometimes bigger is just bigger, and smaller is just smaller.

Reach Tim Winship at questions@frequentflier.com