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The Honolulu Advertiser
Posted on: Sunday, December 21, 2008

FREQUENT FLIER
5 key events from 2008 may signal airline industry's direction

By Tim Winship

In reviewing the past year in the travel world, the challenge is culling a few events or developments from the torrent we've been inundated with over the past year.

Here are five highlights that may be indicative of what lies ahead.

Southwest standard: Southwest was applauded as the company with the prescience to buy jet fuel at pre-negotiated prices, leaving it with low fuel costs when the price of a barrel of crude soared to $147 over the summer. As most airlines struggled to keep their unhedged fuel costs from dragging them into bankruptcy, Southwest flew above the financial turbulence. (When fuel prices plunged, the hedging had the opposite effect, pushing Southwest into its first quarterly loss in 17 years.)

More significant has been Southwest's move to extend beyond leisure travelers to the business-traveler market — small but highly profitable. But with mainline carriers offering business travelers upgrades to first class, access to airport lounges and heaps of bonus miles, Southwest's low prices and bare-bones service wasn't winning over road warriors. Southwest had neither first-class seats nor airport lounges to attract pampered fliers accustomed to such perks.

Southwest's solution was to add an elite tier (A-List) to its Rapid Rewards program, and reward elite fliers with expedited security clearance and priority boarding. Security clearance and flight boarding are both zero-sum games: Giving precedence to one customer necessarily means delaying someone else. And that flies in the face of Southwest's egalitarian, one-size-fits-all approach.

Southwest isn't alone in trying to be all things to all people, or an acceptable number of things to an adequate number of people. But Southwest's case merits special attention because it had a better established identity than other carriers. And because of its proven success in generating customer loyalty and profits, its example will be watched by all, and followed by at least a few. For better or for worse.

Virgin America: Upstart Virgin America made a brash entrance onto the U.S. airline scene in 2007. It had attitude, style and low prices. In particular, there was keen interest in Virgin's loyalty program, Elevate, which the airline said was focused on customers.

It received mixed reviews. On one hand, its "no blackout dates" policy and streamlined award booking application are praise-worthy. On the other hand, the program is hobbled by a lack of earning opportunities and points that expire after just 18 months.

It does boast one feature that should be adopted industrywide: transparency.

Elevate members earn points according to the amount they spend on tickets. And on the redemption side of the program, any seat on any flight can be purchased with points, albeit at prices that vary directly with tickets' dollar prices, which in turn vary according to supply and demand for particular flights. This at least establishes a clear relationship between a customer's loyalty, as measured in dollars contributed to the airline, and his rewards, as measured by the dollar value of an award ticket.

Airlines' fee fever: There has never before been a year during which so many airlines imposed so many fees — so many that here at SmarterTravel we felt duty-bound to create two separate fee charts, one for general travel fees, the other specifically related to frequent-flier programs, to keep our readers apprised of who is charging whom, how much and for what.

The frequent-flier fee chart alone shows 12 fees assessed by 14 U.S. airlines — that's potentially 168 different fees, with more to come. American's thoroughgoing makeover of its pricing in 2009 will be based on the a la carte model of charging separately for every aspect of travel service. Frontier has done the same and other carriers are adding one fee at a time.

Meanwhile, Southwest has elected to take the fee-free road but its example isn't likely to be emulated. The fee-for-all will be a fact of travel life for the foreseeable future.

Flip-flops, push backs: Airline policies were announced and then rescinded before they'd even gone into effect.

Continental, for example, announced in September that, effective next year, they would no longer award a minimum of 500 frequent-flier miles for short-haul flights. And then modified the modification, reinstating minimum miles for its elite members.

American imposed a $5 fee to book a flight using frequent-flier miles, making it impossible to get a truly free ticket. The core promise of airline loyalty programs had been revoked. And because American's moves are often copied by other airlines, frequent travelers fretted that such fees would become the new industry standard.

Indeed, US Airways and Frontier followed, imposing award fees of their own. But then, in October, American quietly withdrew the fee, apparently hoping no one would notice.

Delta decade: With the Northwest merger finally consummated, the "largest airline" title now belongs to Atlanta-based Delta.

The airline has signaled that it intends to use the merger to reassess its mileage program, with the stated goal of refashioning it as "the world's premier loyalty program."

During a year when the changes made by most carriers were overwhelmingly negative, the changes to Delta's SkyMiles program have been either neutral or positive. If that trend continues, Delta could separate itself from the competition and have a legitimate claim as not only the largest mileage program, but as the best.

That would mark a historic changing of the guard. For much of the 27-year history of airline loyalty programs, American was the innovator. It created the first program, and for many years it set the standard for the industry.

We have now entered the Delta Decade. By the end of next year, we should have a better sense of what kind of a decade that will be.

Reach Tim Winship at questions@frequentflier.com