The Extra Mile

For Mileage Programs, Bigger Isn't Always Better

Smaller carriers can innovate, & sometimes do

February 27, 2006 - In the world of frequent flyer 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. So members can earn miles for flights on a multitude of airlines, for stays at all major hotel chains, for car rentals and for such non-travel transactions as Internet access, home mortgages, tax preparation, purchases at an extensive network of online retailers, and so on.

When it comes time to redeem those miles, members of the larger programs have the most award options as well.

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

Which may explain why program innovation is linked to smaller airlines' programs so much more often than it is to their jumbo counterparts.

Two recent change at Honolulu-based Hawaiian Airlines, the nation's sixteenth largest carrier, illustrate the point.

First, Hawaiian added a third category of award seat availability, in between the traditional restricted and unrestricted categories. With the new tier in place, HawaiianMiles members can choose among SuperSaver, Saver and AnyTime awards (which might be translated as highly restricted, somewhat restricted and unrestricted awards, respectively).

Under terms of the new policy, a one-way Transpacific award ticket, as an example, 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 classes of service may be mixed and matched to create a single roundtrip itinerary. So, for instance, 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 their 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 as well.

While the changes are clearly positive steps for consumers, they are evolutionary rather than revolutionary. So there's no technical obstacle to their being adopted as industry standards. Will other airlines follow Hawaiian's lead?

Unfortunately for the majority of travelers, Hawaiian doesn't have enough competitive clout in the marketplace to exert serious pressure on the major airlines to offer one-way awards. And it's an issue about which they are deeply ambivalent. 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 hand, more award travelers reduce the airlines' inventory of seats available for sale, potentially diluting revenue.

More than likely, the tie-breaker 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.

But in the real world, 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 seem to have been created reflexively, in response to competing airlines' mileage programs, and are operated more as afterthoughts than as vital marketing schemes.

JetBlue and Midwest Airlines both have engendered especially strong loyalty among their customers. But that hold on the hearts of travelers was 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.

Growth has a way of wringing the creative impulses out of once-scrappy upstarts.

Take Southwest. Since its inception, Southwest's engagingly quirky Rapid Rewards program had featured a novel and uncommonly 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 in its own right -- gaining considerable marketplace influence in the process -- other mainline carriers kept their capacity controls firmly in place. And perhaps inevitably, Southwest finally succumbed to the industry's lowest common denominator policy, imposing restrictions on award seat availability for travel on and after Feb. 10 of this year.

In the end, the search for a predictable linkage between size and quality yields more exceptions than rules. Sometimes more is less; other times less is more. And sometimes bigger is just bigger, and smaller is just smaller.