Airlines Add Minimum Spending Level to Loyalty Programs

From the airlines’ point of view, it’s all about closing loopholes. For passengers, it’s taking away a great benefit. The “it” in this case, is mileage – the system, begun by airlines themselves by which passenger loyalty (and the awarding of benefits) is measured.

According to Bloomberg, the world’s largest airline, United Continental Holdings Inc. UAL said Tuesday that it is setting spending criteria for its MileagePlus program elite levels. Starting in January, passengers on United Continental will have to spend a minimum of $10,000 plus travel 100,000 miles or 120 segments to gain Premier 1K status.

Adding a minimum spending level is the biggest change – and the one that eliminates the “loophole” enjoyed by passengers who made what the airline calls “mileage runs” – long cheap flights used for earning elite status.

Elite status provides such things as first-class upgrades, complimentary cocktails, admittance to special lounges in airports, and speedier check-in for flights. Those things will all still be available but, literally, for a price.

United Continental follows the lead of Delta Airlines DAL, which announced a similar change to its loyalty program in January (effective in 2014). To achieve Diamond status, the highest level at Delta, for example, passengers will have to spend $12,500 and travel 125,000 miles or 140 segments.

Tim Winship, publisher of FrequentFlier.com said, “There are going to be winners and losers here.” The losers, of course, are people who, in the past, have been able to earn elite status by buying discounted tickets that involve long flights on which they rack up miles. To counter that, airlines are changing the “currency” from miles alone to miles plus money.

Jay Sorensen, head of Wisconsin-based airline consulting firm, IdeaWorks, sees the demise of mileage as part of the currency by which airlines reward loyalty. He said, “At some point we’re going to see miles go the way of the buggy whip and they will no longer be part of frequent flier programs.”

 As airlines fiddle with frequent flyer programs, a new American Consumer Satisfaction Index, just released, found passengers are slightly more satisfied with some parts of the flying experience than they were last year, but still rank the industry below fast food restaurants like McDonald’s MCD, hotels such as Marriott MAR, and shipping services like FedEx FDX.

The main drag on airline ratings, according to ACSI, is the actual flight itself. Reuters, reporting on this year’s ACSI findings, said that reservations and check-in, which can be done online, rated much higher than food and beverage service, entertainment, and seat comfort.

When it comes to future expectations, Claes Fornell, ACSI founder and chairman, was not optimistic.

“As long as all airlines are bad,” Fornell told Reuters, “they will not be punished much by customer defections."

At the time of this writing, Jim Probasco had no position in any mentioned securities.