A Revenue Model for Alaska’s Mileage Plan Could Be Good

I first heard rumors from One Mile at a Time that Alaska Airlines is sending out a survey with questions that suggest it plans to implement a new revenue-based loyalty program instead of the traditional model that awards miles and status based on distance flown. The Points Guy took this one step further and compared it to Delta’s changes to SkyMiles — changes that most people seem to despise if you read the comments on blogs and forums.

But I don’t think Delta is the right comparison. Instead, it looks a lot like Southwest Airlines, and many people have good things to say about Rapid Rewards.

It’s important to note that all of the potential changes were discussed in a survey asking customers their thoughts on hypothetical scenarios. More than one scenario was presented. Even though the overall tone suggests executives are leaning toward a revenue model, we don’t know the specifics of that model or whether they have made definite plans.

One Mile at a Time quoted one particularly significant change to elite status qualification and the reason why I think Rapid Rewards is the most appropriate comparison:

Elite Tier Status

Now all of the points you earn through flights, in-flight services, Alaska Airlines Visa spending, or partner spending will apply toward Elite tier qualification. Elite members enjoy great benefits such as seat upgrades, earning bonuses, priority security lanes, and early boarding.

Delta Sky Miles still plans to award status based on a combination of miles flown and dollars spent on airfare even after it redefines award miles (the ones you redeem for awards) solely on the basis of ticket price. The elite status requirements aren’t changing significantly. But Southwest already determines elite status using miles earned from activities other than flights. That’s why everyone thinks the credit cards are such a great deal, because you can apply for two of them and be well on your way toward a free Companion Pass — essentially the highest of Southwest’s three elite tiers. As outlined in the Rapid Rewards FAQs:

What are Tier Qualifying Points, and how do I earn them?

Tier Qualifying Points are earned from revenue flights or through the Southwest Airlines Rapid Rewards Premier Card from Chase. Points earned via Rapid Rewards Partners-with the exception of the Rapid Rewards Premier Card from Chase-purchased points, Bonus Points, or points earned via a promotion are not Tier Qualifying Points and do not count toward tier qualification.

Other airlines, particularly Delta, also make it possible to earn elite qualifying miles with their credit cards, but they are still well distinguished from award miles, are capped, and are otherwise based on distance flown. Alaska’s proposal is a little more expansive than Southwest’s, but it is a closer match.

I think Southwest and Alaska are similar in other ways, too. They both have strong customer service, they operate similar fleets that depend on a small number of aircraft models, they have generous cancellation policies, and they have fairly basic on-board amenities (though Alaska has defended first class upgrades as a valued perk for elites). Customers of each can be fiercely loyal. I know lots of people who are infrequent travelers but still have an Alaska Airlines credit card — like owning a North Face jacket, it’s part of living in the Pacific Northwest.

So what do I think of the proposed changes? The first proposal, code-named Sphere, does not appeal to me. Here’s a screenshot from the survey:

Alaska_Sphere

Many airline loyalty programs already allow for redeeming miles on hotel or car awards, which may or may not be good deals. Hawaiian Airlines does a particularly good job of creating opportunities to redeem for Hawaii-oriented gift cards and vacation activities. And I like the idea of choosing which benefits matter most. Maybe some people could move themselves higher on the complimentary upgrade queue by foregoing bonus miles or confirmed upgrade awards.

But I don’t understand what they mean when they say that baggage fee waivers for travel companions will be a new benefit. This is an existing benefit. And how do they plan to guarantee 45 minutes from curb to gate, especially if people have their pre-printed boarding pass and no checked luggage?

The second proposal, code-named GoRewards, sounds a lot more rewarding at first, but I’m very concerned about its effects on the redemption side of the equation.

Alaska_GoRewards

I like the idea of earning bonus points on trips to Alaska and Hawaii. These routes are among Alaska Airlines’ strengths on the West Coast with frequent departures to both. And by counting the number of destinations it rewards customers who explore the route network and build a stronger connection with the brand — similar to how IHG Rewards provides a fast track to elite status if you stay with three or more brands, and Hyatt Gold Passport rewards some customers with a free night after staying at 50 different properties. I also like that points can be pooled; similar benefits from Hawaiian Airlines and British Airways make it easier to earn and redeem points as a family when traveling together.

I’m wary of talk about more last-minute awards at lower point levels. What about awards booked in advance? How exactly are awards supposed to be cheaper if the program makes it sound like we’re earning more points than ever before? And what about partner awards? Will they be dynamically priced, too? There are a lot of loose strings here.

Anyway, it’s not wise to read too much into a couple of surveys. Whatever Alaska Airlines does, I do think they’ll try to keep their customers’ interests in mind. They wouldn’t want to ruin their competitive advantage against Delta right now, which has been trying to court Seattleites with lots of bonus points even though changes announced for 2015 suggest these will provide a short-term bump. As one of the most rewarding loyalty programs remaining among the legacy carriers, it would be a shame to see them stoop to that level. Better, I hope, to see them continue in the spirit of Southwest Airlines, which has shown it’s possible to adopt a revenue-based loyalty program without alienating your customers.

New Delta Sky Club Guest Fee for Alaska Board Room Members
Yes, You DID Get 10 Cents Per Mile for Your Award Redemption

Scott created Travel Codex after learning how to travel better on a budget during grad school. He now flies over 150,000 miles every year.
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  • iolaire

    There are more options, my survey included another option in addition to GoRewards, overall from my half assed reading of the images it seemed like the changes are good when you factor in the fact that all options included visa spend for status… They also asked about last minute offerings of mystery destinations or lower cost last minute awards.

    • Scottrick

      Visa spend for status makes some sense. Other carriers want to use elite qualifying dollars to make sure I’m buying my tickets on their ticket stock or flying their planes to make them more money. But they’re also making money when I use a co-branded card.

      Some of the changes, like last-minute awards, don’t seem to require an overhaul of the program.

  • Brian C. Lee

    I’m indifferent to revenue based EARNING, since I get most of my miles through credit card spending and other non-flying means. But revenue based REDEMPTION would be a disaster.

    • Scottrick

      It depends. If revenue-based redemption tracked the cost of reimbursing a partner for distressed inventory, it might look pretty good.

      • Brian C. Lee

        But what would award charts and availability look like? If they charge, say, 300K miles to Europe in F, for example, that would be terrible. Or, even if they keep award charts reasonable, if they go Delta in terms of availability, that’s terrible, too.

        European FF programs are starting to look better to me, even with YQ (which I’m willing to pay if availability’s there), since they don’t print miles like the US programs do. I’d bet they’re less susceptible to this kind of thing. Chase UR and AmEx MR are also looking better.

  • BFrankley

    There’s nothing good about making changes to a plan that’s already good. I don’t like your headline, and I don’t like any of the proposed changes. You’re endorsement of the negative possibilities is troubling.

    • Scottrick

      I think it’s naive to say there’s no room for improvement. It’s a good program, and it might be possible to make it better. Without seeing the actual plan — if any — it’s difficult to judge. I explained some ways these changes could be better and pointed out some ways they could be worse.

  • Manik

    Revenue good? You got to be kidding me.

    Redeem alaska miles on cathay biz/first for just 2 million points.

    Emirates first 3 million points.

    Credit card sign up bonus 50K.

    • Scottrick

      We don’t know what the chart would look like. Southwest lets you earn and redeems flights based on the cost of the ticket, but it does use different earning and redemption rates for each fare class.

      Since award flights generally reflect distressed inventory, their cost to the program does not equal the retail price. It’s entirely possible that we could still see good redemption opportunities for premium cabins on partner airlines.

      But this is all speculation, and now we’re getting more specific. All I intended to do with this post was point out that not all changes to a revenue-based program are bad.

  • Darth Chocolate

    One thing a lot of people do not understand is that carrying FF balances count on the “Liability” side of a balance sheet. That is, there is a real cost to companies to “give away” miles.

    What is commonly called “devaluations” is simply a way for airlines to reduce the Liabilities side of the ledger. So there is an upside to a company when they raise redemption rates.

    All of this is a fancy way of saying “There ain’t no such thing as a free lunch”

  • Carl

    I hate the notion that I might be forced to put my non-AS spending on the AS card to maintain AS status.

  • retirement trip ruined

    I have 325,000 miles which my husband and I had planned to use for business class flights to South Africa to celebrate my retirement next year and his 70th birthday. We learned this week that since January, 2014, it has become practically impossible to use miles to fly business internationally. What happens is that you “buy” the business class on Emirates, say, spending rount trip 150,000 miles each but your tickets will say “mixed cabins” – in our case it was first class from Seattle to LAX (a 2 hour flight I make many times a year) and then coach from LAX to Dubai and coach from Dubai to Johannisberg. When we called Alaska we were told the partner airlines are no longer releasing business class seats until very shortly before the flights. Our chances of being upgraded on the long legs of our journey are tiny – what happens if we spend our miles and added cash and do not get upgraded? NO REFUND! No refund of miles or cash. Not taking that chance. We will not fly internationally in coach so our miles have become useless to us.
    Alaska did not send out any warnings last year which would have enabled us to use our miles for a final great trip before the devaluation of our miles.
    I have been a loyal Alaska customer for decades but now my loyalty is done – I feel scammed and my husband is bitterly disappointed we cannot have the South African vacation we dreamed about.