Were We Alaska’s Worst or Best Customers? Does Avianca’s New CEO Choice Provide a Clue?

The Alaska March surprise was a no-notice drastic increase to award rates on partner Emirates. There were howls or betrayal and calls to restore unreciprocated trust.

Alaska’s initial responses have blamed the customer, specifically the ‘travel hacker.’ This, of course, is us, the people who have rarely flown Alaska, except perhaps to use their credit card’s annual companion certificate.

Alaska Why Making this Change

Leeches we are, not flying the airline, taking advantage of credit card offers and buy mileage promotions to redeem on Alaska’s partners. Why not cut us off?

Yet is that wrong? In moves to spinning off frequent flyer programs and shifting to revenue-based programs, comments from airlines about the value they get from all their other channels suggest that actual paid flying, other than high-end premium cabin, is perhaps the least profitable thing their customers do to them.

Alaska’s 2012 investor day revealed that less than ~1.4% of Alaska miles are redeemed for first or business class travel on partner airlines other than American and Delta. The 2015 investor day highlights 11% growth in credit card membership along with a new agreement with card issuer Bank of America that is adding $60m in incremental annual revenue.

We require nothing of Alaska other than to have a functioning website and call center, essentially a travel agency. We pay Alaska to book discounted tickets they have used their size to negotiate bargain rates with partners. For many of us, if their planes didn’t exist, we wouldn’t notice.

Avianca just hired a new CEO from Microsoft, with no aviation experience:

Avianca did not choose a CEO to manage takeoffs and landings and inspect an A320’s vertical stabilizer. The company’s board of directors, led by chairman German Efromovich, chose someone to implement a visionary strategy for interacting with passengers digitally. This means everything from sophisticated, analytics-driven methods of pricing and selling Avianca’s core product—seats on flights—to using the airline and the passenger’s journey as a platform to sell a wide array of services. And using websites and mobile apps to provide the passenger with information that will make his or her air travel experience better and easier.

The piece cites a Motley Fool Interview with Volaris’ CEO, which lays out his vision for ancillaries:

…And then there’s a third avenue, which is much more touch-points to sell throughout our customer journey. We have identified opportunities to sell products and services around this traveler’s journey, which will allow us, for example, to have better presence on volaris.com and the mobile apps. It will allow us to sell more — I mean we just launched an application that’s selling at the airport: at the counters and at the gates. We strongly think we can really improve our onboard variety of products and start selling taxis and hotels and everything onboard, and then use that for a platform to sell in call centers. This whole thing we just launched. And then finally OTA [online travel agencies] and travel agencies, there’s a good possibility for us to keep on expanding ancillaries there.

Avianca already is a pioneer in this area. From regional Latin American airline they have made inroads into North America not with their flights, but with their LifeMiles program and aggressive (and presumably, profitable) mileage sales. How much profit have they gotten from customers that otherwise may not have ever given them a look? I don’t think Avianca cares if any of us every fly them if they can keep being our travel agency.

Readers, weigh in!

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Pingbacks

  • I’m going to start my own airline. It won’t have any actual planes, but it’ll have a frequent flier program that lets you redeem for flights on partner airlines. And the credit card will offer 50,000 miles after you make $3,000 in purchases in the first three months.

  • Jason

    My comments are not directed the AS elite that earns with a lot of BIS miles and now has lost a lucrative reward for their loyalty. I agree with what you’re suggesting and truly believe that the airlines make money from their FF programs. However, IMHO they are at their core a “frequent flier” program and the outrage from the gamers/bloggers/hackers/moochers is downright silly as they are upset that Alaska will not let them book a $25k ticket for 180k miles anymore (a mere six cc apps). It’s still better to buy the 400k miles than outright pay for EK F in some cases. I just think in this hobby you follow the deals. A great one just got shut down. We should move on and keep our mouth shut because it’s ridiculous for someone that exhibits no loyalty to Alaska Airlines is going to get on a soap box and rip AS for screwing them over via the loyalty program as many bloggers have done in the last couple days.

  • Rapid Travel Chai

    @Jason – I wondered why people thought this airline was not going to act like all the others.

  • Shannon

    Well said, you are brilliant.

  • Pingback: A Former Airline CEO Tells You How to Get the Cheapest Fares and More - View from the Wing()

  • Eddy

    @Jason I agree completely. As fun as it is to collect points and miles, the programs “ought” to serve their flying members. Perhaps a better soln would be to limit premium redemptions to actual flyers, like AF does.

    With that being said, I have a small stash of AV miles and the USB cobrand card (does that make my loyal?). I hope this change in mgmt doesn’t deval my 50k miles or nix the points and cash option 😉

  • Alaska and Avianca are actively marketing their frequent flyer miles as a product nearly distinct from actually flying their aircraft, and they are making significant money from it. Airlines across the world are realizing more and more, it is not just about getting from point A to B, just as you point out, Stefan. Besides, an unregulated currency that has no tether to really anything (vice a gold standard for example), seems like an amazing amount of opportunity for profit. It’s almost as good as printing greenbacks! The challenge however, is that there has to be some level of trust. How can I trust Alaska when they hold all the leverage, and have a history of not providing advance notice to program changes? If I can’t trust Alaska, then why would I invest real money in buying miles for an award, if tomorrow it could be twice as expensive, or the partner I had been wanting to fly on, is suddenly no longer an option?

  • Jamie

    I think that Trevor makes a very relevant point. As does Stefan’s entire article. It’s as if Alaska are talking two different stories at the same time. On the one hand look how much money they’re making from selling miles and with their BofA partnership. On the other hand they blame travel hackers for taking advantage of the award chart that Alaska devised and published themselves. It’s not so much a matter of trust in the sense that we are supposed to be real friends with Alaska, but if you want to base your business on selling miles, how can you expect people to buy them when they have no real guarantee that they won’t devalue, and that also (crucially) they have seen that you WILL devalue them with no notice, not just that it is a theoretical possibility.