Air France / KLM (might) be going revenue based.

A few days ago, on Flyertalk, a poster spotted some changes to how Air France / KLM’s frequent flyer programme, Flying Blue, earned miles for flights from May 2018 onwards. They appeared to be a new way of earning miles based on the price of the ticket, as opposed to the distance – this is known as a revenue based programme.

To those of you that live in the US and have an account with one of the three big airlines of American, Delta or United, this is old news to you as they made this switch a few years ago.

It appears that Air France / KLM will be the first of the large European airlines to change their programme in this fashion.  However let me break things down into the three key elements of any frequent flyer programme and look at what this means.

Earning miles

This is the change that seems to have been inadvertently announced by Air France.  Instead of earning miles based on the distance of the flight, with a multiplier (upwards or downwards) based on fare class, it seems to be based on the Euro value of the ticket.

  • 4 miles per € for Ivory members
  • 6 miles per € for Silver members
  • 7 miles per € for Gold members
  • 8 miles per € for Platinum members

Firstly, like all of the US programmes, there’s a multiplier for status, a platinum member will earn more than a ivory member.

However, looking at the Lufthansa Miles & More programme as a comparator, they already have something very similar in place already, based on fare class.

Their chart looks like this:

First Class
A, F:
3.0 x distance; at least 1,500 miles

Business Class
C, D, J:
2.0 x distance; at least 1,000 miles
Z: 1.5 x distance; at least 750 miles
P: 1.0 x distance; at least 500 miles

Premium Economy Class

E, G: 1.5 x distance, at least 750 miles
N: 1.0 x distance, at least 500 miles

Economy Class
B, Y:
1.5 x distance; at least 750 miles
H, M, U: 1.0 x distance; at least 500 miles
Q, S, V, W: 0.5 x distance; at least 250 miles
K, L, T: 0.25 x distance; at least 250 miles

That’s clearly a lot more complicated than a straight € to miles ratio, but it’s remarkably nuanced going from 0.25x all the way to 3.0x.  Some business class tickets earn less than economy class, which when we look at a promotional fare is probably about right, compared to a fully flexible economy ticket.

The US airlines didn’t have this level of nuance when they moved to revenue based models as nearly every flight earned 1 mile regardless of fare class.  They were too frightened of devaluing their programmes by introducing the same tiering that the European carriers by and large have.

Earning status

Airlines have a variety of different approaches to this.

  • British Airways and Virgin Atlantic have the concept of tier points which are aligned to the cabin you travel in
  • Miles & More uses the concept of ‘Status Miles’ and Flying Blue uses the concept of ‘Level Miles’
  • The US airlines have the concept of ‘Elite Qualifying Miles’, albeit they each have a slightly different name across each programme

However, the US airlines have broadly instituted a minimum dollar amount (with a few exceptions) and the concept of ‘Elite Qualifying Dollars’.  Meaning you need to both fly a certain amount of miles AND spend a certain amount of dollars to renew your status.

Given the complexity of tracking spend, the US airlines have a whole bunch of ways of earning EQDs that aren’t related to a dollar spend.  These mainly rely on flying partner airlines where it’s not possible (or a lot harder) to track this.

It is unknown if Air France / KLM will be requiring this minimum Euro spend to get to a certain status level, in addition to earning miles based on a certain € spend.  They could be dipping their toes in the water with revenue based earning and seeing how things go to start with.

Spending miles

This is one area where no airline has gone truly revenue based, yet.  Although Delta have come the closest.

Most airlines, when you spend your miles, there is a zone based award chart – for example it might cost 60,000 miles to travel one way in business class between Europe and North America.  There are a number of variations on this with some programmes allowing connecting flights, and others charging per segment.  Also, some airlines have on and off peak pricing, but the core concept holds.

A revenue based programme would be to assign a £, € or $ value to your miles and use that against the cost of a ticket.  Most airlines already allow you to part pay in the way and it’s typically terrible value to do so.

But the core attraction of frequent flier programmes is the promise of a disproportionately large award; business or first class by only playing with miles.

As soon as you assign hard currency to your miles pot, you’re simply turning it into a pseudo-currency that has a whole bunch of restrictions that you don’t get with real cash.

It’s this possibility for arbitrage that makes the whole concept of frequent flier programmes attractive.  It why I don’t use the Accor Hotels frequent guest programme.  When you get to a certain number of points, you simply get a fixed € voucher for money off a stay.

However Delta is getting very close to this fully revenue based model:

  • There are no award charts
  • Awards close to departure become more expensive
  • Travel with partner airlines is more expensive than on Delta
  • Hub to hub routes cost more than connecting itineraries where there’s greater competition, more accurately reflecting the $ cost of the flights
    i.e. Detroit to Atlanta is more expensive than Chicago to Detroit to Atlanta using SkyMiles

Again, it will be interesting to see what Air France / KLM try here however would be surprised if they change this element of their programme.

Conclusion

The ultimate aim of a frequent flier programme is to change behaviours.  It is to incentivise you to book more than you otherwise would.  It’s also a great tool for upselling and for customer data mining.

I think the changes that Air France / KLM are implementing will have the opposite effect, and instead simply reduce their cost base, due to them handing out fewer miles.  This may well be one of their corporate aims.

But if you’re travelling for work every week and have a corporate route deal (for say Paris to New York), you’re unlikely to have a choice of carrier and you’re unlikely to going to be increasing your frequency of travel.  You may just be rewarded better.

Indeed, it’s arguably bad business to increase the rewards to these travellers as they have no choice about carrier, and the firm are probably getting a hefty corporate rebate as well at the end of the financial year.  Although that rebate probably a different cost-centre within the airline so won’t show against the frequent flier programme’s P&L.

A leisure traveller that does have a choice, may well end up earning less, and ultimately switching to the competition as a result.

It will also be interesting to see if the Lufthansa Group / Mile & More and the IAG/Avios aligned airlines make the change.  As I mentioned earlier, Lufthansa already has a very revenue-based earning programme and they have been quite conservative generally.  I think they will wait and see.

I can see British Airways’ Executive Club using this as an opportunity to tweak their programme and reduce costs to the Avios group in buying miles.  They already increased the price of redemptions and reduced earnings on the lowest fares back in 2015 and can see them using this as a further opportunity to do so.  Whether they should or not, is an entirely different question.

 

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