For Airlines, Loyalty In Hard Times

William Calvache flies more than 100,000 miles a year, visiting the major cities of South America, as well as the United States, as part of his job as chief financial officer for SunChemical Latin America. Calvache has established a number of frequent flyer accounts. But his program of choice is with the Brazilian carrier, TAM’s Fidelidade. “Since I’m based in Brazil, it provides me better coverage in Latin America,” Calvache said.

Calvache flies coach. But he likes the ability to check extra luggage for free and redeem TAM points for travel. “I am using them for vacation travel for my family,” said Calvache.

Travelers like Calvache show that loyalty programs have significant impact on how passengers book flights, usually sticking with just one carrier. In the current economic crisis, which has particularly affected the more profitable business-travel sector, airlines are hoping such programs will help them retain customers.

American Airlines launched the first frequent flyer program 28 years ago. It is hard to recall what air travel was like without these programs. Today even low-cost, no-frills airlines find it necessary to offer loyalty plans to encourage repeat business.

“One important point, especially in a crisis, is that this [program] acts as a counter-cyclical factor to incentivize clients to fly,” said Libano Miranda Barroso, vice president of finances at TAM in São Paulo. It may also foster off-peak travel, such as by requiring fewer points for flights in the middle of the day.

TAM introduced its loyalty program just 15 years ago. Barroso said these programs were slower to take hold in Latin America, their development hampered by an environment of economic uncertainty.

Loyalty programs have expanded across the globe as airlines have banded together in alliances.

Another Brazilian airline, GOL, just signed a code-share agreement and frequent flyer program relationship with American Airlines in early July. Chile’s LAN is already part of the oneworld alliance with American. Copa Airlines has a partnership with Continental Airlines.

Kelly Hlavinka, a partner in Colloquy, a Cincinnati company that does research, consulting and publishing on loyalty program, said current economic crisis is affecting frequent flyer behavior.

Hlavinka said that their research has shown that loyalty program participation is very strong in North America, but there has been a slight decrease in the number of memberships.

“That makes sense to us,” said Hlavinka. “As companies cut back on travel and entertainment expenses, it’s natural that the frequent flyers and the frequent guests might start to concentrate their participation in a specific program.”

Travelers, including those on business, tend to seek to maintain their frequent flyer status.

“Maintaining Executive Platinum status on American Airlines is even more difficult given travel cutbacks,” said Trip Barrett, vice president of marking in the Latin American Division at Starwood Hotels and Resorts Worldwide.

For Barrett, the complimentary upgrades, preferred check-in lines, lounge access and dedicated agents for reservations that American offers him, given his top-customer status, are crucial because they “enhance the travel experience.”

And travelers are also focusing on the different ways to build up miles.

“The fact that customers are able to earn miles in a variety of ways, with everyday spending, has taken on even more importance,” said Sally Lechin, partner marketing manager for Continental Airlines. Lechin said that passengers continue to rely on OnePass rewards for travel on Continental and its alliance partner Copa Airlines as “a cost-effective way to travel.”

The package of benefits associated with frequent flyer programs expands depending on the amount of travel in a given time period, such as a year. At the most basic level, travelers accumulate miles or points that may be redeemed for future travel, usually with a fee to book the trip, plus applicable taxes.

Busy executives who fly often enough to earn elite status may take advantage of perks like preferred check-in status, a valuable time-saver in a post 9/11 world.

At crowded Miami International Airport, members of American Airlines gold status or above are offered priority access, allowing them to save time by going through a dedicated security line.

But even the highest elite status cannot help all the time. Upgrades on high-demand flights, like Monday morning from Miami to Mexico City are nearly impossible to secure: Business Class is already full with paying customers.