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Are we entering a new 'Golden Age' of creativity with loyalty programs?

Aug. 27, 2020
11 min read
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The world of loyalty programs has been upended by the ongoing coronavirus pandemic. With virtually every major airline and hotel program extending elite status — and several launching promotions to spur new business — it's hard to predict exactly what these programs might look like in the future.

However, some recent announcements point to an encouraging trend.

Is it possible that in the midst of all of the challenging, awful things many of us are dealing with in 2020, that the small sliver of the dark cloud is that we're entering a new "Golden Age" of loyalty programs?

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Innovations in frequent flyer programs

Recently, we learned details of Air Canada's long-anticipated new Aeroplan program, slated to officially launch on Nov. 8, 2020. While it wasn't all positive, there were several new developments worth getting excited about:

The Aeroplan program already showed this penchant for creativity early in the outbreak. It not only extended status for its loyal travelers but allowed existing elites to gift status to a friend or family member. It also gave non-elites the option to earn status through non-flight activity — including transferring points from programs like American Express Membership Rewards and Capital One.

Some of the award chart changes in the new program aren't nearly as positive, but Air Canada has clearly shown an outside-the-box mentality — and one can certainly hope that it continues.

Making stays simpler, more all-in-one

The last decade has brought with it a move to a la carte pricing model in the world of travel ... even award travel when you are using your miles and points to be rewarded for your loyalty.

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Added costs — from resort fees, parking fees, extra-guest fees, seat assignment fees, carry-on bag fees and fuel surcharges (to name a few) — have become the unwelcome norm. But in recent months, there's been a glimmer of hope that, unlike the airlines, hotels at least may be making a shift.

The World of Hyatt already didn't charge resort fees on award stays, or even parking fees on award stays for its top-tier Globalist guests. But right now, Hyatt isn't charging parking fees for any of its guests who are staying on points. Combined with no resort fees, that makes for a fee-free stay.

The World of Hyatt also introduced a buy-one, get-one promo for those staying on points at its all-inclusive, wellness-oriented Miraval properties. In that scenario, your meals and many activities are also included. And when the high-end Alila Ventana Big Sur property became all-inclusive, it stayed on the standard award chart at 30,000 Hyatt points per night.

While not definitive proof of a simpler path with hotel stays, it's hope.

Miraval Berkshires (Photo courtesy of Zach Griff/The Points Guy)
Miraval Berkshires (Photo courtesy of Zach Griff/The Points Guy)

Options to convert travel funds to miles

Another notable (and creative) opportunity came from Southwest Airlines and Alaska Airlines.

Southwest Airlines was the first major carrier to launch a funds-to-points conversion option — which was announced as part of extending Rapid Rewards elite status and formally launched on Aug. 10. And while that opportunity won't make sense for all travelers, it's a way to keep things simple with one pile of points, rather than different credits here and there.

Then Alaska Airlines took things a step further.

Some members were targeted for a conversion rate of $1 = 100 miles, which is essentially using your wallet credits to "purchase" Alaska miles at 1 cent apiece. This is not only well below TPG's most recent valuations; it's also a big drop from the lowest price we've ever seen on buying Alaska miles (1.72 cents during a 60% bonus, though the carrier will launch a 70% bonus on Oct. 5).

Reports from TPG readers and others indicated three options:

  • Conversion to miles (ranging from $1 = 40 miles to $1 = 100 miles)
  • Conversion to elite-qualifying miles (ranging from $1 = 4 EQMs to $1 = 10 EQMs)
  • Conversion to a certificate that can't be used until mid-2021 with a bonus $ amount (ranging from 10–50%)

Here's how an Alaska Airlines spokesperson described these new options in an email to TPG:

"We're exploring ways to give our guests more options for their existing travel credits if they don't have plans to travel right away."

And the certificate conversion? It's essentially an airline Certificate of Deposit (CD), where you lock away your money for a year in exchange for interest (in the form of bonus value, anywhere from 10–50%).

Points for creativity all around — especially with funds that may simply sit in a member's account, unused, for months or even years to come.

(Photo by Ryan Patterson / The Points Guy)

More personalized rewards

Our lives all changed this year. And for many of us, life will never look exactly the way it did before. Thankfully, many credit card companies met cardholders where they are with more options for redeeming annual travel or resort credits that extend beyond the road and into the home.

We also saw more point-redemption opportunities, such as the temporary ability to redeem Chase Ultimate Rewards points at up to 1.5 cents per point for grocery and home improvement purchases through the issuer's Pay Yourself Back feature.

This summer, the Capital One Venture family — featuring cards such as the Capital One Venture Rewards Credit Card — also introduced new redemption options, allowing cardholders to use miles to offset food delivery and streaming service charges made over the last 90 days (through Sept. 30). Rather than replacing existing rewards, these were in addition to the regular transfer partners, travel redemptions and more.

Now, a "choose your own" bonus isn't entirely new territory, as the no-annual-fee Bank of America® Customized Cash Rewards credit card has (for years) allowed cardholders to choose a 3% cash-back category from gas, online shopping, dining, travel, drug stores or home improvement/furnishing (hint: pick online shopping) This applies to the first $2,500 in combined choice category/grocery store/wholesale club purchases each quarter, then earn 1%. Loyalty programs such as Marriott Bonvoy and Delta SkyMiles also allow elites to choose an annual benefit from a list of options.

But, we are seeing clues that the path forward for rewards and loyalty programs may bring with it even more personalization, giving you options to earn and redeem in the ways that make the most sense for wherever life takes you.

More paths toward elite status

Perhaps the most innovative announcement we've seen since the world turned upside down comes from a program across the pond.

Starting Sept. 1, 2020, Virgin Atlantic will begin counting select award tickets toward elite status qualification with its Flying Club program — a massive departure from the normal procedure. While most major hotel chains include award nights in qualifying for elite status, this is the first airline program to take this step.

While creative, it also has a solid business case behind it.

In the simplest financial terms, outstanding miles are classified as a liability on an airline's balance sheet, and the carrier recognizes revenue when they are redeemed. For Virgin Atlantic-operated awards — the only ones that will count toward Flying Club elite status at this time — there's even more of a profit component: fuel surcharges. Even economy award tickets will add these, though Upper Class redemptions can carry much larger fuel surcharges eclipsing $1,000.

RELATED: Save money on Virgin Atlantic award tickets by booking one-way flights

Additionally, keep in mind that elite perks only really cost the airline money if they are used. And to make use of the elite perks, the traveler would have to fly more on Virgin Atlantic, which would again be a win for the airline.

While not quite as creative as what Virgin Atlantic has done, we have seen some airlines make the path to elite status easier by way of their cobranded credit cards. For example, United has increased the number of Premier Qualifying Points (PQPs) you can earn with cards such as the United Explorer Card and United Club Infinite Card. And American Airlines has made it possible to earn toward Million Miler status with credit card spending in 2020.

And most recently, Delta has introduced new promotions for select cobranded credit cardholders to earn bonus Medallion Qualification Miles (MQMs) to the tune of 500 MQMs for every $1,000 spent — up to 25,000 MQMs through the end of 2020.

Could this all be temporary?

Virgin Atlantic is permanently changing its approach to award tickets, but with other adjustments stick around? (Photo by Nicky Kelvin /The Points Guy)

In its announcement, Virgin Atlantic indicated that counting award flights toward elite status was (in fact) a permanent change to the program — though most carriers' contracts of carriage (essentially) allow them to make any update, adjustment or overhaul to their respective frequent flyer schemes at any time. But how likely is it that these will stick? And will other carriers begin looking at creative ways to reward loyal travelers?

Well, they may have to.

Some analysts are estimating that global air travel won't rebound until 2024 — four years from now. With one valuation pegging a popular U.S. loyalty program somewhere between $18 and $30 billion, it's clear that these currencies have significant value for their corporate parents. In fact, the credit card issuers pre-purchasing points and miles is providing major assistance to cash-strapped companies in the travel industry.

With demand still way down and operational profitability a long way off, leaning into a loyalty program may be one of the most significant strategies an airline or hotel chain can use to set itself up for long-term success.

Bottom line

Most of us probably wish we could go back to our pre-March lives and routines.

But, since that isn't an option right now, the small upside may be a renaissance of creativity from loyalty programs that have every incentive to keep their program members engaged. In some cases, the frequent flyer program themselves are much-needed, multi-billion-dollar assets to the airlines ... but that only remains true if the programs can retain relevancy and engagement in an ever-changing world.

In other words, while U.S. Airways is no more, we'll anxiously await the return of a similar, U.S. Airways Grand Slam-type promotion that gets members excited and invested in future travel, even if they aren't yet ready to take to the sky.

Featured image by Getty Images
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.