Posted by: Alina Comoreanu

Airline loyalty is a fickle beast, with most travelers willing to jump to another jet for the slightest of discounts. Nevertheless, roughly 7% of flights are paid for with points or miles, so there’s obviously value in committing to a carrier.

With that in mind, WalletHub compared the 11 largest domestic airlines’ loyalty rewards programs in terms of their expected value for Light, Average and Frequent flyers. We did so using 23 key metrics, ranging from the value of a rewards point or mile to blackout-date policies. You can find our analysis below, along with a tool to customize the results based on your own airline budget.

1. Personalized Recommendation
2. Main Findings
3. Detailed Scoring
4. Ask The Experts
5. Methodology

Personalized Recommendation

Just enter your annual air travel budget below, and we’ll use the report’s methodology to find your optimal frequent flyer program.

Annual Amount Spent On Airline Travel Best Program Delta Air Lines WalletHub Score: 59.37 Runner-up Virgin America WalletHub Score: 52.85

Main Findings

Delta SkyMiles is the best frequent flyer program for the second straight year, earning an average WalletHub score of 59.90% in the three usage scenarios.

 

Hawaiian Airlines offers the most rewards value ($21 per $100 spent), with Alaska Airlines coming in a close second ($20 per $100 spent).

 

Three of the 10 largest airlines offered more rewards in 2017 than in 2016, sweetening the pot by an average of 40%.

*Sun Country Airlines is not represented in the chart, as it was not included in our 2016 report.

Delta Air Lines and JetBlue Airways are the only two major airlines whose miles do not expire because of inactivity.

 

8 out of 11 airlines do not impose blackout dates on tickets purchased with miles.

 

45% of airlines will retroactively credit members with miles earned on a flight for up to 12 months after the fact.

 

7 out of the 11 largest U.S. airlines allow rewards-program members to earn and redeem miles with partner carriers.

*The following airlines are not represented in the chart, as they do not have frequent flyer partnerships with other airlines: Southwest, Frontier, Sprit, Allegiant and Sun Country airlines.

 

Airline miles cost an average of 62% more than they’re worth when purchased rather than earned.

*Sun Country Airlines does not allow for the purchase of miles.

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Detailed Scoring

The following table illustrates the number of points that each airline rewards program received in the scoring categories included in our methodology.

Scoring Categories	Maximum Score	American Airlines	Delta Air Lines	Southwest Airlines	United Airlines	JetBlue Airways	Alaska Airlines	Spirit Airlines	Frontier Airlines	Hawaiian Airlines	Virgin America	Sun Country Airlines
Number of daily flights	7.00	7.00	5.87	4.06	4.74	0.93	1.22	0.38	0.24	0.17	0.18	0.00
Number of countries served	5.00	4.73	5.00	0.56	4.82	1.83	0.20	1.38	0.20	0.56	0.02	0.56
Number of destinations served	5.00	5.00	4.75	1.19	5.00	1.24	1.52	0.54	0.60	0.12	0.04	0.26
Partner airlines earning and redemption	3.00	1.69	2.04	0.00	3.00	0.27	1.19	0.00	0.00	0.50	0.31	0.00
Number of daily flights	3.00	1.56	2.37	0.00	2.31	0.25	3.00	0.00	0.00	0.47	0.42	0.00
Number of countries served	1.00	0.62	0.73	0.00	1.00	0.13	0.60	0.00	0.00	0.18	0.17	0.00
Number of destinations served	1.00	0.63	0.78	0.00	1.00	0.09	0.69	0.00	0.00	0.20	0.16	0.00
Value earned -Frequent Flyer	20.00	5.07	6.02	6.46	4.83	9.99	18.40	0.45	6.05	20.00	15.09	5.38
Value earned - Average Flyer	0.00	3.51	8.61	9.25	6.91	1.18	18.28	0.65	8.65	20.00	12.45	7.70
Value earned - Light Flyer	0.00	8.37	9.63	15.83	8.05	5.33	17.13	0.42	15.06	18.62	20.00	13.82
Miles expiration	7.00	1.87	7.00	2.60	1.87	7.00	2.60	0.04	0.40	1.87	1.87	4.07
Booking blackout dates	7.00	7.00	7.00	7.00	0.00	7.00	0.00	7.00	7.00	7.00	7.00	0.00
Advance booking	3.00	2.63	2.63	0.87	2.69	1.91	2.62	1.93	0.92	2.63	2.62	1.69
Short-notice booking fee	3.00	0.00	3.00	3.00	0.00	3.00	3.00	0.00	0.00	3.00	3.00	3.00
Earning limits	2.00	0.00	0.00	2.00	0.00	2.00	2.00	2.00	2.00	2.00	2.00	2.00
Earn miles when booking through 3rd party websites	6.00	6.00	6.00	0.00	6.00	6.00	6.00	6.00	6.00	6.00	6.00	6.00
Layover in award flight	5.00	0.00	0.00	5.00	5.00	0.00	5.00	5.00	0.00	0.00	5.00	5.00
Expired-mile reactivation	1.00	0.00	1.00	0.00	0.00	1.00	0.00	0.00	0.00	0.00	0.00	0.00
Retroactive flight credit for members	3.00	1.29	0.86	1.29	0.43	1.29	1.29	0.00	0.43	0.14	1.29	0.00
Retroactive flight credit for non-members	1.00	0.00	0.00	1.00	0.00	1.00	0.00	0.00	0.45	0.27	0.00	0.18
Award-ticket redeposit fee	3.00	0.00	0.00	3.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Ease of achieving elite status	3.00	0.71	0.35	1.04	0.96	2.43	1.77	2.47	3.00	2.47	1.39	2.43
Transferring miles between accounts	1.00	0.00	0.00	0.00	0.00	1.00	0.00	0.00	0.00	0.00	0.00	1.00
Membership perks - Frequent Flyer	5.00	3.50	3.67	1.50	4.50	3.00	4.00	0.67	1.00	3.67	4.50	3.50
Membership perks - Average Flyer	0.00	0.00	3.67	1.50	4.50	0.50	3.17	0.67	1.00	2.67	0.00	0.00
Membership perks - Light Flyer	0.00	0.00	0.00	1.50	0.00	0.50	0.00	0.00	0.00	0.00	0.00	0.00
Purchasing Miles	5.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	5.00
Score not based on consumer spending	0.00	40.73	49.36	32.61	38.82	38.37	32.69	26.74	21.25	27.58	31.45	31.20
Frequent Flyer Score	0.00	49.30	59.05	40.57	48.15	51.35	55.09	27.85	28.30	51.24	51.04	40.08
Average Flyer Score	0.00	44.24	61.64	43.36	50.23	40.05	54.14	28.05	30.90	50.24	43.90	38.90
Light Flyer Score	0.00	49.10	59.00	49.94	46.87	44.19	49.82	27.16	36.30	46.20	51.45	45.01

*Alaska’s partnership with Delta is ending in April 2017 **Virgin America Elevate members can now convert their points to Alaska Airlines Mileage Plan miles for redemption on the Alaska Airlines network, following Alaska Air Group’s December 2016 acquisition of Virgin America.

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Ask The Experts: Assessing The Value Of Frequent Flyer Programs

With a quantitative analysis in hand, we turned to a panel of leading hospitality and consumer studies experts to learn more about the inner-workings of frequent flyer programs and how they affect the way we travel. You can check out their bios and responses to the following questions below.

1. Who benefits more from airline rewards programs: consumers or the airlines themselves?
2. To what extent do airline rewards programs influence consumer behavior?
3. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty?
4. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years?
5. Why are each airline's miles worth different amounts? How does this affect consumers?

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• Nada Nasr Associate Professor of Marketing at Bentley University
• Alan Dick Chair and Associate Professor of Marketing at University at Buffalo, School of Management
• Z. John Zhang Murrel J. Ades Professor of Marketing and Director of the China Center in the Wharton School of the University of Pennsylvania
• Edward Fox Associate Professor of Marketing, Corrigan Research Professor, and W.R. & Judy Howell Director of the JCPenney Center for Retail Excellence at Southern Methodist University, Cox School of Business
• Jeffrey F. Durgee Associate Professor of Marketing in the Lally School of Management & Technology at Rensselaer Polytechnic Institute
• Brian Sheehan Associate Professor of Advertising in the S.I. Newhouse School of Public Communications at Syracuse University
• Jonlee Andrews Clinical Professor of Marketing and Nestle Faculty Fellow in the Kelley School of Business at Indiana University
• Julie Ann Edell Associate Professor of Marketing in the Fuqua School of Business at Duke University
• James R. Wills Jr. Professor of Marketing in the Shidler College of Business at University of Hawaii at Manoa
• Bruce E. Pfeiffer Associate Professor of Marketing in the Peter T. Paul College of Business and Economics at University of New Hampshire
• Jean-Pierre Dubé Sigmund E. Edelstone Professor of Marketing at the University of Chicago Booth School of Business
• Raphael Thomadsen Associate Professor of Marketing in the Olin School of Business at Washington University in St. Louis

Nada Nasr Associate Professor of Marketing at Bentley University What can Valentine’s spending trends tell us about consumer confidence and the health of the overall economy? Not much! Valentine's is about romantic relationships but is also a ritual. There are three types of motivations to offer gifts on Valentine's Day: (1) obligation, (2) actual romance, (3) non-romantic altruistic, e.g., toward family members and friends. While the first and third might be affected by the health of the economy, the second and dominant motivation (romantic) is hardly impacted by the economy. People who are in relationships bend back and forth to get something "decent" for the person they are in love with. Studies show that gift-giving involves different dynamics from regular spending. Gift givers are mostly interested in the impact of any gift they give on their relationship with the gift receivers. This is particularly true in the case of romantic relationships. Hence, the economic factor becomes less important. Despite the economic crisis in 2008, Valentine's Day sales did not significantly drop from previous years. What are some tips for celebrating Valentine’s Day on a budget? The good old saying "it's the thought that counts!" Valentine's Day occasion and related "gifts" are special. Many gift receivers may actually prefer personalized gifts over the classical ones of chocolate, roses, wine, and jewelry. Studies show that, in romantic relationships, people prefer receiving gifts where the giver had "put effort into." Hence, hand-made cards, cooking for someone, etc. might be good ideas. Other than the tangible gifts, showing affection through expressing care, spending more time together, and being extra attentive or doing little special things together such as putting up a fire or playing a round of scrabble might be greatly valued. Valentine’s Day falls on a Sunday this year -- how might this impact how people plan to celebrate? It can go both ways as people will have a greater opportunity to go out and celebrate outside homes but also gives people the wonderful opportunity of spending more time together and showing affection at home while enjoying slow-paced activities such as watching a movie, building up a fire or playing a game; something they do not tend to have the time to do in our fast-paced society on a different day. Who spends more on Valentine’s Day, men or women? Usually it is men; roughly men spend twice as much as women on Valentine's Day. A good reason is the norm/ritual aspect. Men are expected to buy Valentine's Day gifts and give them while women are more expected to be receivers of gifts. Of course, this is cultural and is different in other countries (e.g., South Korea) but this is how it is in the USA. What post-Valentine’s Day deals should savvy shoppers take advantage of? Usually, post-Valentine's Day deals are of interest to those whose motivations are either obligation or altruism. Those in romantic relationships tend to take it one Valentine's Day at a time. Few of those in romantic relationships might take advantage of post sales, mainly those in very stable relationships, e.g., married couples. Alan Dick Chair and Associate Professor of Marketing at University at Buffalo, School of Management Who benefits more from airline rewards programs: consumers or the airlines themselves? Both benefit, although types of consumers enjoying that benefit is changing. Airlines are changing the rules of these programs where previously they used fixed reward schedules where consumers knew the number of miles required to earn a free trip and that number was fixed. Increasingly, these rules are changing with some focusing more on the amount of money a customer spends rather than the number of miles flown and others that alter the number of points required depending on the timing of the reward flight. To what extent do airline rewards programs influence consumer behavior? They still have some impact on consumer behavior; that impact is decreasing and I foresee that influence diminishing even more over time as the structures of the rewards programs change. As the benefits decrease, so does passenger loyalty. This is likely to be especially true for the less frequent flyers who find it especially more difficult to earn rewards. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? On one hand, you would expect that fewer competitors would lead to more loyalty as there is less choice for the consumer to exercise. On the other hand, since the benefits of the loyalty programs have decreased, there is less incentive for consumers, unless they are very frequent travelers, to engage in these loyalty programs. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? I suspect that the trends that we have seen over the last few years will continue. Z. John Zhang Murrel J. Ades Professor of Marketing and Director of the China Center in the Wharton School of the University of Pennsylvania Who benefits more from airline rewards programs: consumers or the airlines themselves? Most academic scholars tend to think that airline reward programs tend to foster customer loyalty and hence reduce price competition in the marketplace. This means that if you pay for tickets out of your own pocket, you may not like the loyalty program. If you travel on the company’s dime, you would like it, as you will be able to take your family to an exotic vacation for free after you spent enough. Airlines will surely benefit if you buy this thesis. However, given that making money is a rare thing for airlines until recently, some scholars also think that loyalty programs are a form of non-price competition and a huge liability that cut into airlines’ profitability, especially when customers all join multiple loyalty programs. I tend to favor the first school. Today, loyalty programs have essentially created a new currency and a whole economy for customers. To what extent do airline rewards programs influence consumer behavior? Loyalty programs are studied in the retailing settings and they are found to reduce consumer switching. For airlines, anecdotal evidence does suggest that travelers, especially on business, become less price sensitive, do less price comparison, and switch carriers less. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? This can be a double-edged sword for sure. On the one hand, loyalty miles become more useful for customers as they can more conveniently accumulate and use them so that inter-network competition is reduced. On the other hand, there might be more intra-network competition. However, the latter effect is much smaller as far as I could tell, as an alliance does screen airlines to make sure they do not compete directly. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? Two things will happen for sure. First, loyalty programs will become bigger and bigger with more and more complementary companies being included in the same network. Second, rewards will become more and more fungible as inter-network competition becomes more intense. In short, rewards will become more like a currency that can be traded and used everywhere. Edward Fox Associate Professor of Marketing, Corrigan Research Professor, and W.R. & Judy Howell Director of the JCPenney Center for Retail Excellence at Southern Methodist University, Cox School of Business Who benefits more from airline rewards programs: consumers or the airlines themselves? Today, consumers probably benefit more than airlines do. Airline rewards programs were intended to make flyers more loyal to an airline. But every airline developed a reward program, so there wasn’t much competitive advantage. But each airline still had to offer free flights and services to its members, which can be a problem with today’s high load factor. Another benefit of airline rewards programs is to make the program members less price sensitive. Airlines do benefit from this, though there are enough price sensitive flyers to keep prices relatively low. To what extent do airline rewards programs influence consumer behavior? The idea behind rewards programs is to influence flyers to be more loyal to the sponsoring airline and not fly whichever airline offers the lowest price. Rewards programs are effective in making a flyer more loyal, though not in acquiring competitors’ customers. This is much more effective for leisure flyers than for business travelers, whose decisions often depend on purchasing guidelines. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? If jet fuel prices stay low in the next 5 years, the reduced variable cost of a passenger will allow airlines to offer more attractive travel benefits. I would also expect airline rewards programs to be data-based, targeting customers based on their geography or travel patterns, maybe even their potential -- not just on miles flown. Jeffrey F. Durgee Associate Professor of Marketing in the Lally School of Management & Technology at Rensselaer Polytechnic Institute Who benefits more from airline rewards programs: consumers or the airlines themselves? Mainly the airlines. Like any marketer, they want repeat buyers, and these are good ways to lock people in. There are a lot of low fare specials, so consumers might not need the plans. To what extent do airline rewards programs influence consumer behavior? Depends. There are “all ins” or “all outs”. Former group probably swears by these plans, calculates every transaction they do in terms of expected miles. Latter group has the card, but really not into the whole scheme. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? Not much. A ride on a plane is a ride on a plane. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? In five years, not much change. In ten, I bet we’ll see even cheaper fares, bigger, more crowded planes. The service will be heavily commoditized. Airlines will need creative new rewards to motivate consumers. First class, second class, third, fourth? Brian Sheehan Associate Professor of Advertising in the S.I. Newhouse School of Public Communications at Syracuse University Who benefits more from airline rewards programs: consumers or the airlines themselves? They started out as a big benefit for the airlines because they created strong preference for the airlines, but once every major carrier had a similar program they really became a benefit for the consumer (and a big liability for airlines). Airlines have made the liability smaller by inflating their way out of the problem (i.e., asking for more and more miles to earn a trip), and by blacking out key days and flights that would be unprofitable for them to offer free flights on. Today, it is a mixed bag that isn’t ideal for the airlines or the consumers. To what extent do airline rewards programs influence consumer behavior? Significantly. People prefer the airlines where they have rewards cards. When they have multiple rewards programs, they prefer the ones they can earn the most miles on. Many consumers tie in their credit cards to their preferred programs, which makes that program highly preferred. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? They can impact airline loyalty very much. When US Air was part of United, US Air flyers preferred United. Now US Air (and its FFP program) has been consumed into American, so past US Air flyers prefer American. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? It all depends on mergers and acquisitions. When the industry becomes more competitive, the programs become more rewarding for consumers. When it becomes less competitive, the airlines take back benefits through inflation, blackout dates, etc. All things being equal, one thing is for sure, computers are now handling flight loads to the point where there are as few empty seats as possible, so it should be harder to get the exact free flight you want. Jonlee Andrews Clinical Professor of Marketing and Nestle Faculty Fellow in the Kelley School of Business at Indiana University Who benefits more from airline rewards programs: consumers or the airlines themselves? It depends on how “loyal” a consumer is. At the highest levels, the benefits and the treatment are incredible. But at lower levels, consumers are not likely to see upgrades, waived luggage fees, etc. To what extent do airline rewards programs influence consumer behavior? For any product or service, consumers come in “segments” – they are looking for different things when booking flights. Some want lowest price, regardless of airline. Some want shortest flight or best times. And then, there are some who are significantly swayed by reward miles. I don’t know how large this latter group is, but I have seen the behavior (me). How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? I think there has been a great deal of frustration for some consumers when their preferred airline merges with or acquires another. The United/Continental deal is a great example. Many fliers will tell you of their disappointment that Continental (their preferred airline) merged with United. Disappointment can lead to consumers searching for other options, which has a negative impact on loyalty. On the other hand, alliances seem to be a smart way to strengthen loyalty. Giving consumers more options to get from point A to point B, while retaining the benefits of their “home” airline can be attractive. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? Given what I’ve seen recently – a great deal of cost cutting – I expect that the value of loyalty programs will decline. We’re also in a situation where there are fewer airlines to choose from – the power is shifting even farther away from the consumer. I hope I’m wrong. Julie Ann Edell Associate Professor of Marketing in the Fuqua School of Business at Duke University Who benefits more from airline rewards programs: consumers or the airlines themselves? It depends. What does the airline receive? A way to know who their best customers are, who flies most frequently or who pays more for their tickets. Most airlines receive roughly 70% of their revenue from 20% of their customers, so it is important to retain as much of these travelers’ travel expenditures as possible and to offer these travelers incentives to make their experiences less painful. The consumers who benefit from these programs are more likely to be those who have attained “elite status.” They are allowed to board ahead of others, more likely to receive upgrades, have special check-in lines, etc. The consumers who are at the lowest level may eventually be able to use their miles to get a free or reduced fare flight, but this is generally on routes that have unsold seats, on less frequently travelled days and times. The programs are really designed to benefit those customers who provide the greatest benefit to the airline. To what extent do airline rewards programs influence consumer behavior? Again, this depends on which consumers one is talking about. If one has or is close to obtaining elite status on one airline, then that consumer is much more likely to choose that airline every time it flies to their destination. If one does not have elite status, then it depends on who is paying for the flight. If this is a leisure flight then convenience and cost are the drivers of choice. If it is a business trip, then convenience and frequent flyer membership may both have an influence, though many regular fliers will be members of every airline’s frequent flyer program and thus, not really have an incentive to choose one airline over another. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? Mergers often cause changes in policies and the frequent flyer programs and changes can impact customer loyalty. If the thing that was the driver of the loyalty changes, then loyalty will be impacted. This could be a change in the routes flown, the way frequent flying credit is earned (miles flown versus dollars spent), the program’s benefit structure, or a number of other things. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? Currently, most programs have or are switching to a dollars spent rather than miles flown basis for accumulating credits. I expect that it will be increasingly difficult for those who do not fly a lot to receive much value from being members of these programs. As the ability of the airlines to track passengers without these programs increases, they will have less incentive to offer them and I would not be surprised to see them disappear, at least in their present form. James R. Wills Jr. Professor of Marketing in the Shidler College of Business at University of Hawaii at Manoa Who benefits more from airline rewards programs: consumers or the airlines themselves? I find we benefit a lot from the rewards program at United Airlines. Living in Hawaii, when we fly we are always going a long way so the miles pile up. After a few years we were able to fly our grandchildren and their parents over to Hawaii for a vacation that was 11 free tickets and a life time of memories at the beach! To what extent do airline rewards programs influence consumer behavior? For us, it is a lock in. We always fly United if at all possible. Their prices are competitive and about one out of five legs we get up graded to 1st class. Free drinks - lousy food! I am a one million mile customer. So the benefits of rewards and status are valued. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? There are some real problems with airlines mergers and acquisitions from a consumer satisfaction view. The systems are so bulky it appears that it is spinning out of control. On my last trip, we had two experiences where the flight crews did not show up in time. Getting from Fresno, CA to LAX took 5 hours longer than it would have taken to drive from Fresno to Lax. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? Five to 10 years is a long time to forecast, but if oil prices stay low over that period, we should see airlines offering better prices to the customers. The double deck airliner is bringing more capacity to the industry. The major airline will have to improve their offer to their loyalty program to keep customers from moving to lower price. Bruce E. Pfeiffer Associate Professor of Marketing in the Peter T. Paul College of Business and Economics at University of New Hampshire Who benefits more from airline rewards programs: consumers or the airlines themselves? Loyalty programs are beneficial to both consumers and airlines. Who benefits most depends on the level of involvement of the consumer and what type of value is associated with the usage. From the airlines perspective, loyalty programs are designed to increase customer retention. They provide incentives to prevent brand switching. To be able to do this, they must be able to signal clear current and future benefits. A secondary but equally important benefit is that they generate useful market research. They can provide a lot of relevant data to help explain, predict, and even influence consumer behavior. Consumers benefit in terms of both real value and psychological value. Frequent travelers tend to be more strategic in managing their loyalty programs, taking full advantage of the real monetary value that the programs provide. Infrequent or less frequent travelers tend to be less strategic in their usage and are less likely to fully realize the real value of the programs. The psychological value, however, can be even more important since it is what drives consumers to participate in the program. If consumers perceive that they will benefit through current and future usage, this can result in greater satisfaction with the brand and greater perceived transaction utility with each purchase, even if they rarely use all the potential rewards. To what extent do airline rewards programs influence consumer behavior? Loyalty programs influence consumer behavior by encouraging repeat purchases. These programs are part of a company’s retention strategy. Their primary use is to prevent consumer brand switching or variety seeking among multi-brand users. They also can help to increase overall consumption. Consumers participating in the programs may travel more since they perceive that the programs make traveling more affordable. Further, the programs appeal to both brand loyal customer and attribute loyal customers. Brand loyal customers are customers that have developed a clear preference for a brand over other brands within the product/service category. They are rewarded for this preexisting preference via the benefits of the programs. This strengthens their brand loyalty. Attribute loyal customers are those that may not have a clear brand preference but instead have a preference for the specific added benefit of the reward program. This is a more incentive based loyalty. They seek out the rewards programs that will provide the most benefits based on their desired usage. Once they are involved with using a loyalty program, there are increasing benefits for continued usage and switching costs if they choose to use another brand. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? It can be very beneficial to the consumer as long as it adds to the flexibility of how the rewards can be acquired and used. However, relevant brands have clear brand images and specific associations in the minds of the consumer. Mergers, acquisitions, and alliances can create confusion for the consumer and in the process dilute specific brand loyalty. To what extent, if at all, do you expect airline rewards programs to change in the next 5 to 10 years? Consumers’ expectations are rapidly and continuously changing and rewards programs will need to adapt and evolve. Consumers today feel more empowered and self-sufficient; they like to be able to use their technology and do things themselves. They expect greater personalization and flexibility in their service encounters. They are more short-term focused and expect efficient and immediate gratification. Jean-Pierre Dubé Sigmund E. Edelstone Professor of Marketing at the University of Chicago Booth School of Business To what extent do airline rewards programs influence consumer behavior? The simple answer is “it depends.” The goal of a loyalty program is to generate incremental profits. How would this arise? The dynamics through which loyalty programs actually create “loyalty” and, in addition, create incremental profits are much more complex than most people think. Let’s consider a standard program for which a consumer receives “points” every time she buys. The points are valueless unless you accumulate enough of them to reach the firm’s pre-set threshold, where the points can be redeemed for a reward. We will assume the reward itself has value (e.g., a free purchase). In order for the program to generate enough “loyalty” to create incremental profits, we need some additional conditions to be met. First, consumers must be forward-looking. Sure, on the trip where a consumer gets a free reward, the points are converted into value. But, what about all the trips before that, where the consumer was simply accumulating points having not yet reached the threshold for redemption? The only way a consumer would get value from those points is if she anticipates that, eventually, she “might” accumulate enough points to receive the reward. So for most trips, the only value from the loyalty program is the anticipation of potentially reaching the goal in the future and earning the reward. Let’s call this anticipated benefit the expected future option value of loyalty. It’s a real option because buying today contributes to the future likelihood of reaching the reward. If she buys today, she increases the likelihood that she will reach the goal in the future. As the consumer gets closer to that goal, the likelihood of reaching the goal increases. So the expected future option value is also increasing across successive purchase trips and, thus, each successive purchase should make the consumer more likely to buy – each purchase increases the likelihood of reaching the reward goal. The fact that purchasing today increases the likelihood of purchasing again in the future, through the expected future option value, creates the “loyalty.” Profits to the firm can increase if the loyalty causes the consumer to make incremental trips that she would not have made otherwise. You can easily see that if consumers are totally myopic and do not consider the expected future payoffs, then a loyalty program will be worthless to the firm. Every once in a while, a consumer will get a reward, but she will not have changed her buying behavior. In this case, the program actually has a negative ROI. So, forward-looking consumer behavior is key. Even if consumers are forward-looking, the program could still fail to deliver incremental profits. Suppose there are two types of customers: “High Demand” and “Low Demand.” A High Demand consumer buys very regularly – consider someone who flies for work every week. This consumer will cycle through the program very quickly. Because of the high incidence of purchase, she will always have a very high likelihood of hitting the reward goals. Even if she is forward looking, she could be cycling through the program so fast that there is really never any opportunity for an incremental purchase. Basically, this consumers gets a lot of rewards, but does not make any incremental purchases. As a result, the program is actually less profitable for these High Demand consumers even though they earn lots of rewards. Now consider the Low Demand consumers. This type of consumer seldom purchases – consider someone who flies once per year to visit her parents. Due to the very low number of purchases, this consumer has an extremely low expectation of ever reaching the reward goal in the future. This means the prospects for loyalty are also very low, which means there is very little potential for an incremental trip. One can easily see how in this “two consumer type” example, a loyalty program might be less profitable than having no program. You could try to lower the threshold for the reward to stimulate loyalty in the Low Demand segment. But remember that this will also make it even easier for the High Demand consumer to hit reward goals, giving her more “freebies” and lowering her loyalty potential even more. Now some firms would argue that their loyalty programs are competitively driven. In the examples above, we had one single (monopoly) firm. Suppose there is competition. Paradoxically, loyalty in a competitive market can lead to a prisoner’s dilemma where all firms charge lower prices and make less money. Let’s define loyalty as we did above – buying today increases the likelihood that someone will buy again in the future (it’s kind of like a growing purchase habit). You would think this would be good for business. Well, let’s consider the firm’s pricing incentives when there is loyalty. On the one hand, the firm with loyal customers could raise its price and “harvest” this loyal base. On the other hand, the firm could lower its price today, poach more competitor customers, and “invest” in the acquisition today of customers who will then be loyal to the firm in the future. So there is a trade-off between the harvesting goal (which pushes prices up) and the investment goal (which pushes prices down). But what about competition? Competitors with prospects for loyal customers face the same pricing incentives. If the investment motive is strong for competitors, they will lower their prices. Now, our firm will need to defend itself from competitors trying to poach its customers. This strategic effect exacerbates the investment motive. It is possible to obtain equilibria where all firms end up lowering their prices. Why? It’s their best response to competitors. If all competitors charge high prices, our firm lowers its price to poach and invest. If all competitors charge low prices, our firm lowers its price to defend itself. This can lead to a version of the prisoner’s dilemma – compared to the “no loyalty case,” firms are charging lower prices and making lower profits. This is a prisoner’s dilemma because it is always a firm’s best response to charge lower prices. But, if the firms could “collude” and agree to disband their loyalty programs, they would all actually be better off. Raphael Thomadsen Associate Professor of Marketing in the Olin School of Business at Washington University in St. Louis Who benefits more from airline rewards programs: consumers or the airlines themselves? It is pretty clear that airlines gain a lot from their rewards program. They gain in several ways. First, the rewards programs cause some travelers – especially high value travelers – to be loyal to a particular airline, leading to reduced price sensitivity, which appears to have led successfully to higher prices, according to at least some studies. Second, the airlines have been so successful at their loyalty programs that they have gotten several other companies to partner with them, and have actually turned the loyalty programs into direct profit centers. Have consumers gained or lost from that? The question is not clear, and also depends on who you look at. First, it is worth noting that the rewards program reward passengers, who are sometimes the paying customers and sometimes are not. In general, one reason the frequent flier programs work so well is that the passengers choose the flights and reap the benefits, while large, relatively price insensitive customers bear the higher prices, so the airlines are exploiting a misalignment in incentives. Thus, on average, passengers who do a significant amount of their flying through work, benefit tremendously: these people get free flights and perks that they don’t pay for. Further, the airlines have an incentive to really invest in quality for these passengers in a way that would not be profitable if they had to provide the benefits to all fliers. The losers in this calculation may be larger corporations (and their shareholders) who spend more on air travel. Another question is whether non-business travelers – especially infrequent fliers – who pay out-of-pocket benefit or not. There, the answer is tougher to tell. On the one hand, these travelers probably pay more for their tickets due to the presence of these programs. How much more is hard to tell, because the airlines do actively price discriminate, which means that the price sensitive consumers who care about the total average costs of the flights probably pay only somewhat more for their flights than they would if there were no frequent flier program (assuming that they earn enough miles to redeem them for flights). On the other hand, more profitable airlines means that the airlines can fly more routes, which will benefit frequent and infrequent customers alike. Further, to the extent that airlines are more cash constrained in the short run than their customers (especially for airlines staving off bankruptcy), it is even possible that these infrequent fliers could be slightly better off with the frequent flier program. I am not aware of any study that has measured the benefits to this group of travelers, but I suspect that the non-business customers are slightly worse off, but that the total effect is small. To what extent do airline rewards programs influence consumer behavior? The academic literature is unambiguous in saying that yes, these programs affect behavior a lot. They are well crafted to both exponentially reward loyalty and to exploit the difference in incentives of workers, who fly and get the benefits, and employers, who pay more for the tickets but get no additional benefits. How do you think mergers, acquisitions and alliances of individual brands impact airline loyalty? On the one hand, there is less competition, which should reduce the need to create switching costs between airlines. On the other hand, there is still a fair amount of competition, and there is still a misalignment in incentives between employers and employees, so I see little reason to ramp these programs down, at least in the foreseeable future. There has been some devaluation of miles. I suspect that this occurs for two reasons. First, there are many unused miles floating out there. While rationally this should be good for the airlines, it appears on accounting balance sheets as a liability. One way to reduce the liability is to devalue the miles. Second, some travelers have learned how to exploit weak points in the airlines’ frequent flier programs to get very cheap flights. The airlines have tried to reduce such exploitation (although it is not obvious to me that this actually hurts the airlines, since the travelers who do this are usually price sensitive travelers). Finally, the airlines have probably gotten better at sorting out which travelers really focus on the frequent flyer programs (so if you book 11 months in advance, you find the tickets are available) and which do not, so the new stinginess largely hits the lower-value fliers. I expect these trends to all continue, but in a gradual way.

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Methodology

This report compared the frequent flyer programs operated by the 11 largest airlines in the U.S., based on number of passengers, using publicly available information and company policies posted online. We did so for three different consumer profiles, designed to illustrate how programs compare across spending levels. Where policies were incomplete or ambiguous, we confirmed them with the respective airline’s customer service department. Once data collection was complete, we reached out to the public relations departments of each airline to confirm our findings. However, United Airlines, Spirit Airlines and Sun Country Airlines either did not meet our deadline for input or did not provide any corrections regarding company policy and pricing.

The scoring framework used to evaluate each program, and ultimately identify the best option for different types of consumers, can be found below. Generally, full points were awarded to the best-performing program for that metric, while the zero-point level was set slightly below the worst program’s value. Most of the metrics were first graded on a 100-point scale. Point allocations for more-binary metrics that did not use this 100-point scale are explained below. Airline ticket cost data is accurate as of January 13.

Consumer Profiles: We created three consumer spending profiles (Light, Average and Frequent) to evaluate how well each airline meets the needs of travelers with varying budgets. We based the airfare budget of a “Light” flyer on travel expenditure data from the U.S. Bureau of Labor Statistics and household income data from the U.S. Census Bureau. We determined the budget of a “Frequent” flyer by applying average airfare rates to a travel schedule that comprises monthly domestic flights supplemented by an annual trip abroad. The “Average” flyer’s budget was determined by averaging the “Light” and “Frequent” flyer’s budgets. Exact values can be found below.

• Light Flyer: Spends roughly $467 on annual airline travel.
• Average Flyer: Spends roughly $3,105 on annual airline travel.
• Frequent Flyer: Spends $5,743 on annual airline travel.

 

1. Airline Coverage (total score: 17 points)

2. Partner Coverage (total score: 8 points) We chose to grade partner airlines separately in order to avoid overlapping data and the resulting double counting. However, the strength of a given airline’s partnership network is indeed relevant to the value of its rewards program, so it was important that we take this into account where possible.

3. Value Earned per $100 Spent (total score: 20 points) Three underlying components are required to calculate how much value a user would derive from one year of membership in each airline’s rewards program: i. Amount Spent, ii. Miles Earned and iii. Redemption Value. In other words, if you spend X amount, you will earn Y miles, which can be redeemed for Z dollars in airfare. Below we will explain how we calculated each component.

4. Miles Restrictions (total score: 33 points)

5. Additional Features & Policies (total score: 22 points)

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