The disconnection of politicians from frequent flyer points announced by Finance Minister Lindsay Tanner might not amount to much of a reform in its own right, yet is a reminder that the words and meanings used to describe such schemes are broken.

There is less ‘loyalty’ and no ‘free’ left in these schemes, here or abroad, even though they still have their uses.

Consider the changes that have occurred since the 2003 Reserve Bank of Australia credit card reforms. These forced down merchant fees on credit cards, in some cases to less than one third of previous levels, saw a large increase in ‘American Express not accepted’ signs at cash registers, and greatly boosted the use of EFTPOS for payment, and more recently, debit cards.

It was good for the economy in that it removed some of the toll booths credit cards had placed across the flow of money in retail land, but it also destroyed the interbank card fee structure that helped fund the relationship between card earned points and airline schemes in general.

And it coincided with a general view among airlines that third party use of their brand value was too cheap, and they wanted the banks, their card programs and general retailers to pay more for the transferability of their points into the Qantas and Singapore Airlines loyalty schemes, for example.

The airlines won that fight, and thanks to the RBA reforms the card programs variously began to cap the monthly number of points you could earn, or charge a premium annual fee for better airline points transferability, and so forth.

At much the same time, two other forces for change came into view. One was the Air NZ and Virgin Blue use of ‘any seat any time’ redemption scales, which stripped of rhetoric, meant that you could pay for any available seat at a very low monetary value per mile, which while bringing certainty to the redemption process, also made numerate frequent flyers realise just how pathetically little benefit could come from hundreds of thousands of accumulated miles or points if you weren’t looking at the marginal utility of the cheapest and least convenient of unsold seats in the inventory.

Qantas went on copy this type of scheme.

But while this new definition of ‘reward’ was sinking in, the corporate and government accounts that drive most frequent flying were moving to go for lower fares and deals with the airlines in which the fares did not generate points, although they did continue to generate ‘status’.

All of this happened well before Tanner’s decision to end the generation of points for politicians.

But it is a decision that cannot fail to make those companies that still allow executives to keep frequent flyer points reconsider their position.

This is turn makes ‘life’ a bit sad for those executives who wanted another free flight about as much as root canal therapy but could, sometimes, burn them for an upgrade.

It could be criticised as a ‘big call’ but on current trends so called ‘loyalty’ programs are headed toward being discretionary costs for individuals rather than an integral part of employee travel arrangements.

The airlines don’t want to give away flights for ‘free’ to flyers anymore. They want to sell however many millions of points they care to mint out of thin air to third parties, like grocery chains, furniture and appliance sellers, hotels and resorts, and to bank issued cards, or at least to those card programs that will pay the airlines the much higher rates they began charging in recent years.

What is left to look forward to? Status for frequent flyers can be important, but will it be reciprocated? If companies no longer pay for club membership, how many individuals will?

Will the points data bases be used more as opportunities to sell, rather than ‘reward’. That is, can we expect more emailed offers to sell us a fare for a combination of the points we already have, plus some cash. Such as a 10,000 miles + $1000 offer for a particular destination?

The one thing about the end of ‘free’ is the recharge it gives ‘freedom of choice’. This comes at a time when single screen comparison of fares and availability across carriers becomes more popular, arguably as popular as it already is in the US. The whole purpose of frequent flyer schemes is to discourage choice.

Thus the end of ‘free’ might also be the end of taking customer loyalty for granted.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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