UK: Fighting for the frequent flier.

UK: Fighting for the frequent flier. - Globe-trotting executives love them. Company travel managers hate them. The airlines are, for better or worse, hooked on them. They are the frequent-flier programmes which every year give away thousands of free air

Last Updated: 31 Aug 2010

Globe-trotting executives love them. Company travel managers hate them. The airlines are, for better or worse, hooked on them. They are the frequent-flier programmes which every year give away thousands of free air tickets to businessmen who have clocked up heroic amounts of air travel ... provided, of course, they have done so on the airline that is providing the freebies.

Until recently frequent-flier programmes were a predominantly American phenomenon. Now they are spreading fast in Europe. British Airways launched its version, Latitudes, in April last year, and other European carriers are following suit. BA's scheme has already recruited its first 320,000 members and hopes to ratchet that number up to 500,000. Iain Webster, the airline's rewards programme manager, says recruiting will stop then. "We're looking for high-frequency business travellers, not launching a mass-market scheme where we want every single person who ever flies to enrol."

The kind of person Webster is after is a very high spender. Britain is reckoned to have about 1.8 million frequent travellers who between them spend more than £13 billion a year on UK business travel alone and nearly £10 billion on overseas trips. Getting the cream of them into a frequent-flier scheme has two main benefits. It buys the traveller's loyalty and gives the airline a valuable data base to use in its strategic planning.

They can be used as a tactical marketing weapon, too. The airlines can increase the number of air-mile points on offer to make particular flights or routes more exciting, says Alex McWhirter, technical editor of the magazine Business Traveller. Faced with a slack transatlantic market and tougher competition from American airlines, for example, BA has been giving bonus air miles to America and Canada. This is good for the airline and attractive to the flying executive (who, on McWhirter's calculations, would be able to accumulate sufficient points on a first-class, return ticket from London to Los Angeles to get two London-Venice round trip tickets). It is not, however, so good for the companies which employ the executives and pay for the tickets.

Some of the bigger corporations with travel budgets which run into millions of pounds are very much against frequent-flier programmes and other promotions aimed at the individual traveller. They argue that if they, the companies, are paying for the airline tickets it is wrong of the airlines to be stuffing goodies (often in the form of free airline tickets, holidays or expensive consumer goods) into the pockets of the individual executives. The companies pay ... and they would like to pay less.

The view of the Business Travel Liaison Group (BTLG) is typical. The group, formed in 1988, includes the travel policy makers of major corporations including British Telecom, Marks and Spencer, Esso and Guinness, all of which spend more than £4 million a year on travel (some of them between £6 million and £10 million). Many resent having to pay what they consider to be over-the-odds prices for air tickets only to see some of that money being rebated to individual executives instead of flowing back into the corporate treasure chest.

BTLG secretary, Kevin Watts, travel manager for the British Council, which spends about £8 million a year on travel (40% of it on business-class airline tickets) says corporate travel departments are simply buying airline seats between A and B.

"What we're asking for is to pay the lowest price for that airline seat and not to have all sorts of other things which we don't really want or need and which undermine corporate travel policies. They're all based on the same idea: wooing the personal traveller towards the airline rather than wooing the corporate client towards making a purchasing decision."

Big companies often have a preferred carrier on particular routes who gives them a discount deal because of the amount of business involved, but few of them actually insist on exclusive use of that airline, since sometimes business needs override costs. That fact is exploited by the airlines and, ultimately, it can weaken the travel manager's ability to control travel costs. "If people see a personal incentive that doesn't come back to the company then it undermines the corporate policy and leaves us with an enforcement problem," says Watts.

The response of the airlines when people complain is simple: "They just say, 'Everybody's doing it, we can't afford not to.'" If BA and the other European-based carriers do commit themselves long-term to frequent-flier programmes the problem is going to get worse.

Will they? The answer is almost certainly "yes", but not without some foreboding. Observers suggest that even from the airlines' point of view frequent-flier programmes can be a two-edged sword. Everybody does it because, when competition is fierce, they cannot not afford not to, but then it becomes so much part of the passengers' flying experience that they refuse to do without it and vote with their feet if the "goodies" are withdrawn.

The passengers whose allegiance the airlines prize most are the business-class passengers, a fact which is reflected in most programmes by weighting the "points" system heavily in their favour. All frequent fliers get "points" but business or first-class passengers get big bonuses. The business class traveller pays more than the economy-class flier and less than first-class passengers, but he flies much more often than either of them.

The importance of the business traveller was demonstrated last year when the combination of the Gulf war and the recession temporarily knocked the bottom out of the airline industry. People simply stopped flying, many of them ordered to do so by their companies fearful of terrorist attacks while the war was on. The full cost of that period to the airlines is not yet known but IATA (the International Air Transport Association) reckons that its 200 members may have lost at least $3.7 billion in 1991, $1 billion more than in 1990, which was itself the worst-ever financial year they had experienced.

Some travel experts believe the Gulf war may have left another kind of legacy. Bill Kirkwood, sales director of Thomas Cook Travel Management, says that, looking back, some companies realised that their travel cutbacks had not significantly affected the way they did business. "They began to think, 'Are we actually spending more money on travel than we need to?'" and so became much more astute in terms of managing their overall travel expenditure." It remains to be seen whether the greater cost-consciousness is a purely temporary phenomenon.

Temporary or permanent it is a way of thinking that organisations like Thomas Cook and American Express with large travel management divisions will be keen to encourage. More concern about travel costs means more business for them. And they do have a point.

A surprisingly high proportion of companies still seem to treat travel expenditure, even when it is running into millions of pounds a year, on a very ad hoc basis. Less than 60% of companies, polled by American Express last year, had a written travel policy. Experts like Clive Adkin, of Thomas Cook's travel management division, believe such companies are spending far more than they need to.

Part of the reason is that travel management companies have travel-monitoring technology which is way beyond the reach of individual companies - sophisticated computers, for example, to keep up with the estimated 1.6 million fare changes that take place every day and they also have a lot of negotiating muscle.

Big buyers like Kevin Watts of the British Council, or other members of the BTLG, also know how to get good discounts from the airlines where a route is heavily used, which is why, of course, the side of the business they class as gimmickry is so irksome - ultimately the danger must be that the one could undermine the other.

Can the airlines ever be weaned off free tickets and frequent-flier promotions? The auguries are not good - the promotions work, particularly with frequent business fliers. To understand why you need to understand a very basic difference between economy-class and business-class travel. Economy travellers are discretionary fliers. If the price to a particular destination like New York falls then they may well decide to holiday in the Big Apple rather than Bognor Regis this year. At that level demand is significantly influenced by price. The business market, by contrast, is much more price inelastic. The airlines know that if any of them cut their fares in business class their competitors will match them within hours, to hold on to market share, and the net result will simply be an all-round loss of revenue. Frequent-flier programmes are a much more attractive proposition since they can ensure customer loyalty over a longer period.

All of which suggests continuing good times ahead for freeloading executives.

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