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Upcoming Changes in Continental OnePass Program
Question:
>Johnson) caused to appear as if it was written: >There’s an interesting piece in PlaneBusiness which I append with >appropriate apologies: >The formatting is *horrible*… >SNIP< >Again, apologies! >Why? It was an interesting argument, even if I disagree with the >conclusions…
For the horrible formatting, which I didn’t take the time to fix. Also, I’m not too sure about the nettiquette of pinching stuff like this. >Robin Johnson >Malc.
Robin
Response:
Johnson) caused to appear as if it was written: >There’s an interesting piece in PlaneBusiness which I append with >appropriate apologies:
The formatting is *horrible*… > PlanePerspectives > How the Strategic Alliances Could > Destroy the Airlines
Note the word *could*… > by Hans Schumann
[ Snip ] – Hide quoted text — Show quoted text -> The disaster is not in the creation of the >alliances, per se, nor the > co-branding, or even the merger of different >corporate cultures. >Rather, it is in the joint participation in each >other’s frequent flyer >program where the danger lies. > Each carrier is thinking that these alliances and joint frequent >flyer participation will help them by expanding their reach and >increasing the percentage of locations that can be reached on > their virtual network. They think that this will increase the >customers’ overall loyalty, which will in turn increase the total >amount of flying that their customers will do on >them. >Although there may be some truth in this, the >major airlines are never-the-less in the process of killing >the goose that has laid the golden eggs. There are 4 reasons for this:
Possibly. Possibly not. >1.They are-re-commoditizing the airline industry >2.With passengers consolidating their program >participation, airline costs will increase >3.Less differentiation between programs >4.More, ?preferred-level? passengers; fewer >available upgrades
[ Snip explanations ] To point 1: No, the alliances aren’t really re-commoditizing the industry, since *that* has already occurred. The average once-a-year traveller doesn’t accrue enough miles to care that much, one way or the other, since the distance to an award is so great. These people care about price first, schedules and programs second. The average business traveller cares a great deal, but provided the airlines don’t homogenize their programs, this is still OK. For example, with a UA member earning miles on DL, but elite status points, all this means is that DL becomes a preferred second choice for UA fliers, and vice versa. And as the (snipped) explanations note, there are more than two (at least three, as it happens) major programs developing out there (Star, Oneworld, others). And I don’t see US giving up competing with DL simply becuase of the alliances. To point 2: The idea is that program costs will increase, since more people will reach award levels. Counter-point: the effectiveness of the program will increase, for the same reason, and the fact that a UA/DL combination *can* serve most people’s requirements, while UA or DL on their own couldn’t. And costs can be controlled, as expiring miles and higher aware levels indicate… To point 3: This seems at odds with the rest of the thesis. Surely the program *is* the differentiator, so why does anyone care if all the programs are the same? And, as a matter of fact, the programs aren’t all the same, largely as a result of the partners… To point 4: There are the same number of available upgrades, not fewer as claimed. Sure, more people may be eligible to chase them on a given flight, but put this in context of the status quo, where the eligibility of an elite level to upgrade meant that, say, a DL elite wouldn’t *be* on the UA flight (they’d be on a DL one), and vice versa, so this seems a non sequitor. At the end of the day, there seems to be the same number of seats and eligible travellers, but the mix is different. >Again, apologies!
Why? It was an interesting argument, even if I disagree with the conclusions… >Robin Johnson
Malc.
Response:
When I was in London yesterday I heard from the Continental ground staff that they are about to change their Elite levels in the OnePass program to eliminate Bronze Elite and introduce a new top level, Platinum Elite. Although the staff had not been told the exact details, it seems that Continental will, in effect, downgrade everybody by one level. They are doing this partly because there are too many people at the current top level, Gold Elite, and partly because they want their program to look more like Northwest’s. Not only is it a pity from the point of view of the passenger that (arguably) the best FF program in the industry is going to be reduced in quality, but it may not be a good business decision. Airline capacity growth next year is expected to exceed passenger growth, especially with the downturn in the economy, so customer loyalty will be more important. Also, Continental has just announced that the U.S. Justice Department may block Northwest’s attempt to buy a controlling interest in Continental or to form a strategic alliance with Continental, so there may no longer be a pressing need to equalize the FF programs.
Response:
>When I was in London yesterday I heard from the Continental ground staff that >they are about to change their Elite levels in the OnePass program to >eliminate Bronze Elite and introduce a new top level, Platinum Elite. >Although the staff had not been told the exact details, it seems that >Continental will, in effect, downgrade everybody by one level. They are >doing this partly because there are too many people at the current top level, >Gold Elite, and partly because they want their program to look more like >Northwest’s.
Hmmm. Interesting. While checking in at Caracas last Sunday, one of the "porters" who so helpfully escorts travelers (for a fee, of course) asked if I was "platinum." I thought he was unfamiliar with the OnePass levels. Based on your post, it turns out he may be privy to some inside information I didn’t know about! I just finished upgrading to FC for a Thanksgiving trip to Chicago using my OnePass miles. I asked the reservations agent about changes to OnePass. The Indian-accented agent said "Yes, they are most probably going to come." She suggested I call the OnePass Help Desk (1/713-952-1630). The lady there, apparently a graduate of PR school, said: "At this point we do not have full disclosure, but believe me, there will be ‘improvements’ to the program. We are scheduled for a briefing in the next few days, so we are probably looking at something that will be officially announced around the end of the month." >Not only is it a pity from the point of view of the passenger that (arguably) >the best FF program in the industry is going to be reduced in quality, but it >may not be a good business decision. Airline capacity growth next year is >expected to exceed passenger growth, especially with the downturn in the >economy, so customer loyalty will be more important. Also, Continental has >just announced that the U.S. Justice Department may block Northwest’s attempt >to buy a controlling interest in Continental or to form a strategic alliance >with Continental, so there may no longer be a pressing need to equalize the >FF programs.
It took Continental several years to get their act together. Finally, I can say with a straight face that I am pleased with all aspects of CO, in every way, shape and form. For that reason I hate to see them mess with anything, especially the OnePass program. And frankly, while I know everybody is jumping on the alliance bandwagon, I doubt that I will see any benefit of CO entering an alliance with NW. You go, Feds! Steve Kropla Kingwood, Texas USA To e-mail, remove "dot" (You know which one) Help for World Travelers: http://kropla.com
Response:
>I call the OnePass Help Desk >(1/713-952-1630). The lady there, apparently a graduate of PR school, >said: "At this point we do not have full disclosure, but believe me, >there will be ‘improvements’ to the program. We are scheduled for a >briefing in the next few days, so we are probably looking at something >that will be officially announced around the end of the month."
The rumour on webflyer.com is 75,000 qual miles for platinum. When I called the helpdesk they flatly denied everything. I don’t agree that there are too many golds. I get the feeling that when I fly I am usually the only gold elite — many bronzes and silvers, though. Maybe that’s because my home airports are Detroit and San Francisco, two airports abandoned utterly by Continental 
>It took Continental several years to get their act together. Finally, >I can say with a straight face that I am pleased with all aspects of >CO, in every way, shape and form. For that reason I hate to see them >mess with anything, especially the OnePass program.
Hear, hear! — Tung-Hui Hu, alchemist http://arcfour.com
Response:
- Hide quoted text — Show quoted text ->Not only is it a pity from the point of view of the passenger that (arguably) >the best FF program in the industry is going to be reduced in quality, but it >may not be a good business decision. Airline capacity growth next year is >expected to exceed passenger growth, especially with the downturn in the >economy, so customer loyalty will be more important. Also, Continental has >just announced that the U.S. Justice Department may block Northwest’s attempt >to buy a controlling interest in Continental or to form a strategic alliance >with Continental, so there may no longer be a pressing need to equalize the >FF programs. >It took Continental several years to get their act together. Finally, >I can say with a straight face that I am pleased with all aspects of >CO, in every way, shape and form. For that reason I hate to see them >mess with anything, especially the OnePass program. And frankly, >while I know everybody is jumping on the alliance bandwagon, I doubt >that I will see any benefit of CO entering an alliance with NW. You >go, Feds! >Steve Kropla >Kingwood, Texas USA >To e-mail, remove "dot" (You know which one) >Help for World Travelers: http://kropla.com
There’s an interesting piece in PlaneBusiness which I append with appropriate apologies: PlanePerspectives How the Strategic Alliances Could Destroy the Airlines by Hans Schumann Editor’s Note: This week we welcome a new contributor to PlanePerspectives–PlaneBusiness Banter subscriber Hans Schumann. Hans is a Senior Consultant at Simon, Kucher ?Partners, a management consulting firm that specializes in Product and Service Pricing and Price Strategy. The firm’s clients range from pharmaceutical manufactures to BMW, Mercedes-Benz, Lufthansa, Emirates, the German Railway System, and the operator of a magnetically levitated train system under development. September 21, 1998–The Northwest pilots are flying again, and the Continental/Northwest alliance again looks like its on track for all necessary approvals. Despite the fact that these proposed alliances are great for all of us that enjoy looking at multiple 4 and 5-digit flight numbers in our OAG and on our on-line SABRE screens, the alliances have industry disaster written all over them. The disaster is not in the creation of the alliances, per se, nor the co-branding, or even the merger of different corporate cultures. Rather, it is in the joint participation in each other’s frequent flyer program where the danger lies. Each carrier is thinking that these alliances and joint frequent flyer participation will help them by expanding their reach and increasing the percentage of locations that can be reached on their virtual network. They think that this will increase the customers’ overall loyalty, which will in turn increase the total amount of flying that their customers will do on them. Although there may be some truth in this, the major airlines are never-the-less in the process of killing the goose that has laid the golden eggs. There are 4 reasons for this: 1.They are-re-commoditizing the airline industry 2.With passengers consolidating their program participation, airline costs will increase 3.Less differentiation between programs 4.More, ?preferred-level? passengers; fewer available upgrades The Re-commoditization of the Industry Let’s face it, unless you are flying to Milwaukee, airline service is equally awful regardless of what carrier you are on. The key word here is equally. That means that our industry’s main product is that dreaded pricing c-word, a commodity. Worse yet, it’s a CFO’s nightmare, with high fixed costs and variable costs near zero. These two factors together imply that no price level is ever intrinsically supportable. A funny thing happened in 1981, when the two biggest marketing organizations launched programs that were designed to steal share from each other and the other carriers. After all other carriers were forced to match, the net market share shifts were none, zip, nada! The industry was however changed dramatically however, and changed for the better. Lets look at a specific non-stop O/D market, ATL to DEN. Prior to the frequent flyer programs, both Delta and United each randomly carried 50% of the passengers (since customers couldn’t care less who they were flying, they generally were equally divided on the UA or DL flights). After the programs, they continued to carry 50% of the passengers, but now each passenger had a strong preference for that particular carrier. The Denver-based customers generally have a substantial preference for UA, while the Good Ole Boys from Georgia can usually be found on the Delta plane. Each now has a reason to have a substantial preference for their carrier. The airline ceased being a commodity. If however, Delta and United form an alliance–and Delta gives out UA miles, and UA gives out DL miles, that difference between flights will again disappear. All markets where DL and UA compete will now become re-commoditized. If only the ?hub-to-hub? markets were to be affected, this still would not be a big problem. Unfortunately, the markets that will be destroyed include the literally thousands of connecting markets where both UA and DL offer viable connections. Historically, the pressure to undercut your new ?partner? will be too compelling to ignore. This will be especially true as the economy slows down and the planned growth in overall seat capacity materializes. It only takes two entities, who have little other than price to compete on, to reduce the market to a price-cutting free-for-all regardless of the number of other innocent players in the market. Therefore, the additional presence of AA, CO, NW, US will not lead to price stability. Indeed even if the DL/UA partners are able to resist natural pricing pressure, the AA/US or NW/CO partners are not likely to. The Fewer programs that a Passenger collects miles on, the More Expensive the Programs Become. Frequent flyer programs generate their power from the fact that their redemption schedules are convex. That is, the more miles you have, the more valuable each additional mile becomes. This convexity develops the situation where 20K in one program is better than 10K in two; 100K miles in one program is better than 50K in two, etc. This is of coarse why these programs have a loyalty effect. In the new scenario, with miles collected concentrated in only three programs, the value (and hence carriers cost) of each incremental mile will be calculated based upon a much higher basis, and hence the value to the customer (costs to the airline) will increase. These costs will eventually be born by the carriers through more expensive redemptions. Airlines are not likely to change their accounting standards to reflect this change, and they will take an unexpected hit later. Higher costs = lower profits. More Expensive Miles, Less differentiation Just as incremental miles in all programs are becoming more valuable due to the consolidation, the increase in ?incremental? value goes up faster in the consolidated minority programs. Since the economic value is the difference between these two values, there is less differentiation after the combination than before. Less differentiation = lower supportable-equilibrium prices. More ?Preferred-level? passengers, fewer upgrades. As the alliances take hold, frequent travelers who now are enrolled in six or more programs, will be
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