Airline Weekly - July 8, 2004

Cover Story

The Loyalty Weapon: Frequent-Flier Programs Help Big Six Compete

Tracey Intorcia, a senior manager at EarthLink, flies lots of business trips from Fort Lauderdale airport, a leisure hub. Seth Kaplan, meanwhile, a restless globetrotter in his free time, flies lots of leisure trips from Miami airport, a business hub. But despite their differing motives for travel and unique set of flight options, both book almost exclusively on legacy carriers. The reason: miles, as in frequent-flier miles, which they’ll accumulate to earn free travel, product upgrades and more.

While low-cost carriers capture more and more of the nation’s air traffic, Tracey, Seth and the many frequent fliers like them illustrate the market power that legacy carriers, employing frequent-flier programs as competitive weapons, still have over a diverse group of today’s air travelers. Linked to traditional big carrier advantages like bigger networks, better schedules and extra product offerings like first class seats and airport lounges, frequent- flier programs enable the sick six legacy carriers to extract what has become increasingly elusive: a revenue premium.

The programs are, of course, nothing new. American launched its AAdvantage program today the biggest worldwide with nearly 50 million members - more than two decades ago, immediately spawning competitors. It wasn’t long before every merchant from flower shops to hotels recognized the obsession Americans developed for collecting miles, leading to a huge new market in which companies purchased rights to distribute them. In fact, roughly half of all outstanding frequent-flier miles today were earned by consumers buying... (251 of 1005 words)

Also Inside this Issue:

Continental, as always, kicked off the latest round of monthly traffic releases, with June data offering some room for optimism. June is, in general, among the strongest traffic months of the year for airlines.

Fears of freefalling yields in the European low-cost sector eased a bit with strong traffic growth from Ryanair and EasyJet, though the latter said revenue was still weak. Germany in particular is a key battleground after expansions by several low-cost carriers.

Back in North America, Air Canada seems to have its worst days behind it, with exit from bankruptcy likely this fall.

Things are not so optimistic, however, at Alitalia, where help from Daddy Warbucks - i.e., the Italian government - now awaits E.U. approval. But enough about sick carriers. The Virgin group, with airlines in Europe, Australia and soon - if the financing comes through - the U.S., is scouring the globe for more opportunities, looking at East Asia, India and even Africa.

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