Airline loyalty: Airline program devaluation levers

How airlines are devaluing: The levers they pull

In the previous article “Why Airlines are Devaluing Programs” article, we explored the financial and competitive pressures that push airlines toward devaluing their loyalty programs. Here, we turn to the mechanics. When carriers decide to reduce the value they return to customers, they have a familiar set of tactics at their disposal. Understanding these levers helps travellers recognise early warning signs and adjust their strategies to preserve value.

The devaluation trend

The journals are full of stories of airlines devaluing programs. This article will not directly name examples as it would not be fair without the individual businesses being able to state context or reasons directly.

In a recent high-profile case, a major carrier eliminated its longstanding policy of allowing two free checked bags, representing a fundamental downward shift in its value proposition and brand identity. Only members of certain groups defined by fare type and credit card holding have been able to retain some of this benefit. The airline announced a basket of changes to assigned seating options and some red-eye related benefits to help cushion the blow, but loyal customer and critical reaction has been harsh, pointing out that the airline had eliminated one of the major planks of its brand and made it like everyone else.

Another significant loyalty program recently made changes to its point redemption rates that increased premium cabin redemption costs by up to forty percent, causing substantial customer backlash. Rather than running marketing activity around the change, the program attempted to minimise attention by simply updating award charts without clear communication, which only exacerbated negative customer reaction.

A large carrier introduced dynamic pricing which resulted in variability in award flight costs and generally raised award prices overall. This shift has made it more difficult for customers to anticipate the number of miles needed for a given flight and has tended to make it harder to secure award flights on popular routes. Though communicated as creating a more flexible program, customers saw through this messaging, and program members have expressed major concerns as a result.

The devaluation levers

Airline programs can employ multiple tactics to reduce value, either individually or in concert:
Redemption Value Manipulation: Increasing the number of points required for the same reward or decreasing the monetary value of each point. This is a standard approach across many loyalty program categories.
Access Restriction: Limiting when and how members can use their points through reduced award seat availability or blackout dates.
Benefit Elimination: Removing perks that were previously standard at certain membership tiers.
Status Inflation: Requiring members to spend more or fly more miles to maintain the same elite status level they previously held.
Program Complexity: Making loyalty programs intentionally confusing and opaque, making it harder for average members to maximise value.
Short-Notice Implementation: Making significant negative changes with minimal warning or transition periods.

Impact on customers

As part of the change in airline programs, many carriers are ensuring they retain their most profitable customers as a priority. This has led to several changes in how elite flyers are defined and treated.

When facing financial headwinds, airlines increasingly focus their limited resources on retaining their highest-spending customers. This manifests in expanded benefits for top-tier elites while scaling back offerings for basic members or lower elite tiers. This divergence becomes even more pronounced during economic downturns, as airlines calculate that losing a few occasional travellers is less damaging than losing their premium frequent flyers who may represent a disproportionate share of revenue.

Aspirational status levels can drive significant incremental revenue. By creating ever-more-exclusive tiers with increasingly luxurious benefits, carriers encourage members to concentrate their travel spending. The pull of status achievement, coupled with the fear of status loss, has proven remarkably effective at building loyalty among the most profitable customer segments, even when overall program value might be declining.

As airlines implement broader program devaluations, they often create carve-outs and exceptions for elite members. When redemption rates increase, top-tier elites might receive discounted award charts or exclusive access to premium inventory. When earning rates are cut, high-status members often receive multipliers that offset the reduction. These measures insulate elite members from the full impact of devaluations experienced by basic members.

The proliferation of invitation-only and ultra-elite tiers reflects airlines' attempts to differentiate themselves in the premium market. These programs offer perks like personalised service, dedicated phone lines, and tarmac vehicle transfers. Such exclusivity generates marketing value and strengthens brand perception, even if most travellers never access these benefits.

Consumer protection: The regulatory response

The devaluation trend has not gone unnoticed by regulatory bodies, which are increasingly scrutinising airline loyalty programs and their changing terms.

In the United States, the Department of Transportation launched a comprehensive investigation in early 2024 into loyalty program practices across the four major U.S. carriers. This probe examines whether airlines provide adequate notice of material changes, honour earned benefits during transition periods, maintain transparency in award availability and redemption requirements, and avoid hidden conditions in 'no expiration' policies.

Internationally, the European Commission is reviewing whether loyalty program changes violate consumer protection laws. Australia’s Competition and Consumer Commission now requires at least ninety days' notice before implementing material changes. The Canadian Transportation Agency is drafting rules to classify frequent flyer miles as a form of prepaid travel benefit with specific protections.

Several class-action lawsuits have challenged devaluations. In one case, a U.S. carrier settled for twenty-five million dollars after eliminating award charts and moving to dynamic pricing without adequate notice. These legal and regulatory developments indicate a shift toward treating loyalty programs less as discretionary marketing tools and more like financial products subject to consumer protection rules.

While many airlines continue to pull the levers of devaluation, the combination of regulatory attention and consumer awareness is prompting a few carriers to take a different approach. Some are choosing to enhance rather than reduce value, seeing loyalty as a long-term competitive advantage. In the next article, we will explore those airlines that are bucking the trend, adding benefits, and building stronger relationships with their customers.

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