As the world of air travel evolves, frequent flyer programs are increasingly offering less value to their members, a trend highlighted by a recent study. The 2024 Reward Seat Availability Survey, conducted by IdeaWorksCompany, dives deep into the cost and value of points redemption across major U.S. airlines. The findings underscore significant shifts in the frequent flyer ecosystem, driven by the rise of basic economy fares and the growing influence of co-branded credit cards.
The survey, which evaluates six leading U.S. airlines—Alaska, American, Delta, JetBlue, Southwest, and United—offers a comprehensive look at how these programs have changed over the past five years. According to the survey, the cost of reward seats, measured in miles or points, has risen sharply, outpacing inflation by 7 percentage points since 2019. This increase in reward pricing is a reflection of broader industry trends, including the integration of basic economy fares and an influx of miles from credit card spending.
The Impact of Basic Economy Fares
Basic economy fares, introduced by network carriers like American and Delta to compete with low-cost carriers, play a pivotal role in the evolving dynamics of frequent flyer programs. These fares, often non-refundable and limited in terms of mileage accrual, are positioned as the cheapest options available, but come with significant restrictions.
Dan Richards, CEO of The Global Rescue Companies, explains, “It’s a boon for the travel industry, and one reason why travel growth continues to surpass pre-pandemic levels.”
The survey highlights that basic economy fares disrupt the traditional value proposition of frequent flyer programs. For instance, Alaska Airlines now offers mileage accrual at just 30% of standard fares for its basic economy class, a stark reduction from its previous policy. Similarly, American Airlines accrues only 2 miles per dollar spent on basic economy, compared to 5 miles for other fares. Delta has taken the most drastic step by eliminating mileage accrual for basic economy entirely. In contrast, United Airlines maintains consistent accrual policies across all fare types, setting a positive example.
Southwest Airlines: A Leader in Reward Value
Among the airlines surveyed, Southwest Airlines stands out for providing the lowest overall average reward price, making it easier for consumers to enjoy the benefits of reward travel. Southwest’s focus on short- and medium-haul routes and frequent flights contributes to this advantage, as reward prices tend to be lower for shorter flights. The airline’s long-standing tradition of offering low reward prices is reflected in its top performance in the survey’s history.
The Role of Co-Branded Credit Cards
A significant driver behind the increased demand for miles and points is the proliferation of co-branded credit cards. These cards have become the primary method for many travelers to accrue miles, overshadowing the traditional model of earning through flights. The financial disclosures from major airlines like American, Delta, and United reveal that a substantial portion of their mileage accrual now comes from credit card spending rather than flying.
As a result, the reward payback, which measures the value returned per dollar spent on base fares, has declined. In 2024, Southwest leads with a reward payback of 6.7%, meaning travelers receive $6.70 in reward value for every $100 spent on base fares. This is a significant drop from 2019, driven largely by the rise of basic economy fares.
Changes in Reward Value Metrics
The survey also introduces a new metric to assess the reward value of a mile or point. American Airlines tops this category, with AAdvantage miles providing 1.4 cents of coach travel value, a doubling of the rate since 2019. This shift indicates a change in reward pricing strategy, favoring those who accrue miles through co-branded credit cards.
Implications for Frequent Flyer Programs
The findings from the IdeaWorksCompany survey suggest that frequent flyer programs are increasingly prioritizing revenue generation from co-branded credit cards over fostering customer loyalty through flight-based accrual. This shift has significant implications for the value proposition of these programs.
As Richards noted, “Vacations used to be all about a complete escape from work, but now you can check emails from a hammock in the Maldives, take a break from a video conference to surf the incoming tide in Rincon, or finish the workday in Sweden and have plenty of time to view the Northern Lights.”
Consumers who want to maximize their reward value must adapt to these changes. Using a co-branded credit card and remaining loyal to a single airline for flight purchases is more crucial today than ever before. These cards often come with additional perks, such as priority boarding and fee waivers, enhancing the overall travel experience.
The Future of Frequent Flyer Programs
Looking ahead, frequent flyer programs face the challenge of balancing their role as revenue generators for airlines with their original mission of building customer loyalty. The best programs will be those that can strike this balance, offering meaningful rewards for loyal customers while also leveraging the financial benefits of co-branded credit cards.
As the travel industry continues to evolve, consumers must stay informed about the changing landscape of frequent flyer programs. Understanding the nuances of reward seat availability, accrual policies, and the impact of basic economy fares will be key to maximizing the benefits of these programs.
In conclusion, the IdeaWorksCompany survey provides valuable insights into the current state of frequent flyer programs. By highlighting the challenges and opportunities within the industry, it underscores the importance of adapting to new trends and making informed choices as a traveler. Whether you’re a frequent flyer or a casual traveler, staying updated on these changes will help you navigate the complexities of modern air travel and make the most of your rewards.
