Jul 172011
 

I travel – a lot. Not as much as many salespeople, but enough that I’m sure I laughed harder than most at several parts of the movie “Up In The Air“, starring George Clooney – in particular at the parts poking fun at the rituals of checking in, clearing security, and so forth (the movie is worth watching, if you haven’t seen it). While I’m not even a tenth of the way to the 10 million mile threshold that is a theme in that movie, I’ve done about 20 trips and 100,000 miles of traveling per year for five years running now – about 80% business, and 20% personal.

“Up In The Air” lampoons the obsession of some of its characters with loyalty programs; the amusing thing is that there are many with real-life levels of obsession not far off from what the movie depicts. Indeed, recent studies of social gaming (Farmville, etc) show that whenever you succeed in creating a sense of accomplishment that’s visible/measurable, people can wind up in a near-addictive state in pursuing achievements that are often meaningless. Like the goal I mentioned of reaching 1v1 Diamond in Starcraft 2, though at least that’s based on some kind of skill development…

But how useful are these loyalty programs, anyways? A recent experience prompted me to write this post to share some thoughts on the topic…

Airline Programs

I joined the frequent flyer programs for Air Canada, Delta, US Airways, American Airlines, United, Continental, KLM/Northwest, and probably others that I didn’t even keep track of (and some, like Canadian and Jetsgo, that are now defunct). It’s actually pointless to join that many these days, because airlines have mostly partnered up to create things like Star Alliance, Skyteam, and other groups where if you fly any airline that’s part of that club, you’ll earn miles on it.

Is it worth joining airline loyalty programs? Since there’s no actual cost, yes; however, my experience has been:

  • If you fly a lot with a particular airline network, loyalty programs offer many benefits. The obvious one is collecting miles for free travel later. But once you qualify for the higher tiers (based on annual miles flown), there’s other meaningful benefits. Airline lounge access is handy when waiting for flights, you may be able to upgrade to business class, and you can board the aircraft early (which is useful only to avoid having no space for your bag on a full flight). You get preferred seating and extra baggage allowance. But one of the most significant hidden benefits is that you won’t get booted off the flight. All airlines oversell their flights – that is, they sell more seats than are actually on the plane. If everyone actually shows up, well, someone isn’t going to be able to get on. If you’re part of their loyalty program, and you fly a decent amount, that person is not going to be you. This is especially useful when flights get cancelled/combined, and lots of people are going to be told they have to stay the night.
  • In every program where I flew only occasionally, those loyalty programs were useless. I flew 50,000 miles over the years with American Airlines, never redeemed a single mile for anything, and because I didn’t fly them for some period of time, they expired away everything I’d ever accumulated. Indeed, I’ve never redeemed a single mile for anything with any airline, other than Air Canada.
Since joining is free, the more important question is, does it make sense to stick to one airline? Does being loyal actually make sense?
  • If you don’t travel much, but the difference in fare/schedule is small (say less than 10% or $50), then it does make some sense to stick with one airline. Even if you don’t make the higher levels of their program, one account with 25,000 miles lets you go somewhere (theoretically!), five accounts with 5,000 miles doesn’t and will just expire.
  • If you can make the higher tiers, then the value of sticking with a single airline is a little higher. In particular, having gotten stuck places before, I do find value in knowing that I won’t be booted and that even in the not-uncommon event of a cancellation, I have a higher likelihood of getting home.
  • In most cases, however, fare differences (and/or company policy) mean you should just go with the best available option. A thousand miles and a free beer in the lounge aren’t worth paying $200 more for a ticket. Accumulated miles are worth about 1-2 cents (in terms of what you can get with them later).
  • Short-haul flights are inconsequential compared to long-haul ones. Sticking with one airline for a couple of round-trips to Hong Kong yields a free domestic flight that would otherwise cost $500.  Sticking with one airline for 10 short haul flights (e.g. Toronto/Chicago) doesn’t get anywhere close, despite that those 10 flights will cost significantly more. Every airline program is based on miles, and miles per dollar spent are massively higher on long-haul flights.

Despite the view that you should generally take the best fare, I’ve wound up at the Super Elite tier (100,000+ miles/year) with Air Canada for many years now – but this is almost entirely because Star Alliance is almost always the best natural option for flying out of Toronto, at least for everywhere that I travel to. If there were cheaper fares to Paris or San Francisco on other airlines, I’d have far less miles with Air Canada.

Lastly, it’s worth noting that an unspoken truth of frequent flyer programs is that they create a deliberate conflict of interest for business travel. That is, the benefits of “loyalty” accrue mostly to the traveler, whereas any costs of “loyalty” – e.g. picking a flight on your favorite airline when there’s even a marginally lower fare with a different airline – are paid by the business. Indeed, one could argue that the sole reason that loyalty programs exist is to influence you to make a non-rational choice (if an airline offered the best option, then they don’t really need to motivate you to choose it with a loyalty program). Indeed, in aggregate, sub-optimal choices by travelers – say overpaying on average by $20/flight to get the airline you like – benefits the airline industry a whole (it’s like all ticket prices being $20 higher on average) – and they just rebate part of that benefit via loyalty programs to keep things going. It’s actually surprising that this hasn’t gotten more scrutiny, and it probably should. Even though I strive to always pick the best option for the company, can any of us be truly unbiased and unswayed by these considerations?

Car Rental Programs

Car Rental loyalty programs are sort of amusing, because so far as I can tell, the only “benefit” they provide is not standing in line when picking up your car. I rent with Avis, but because it’s the corporate preference. I also only rent when it’s the optimal way to get somewhere; in Chicago, rental is always cheapest; in San Francisco, I now usually stay downtown and use public transit (depending on my itinerary). By all means, do participate so you don’t have to stand in sometimes long & slow lines, but you’re probably always best off searching for the best rental deal in a given circumstance.

Interestingly, for a while, I was in situations where I had to rent often enough that I qualified for Avis First, some “invite only” program complete with a special black card, and a promise of free upgrades where available, or some such thing. I can’t say I’ve noticed any difference in the cars that I get, and past attempted upgrades (before I had Avis First, just based on vehicle availability) included things like offering me a gas-guzzling pickup truck or SUV that’s actually less convenient for driving to/from the office than a small passenger car.

Hotel Programs

Ah, my favorite – and the real reason for writing this post.

The image above shows my Hilton “Gold VIP” card, which I had for a brief period of time because the Hampton Inn in Daly City was where I stayed on frequent visits to our office in the area. This was when I was simply ignorant as to better hotel options and thus just went for the closest choice. Ostensibly, this card would have provided access to some special lounge in the more expensive Hilton hotels that I don’t actually stay at. But I only have the card today because they don’t send you a new downgraded card when you start staying less frequently – I’m actually in the lowest possible tier with Hilton, I think, and I have basically nothing with any other chain.

All hotel loyalty programs are free to join so there’s no harm, and if you travel to the same place over and over you might as well join because you’re probably always going to stay at the same hotel there.  But my observations on hotel programs thus far have been that the cost of loyalty substantially outweighs the benefits. What do I mean by this?

  • Flights and rental cars are mostly commodities. Any airline takes you from A to B with roughly the same level of comfort, the same in-flight beverages, and similar vulnerability to weather delays. Any rental car company will provide a new but entry-level four-door compact sedan that you can drive from A to B. Because airlines and rental car companies realize this, pricing is pretty close/competitive in most cases. Hotels, on the other hand, have enormous variations in quality and price for the same location.
  • The best hotel choice is almost always location specific. I actually like the Hilton hotel in Naperville, because it’s priced reasonably ($120/night), it’s really close to the office, Internet is included in our company rate and it’s reliable and works well, parking is free, and the hotel itself is clean and comfortable. But the Hilton properties just don’t make sense for me when I’m staying in San Francisco; if I need to stay by the airport, the Bay Landing hotel has definitely been the best value in my many stays there, and if I’m staying downtown, the Villa Florence hotel is usually my choice. Both cost the same or less than the low-end Hilton properties (Hampton Inn) and are significantly better hotels.
  • In general, boutique (non-chain) hotels seem to provide a better experience, at a better price – but have no meaningful loyalty programs.

I was actually motivated to post this, because we spent last weekend on vacation in the Seattle area. TripAdvisor recommended The Heathman Hotel in Kirkland (we were out on the east side) – and I’m glad it did, because it was truly outstanding. For under $150/night, we had a package that was truly top-notch – clean & comfortable rooms, fast Internet, included valet parking with extremely helpful staff, included made-to-order breakfast up to $40, turn-down service with a fresh bucket of ice in your room every night, a nice spa/exercise facility (that I sadly didn’t use, but should have), and great overall service. I particularly appreciated them putting Valerie and Leo’s passports in a taxi and rushing this to the airport after I stupidly left them in the hotel safe!

I have nothing against the Hilton (and like I said, the Hilton is my preferred hotel when in Naperville), but the Hilton in nearby Bellevue would have been $150/night, plus extra for WiFi, extra for breakfast, and without several services mentioned above. The benefits of loyalty just don’t cover a gap like that. So I’d strongly suggest going with the best hotel you find that’s in your budget (hello, TripAdvisor), and ignoring that hotel loyalty programs even exist.

 Posted by at 8:14 am

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