YOUR MONEY-What to watch for as airlines' frequent-flier programs shift

Reuters

By Mitch Lipka

BOSTON, Feb 27 (Reuters) - The airline miles game is changing, and the winner is the heavy-duty business road warrior.

The loser? The leisure traveler.

Delta Air Lines announced on Wednesday a fundamental change to the way it rewards passenger loyalty. Instead of tracking how far customers travel, starting in January 2015, the airline will instead tally up how much they spend.

Business travelers who take many short flights, particularly of the pricey last-minute variety, are going to earn far more points under the new system, says Tim Winship, editor of FrequentFlier.com.

Airline-related credit cards recently made a similar shift as well. Co-branded credit cards offered by both Delta Airlines and United Airlines Inc added in minimum annual spending requirements of $2,500 on tickets while also amassing 25,000 status-earning miles to get to the lowest elite level of their respective frequent-flyer programs, according to Bill Hardekopf, the CEO of LowCards.com.

BETTER FOR DELTA

Starting next year, Delta passengers will earn between five and 11 miles for each dollar spent on airfares, depending on their frequent-flier status. Holders of Delta SkyMiles credit cards will earn additional miles.

While low-cost carriers including JetBlue Airways Corp and Southwest Airlines Co also use the cost of a ticket to calculate their rewards - as hotels typically do - Delta's announcement is clearly a play for the business flyer.

Even a small percentage increase in the number of flights taken by premium business travelers will bring in a lot more cash for Delta, Winship said. And he expects the remaining major airline carriers to follow Delta's lead.

Decades ago, airlines decided to base their loyalty programs on miles traveled because they did not have the technology to track the cost of a ticket. Now, it is much easier for airlines switch to revenue-based metrics.

"You want to reward profitable passengers. This is the way to do it. Otherwise, you reward expensive churn," says Robert Mann, an airline analyst for R.W. Mann & Company Inc and a former airline executive.

LEISURE TRAVELERS GLUM

But consumers who looked forward to building up to a free trip by collecting miles from one year's vacation trip - with a few more miles picked up here and there from linked hotel programs - are pretty much lost in the new equation, says travel loyalty expert Brian Kelly of ThePointsGuy.com.

"They're going to probably have to fly twice as much to get the tickets they'd get today," Kelly says. "It will become a lot less lucrative to earn miles. It says we really only care about people who spend a lot."

Airlines have long been tweaking their loyalty programs and reducing the currency of miles by making them harder to redeem or raising the amount necessary to earn a trip. Dramatically altering a system that people have spent years trying to understand and benefit from is tough to swallow, says consumer advocate Bob Sullivan.

"Many middle-class Americans travel like crazy for work right now, taking red-eyes across the country - or the Atlantic - so they don't miss a day or work, and their one reward for crazy travel schedules is a nice trip for their families," Sullivan said.

Taking away rewards and making them harder to use is like docking those workers' pay.

"And that stinks," Sullivan added.

NOW WHAT?

Someone who gets a good fare for a cross-country flight will feel the change the most.

Today, a $500 round-trip ticket on a coast-to-coast flight will net a traveler about 5,000 miles (the minimum to earn a free flight is usually around 25,000 miles). Under the new system, the same passenger would get about half of that, which amounts to 2,500 miles.

But Delta still needs savvy consumers to fill its planes. If enough of the little guys take their business to other airlines, Delta could still backtrack from its position, Kelly noted.

Otherwise, he suggests those who still want to try to get that free trip accumulate points through other carriers.

Due to the partnerships between airlines, travelers can use an Alaska Airlines frequent-flyer number, for example, when booking a flight on Delta. Alaska also has a more generous rewards system, Kelly noted, and the points could be used to book flights on other partner carriers as well.

Watch your respective airline loyalty programs carefully, however, since terms can change without much warning. Avoid hoarding miles by using them as soon as you can.

Winship says whatever push back there might be - and he has heard the grumblings - at the end of the day, will not amount to much.

"Change is always hard," Winship said. "My bet is that after a month or two and all of this sinks in a lot of people in the middle will decide it's not that bad."

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