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My thoughts on Alex’s thoughts for changes to Avios and BA Executive Club

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Our exclusive publication of Alex Cruz’s interview on future changes to Avios and British Airways Executive Club was picked up by a lot of other sites. I ran it without comment because I thought it was best to let it stand on its own.

(I was surprised that no-one asked what the ‘three factual errors’ were about Avios and BAEC which Cruz made and which I corrected in the published version to save any embarrassment!)

For what it’s worth, this is what I think.  These are more random points than a coherent essay as I am meant to be away this week.  Check our Instagram feed here for photos and video from Lapland!

EARNING AVIOS:

Revenue-based earning will make negligible difference to most people

If you are concerned that moving Avios to a revenue based EARNING system will hit you hard, you’re probably wrong.  That ship sailed in 2015 when the earning on the cheapest tickets dropped from 100% of miles flown to 25%.  With just 125 Avios earned on a one way cash ticket to Europe for non-status members, you’re unlikely to be much worse off.  It is ALREADY the case that if you are on a route where Flybe competes you may earn more Avios choosing Flybe at 4 Avios per £1 spent ….

That said, revenue-based earning is the wrong model for passenger airlines

The point of ANY loyalty scheme should be to encourage INCREMENTAL business.  It is NOT about over-rewarding those who spend the most and ignoring the rest.  This is especially true in aviation where your top customers are NOT actually your customers, as the tickets are bought by their investment bank employers.

When I was in banking we had a BA deal which meant I had to use them if possible.  You could give me zero Avios or 1 million Avios per flight, it made no difference.  The percentage of travellers on fully flexible Club World tickets who have no control over who they fly with due to corporate deals is very high – so why over-reward these people?

As the owner of my own business now, I have 100% control of who I choose for my travel.  The 2015 Avios changes and the later On Business changes made it clear that there was no real interest, from a loyalty perspective from BA in taking my money.  On Business now needs £30,000 of annual BA spend to reach Tier 2 which is an odd definition of SME.

Revenue-based earning isn’t even easy to implement

Lufthansa has just moved to a revenue based scheme for Miles & More It is laughably complex. 

The headline earnings table is fine – x miles per €1 spent depending on your status. The small print is chaotic.  ONLY directly booked tickets are treated like this.  Book with a travel agent and, because a TA can often add hidden extra charges to tickets, Lufthansa has to reward you using the old system.  Flights on partner airlines will also be under the old system because Lufthansa doesn’t know what you paid.  It is revenue-based except when it isn’t, which will be much of the time.

Status spending thresholds won’t easily work in Europe

Some US airlines have brought in an annual spending threshold for status alongside tier points.   I don’t see this working, because BA does not get revenue information for partner airline flights and they are more important in Europe – due to the large number of airlines – than they are in the US.

In any event, there is no sign that BA believes it has too many elite members.

And anyway the opportunities for status arbitrage are many.  If BA put status out of reach due to a spending threshold or other changes, you can simply start crediting BA flights to American, Finnair or any other oneworld airline.  That costs BA real money.

Changes to Avios and British Airways Executive Club

REDEEMING AVIOS:

Some element of revenue-based redemption is not a problem

Almost all major frequent flyer schemes offer some form of revenue based redemption.  Etihad is a good example.  When you redeem you see the standard price and an ‘anytime’ price, which is driven by the cash price of a ticket on that day.  I’ve no idea if anyone ever buys them but the option exists.

Virgin Atlantic has been offering 100% revenue based redemptions and most people failed to notice

Since the Virgin Flying Club changes a year ago, you have been able to do ‘proper’ part paying with miles.  You can pay for 100% of the cost of a flight, including taxes, with miles at a rate of 0.6p per mile.  You can use as many or as few miles as you like which makes it far more flexible than ‘part pay with Avios’.  The only difference between this and what Etihad does is that Virgin promotes this via the ‘paying cash’ part of its website rather than on the Flying Club booking site.

There will be no changes to the current ‘2 Club World and 4 World Traveller’ guaranteed availability

…. is my best guess.  The changes will be alongside this.  If there are no standard Avios seats left you will be offered an ‘Anytime’ seat at the current cash price divided by 0.5p.

Letting people use Avios to pay for seat selection etc is perfectly fine

If people want to ‘waste’ points by getting 0.5p per point that’s fine.  They feel they are getting value or they wouldn’t do it.  The more people who redeem for poor value redemptions, the more likely it is that high end redemptions will also remain.

…. but it doesn’t breed long-term loyalty

Using your Avios to get a few quid off a cash flight has one big problem.  No-one cares.  No-one will be on social media showing off the £3 saving they made on a seat selection fee from using 600 Avios.  Easy access to premium cabin redemptions is the cornerstone of the entire scheme.  Be very clear – having a bad loyalty scheme is worse than having no loyalty scheme, because they are expensive to run.

100% revenue based redemptions make no sense

If you think Avios will go 100% revenue redemption based for BA flights (with no seats released at ‘standard’ prices), you’re wrong.  It makes no sense.  Here are a few reasons:

Under a 100% revenue redemption system, no-one could afford to book premium cabins.  Avios WANTS you to book premium cabins.  They want you to have something to strive for.  If BA lets a flight go out with empty Club World seats it could have ‘sold’ for Avios then it has lost revenue.

Partner flights.  BA still has to offer partner flights and they cannot be priced off a revenue model as BA does not have that data.  BA NEEDS you to redeem for its own flights as it is cheaper than paying for partner redemptions.  This is why in 2015 it introduced segment pricing (connecting partner flights became pricier than direct BA flights) and off-peak pricing for BA only.

Nectar.  Need I say more?  Pure revenue based redemptions would take away ‘outsize’ redemption opportunities.  That is why Nectar failed and why Clubcard has been a huge success.  Even current and ex Nectar staff I talk to admit this.  People genuinely would have preferred 50p off an item rather than 100 bonus Nectar points which also got them 50p but in a painfully convoluted way.

Avios partners would walk away.  NO-ONE pays much under 1p per Avios.  Not Amex, not Tesco.  If there was no way of getting more than 0.5p per point of value when redeeming, all of the partners would walk.  Why would Amex pay 1p to Avios so Avios can give me 0.5p off a flight?  Amex could simply give me 1p in cash via a different product and I would be far better off.  Avios only ‘works’ for third parties as long as members believe the points they get are worth more than the 1p the sponsor is paying.

BA still has to provide redemption seats to partners.  This is more important than you think.  If BA wants 500,000 Avios for a £2,500 Club World seat (at 0.5p per point, this is what it would cost) but American will give you the same seat via its reward chart for 90,000 AA miles, it is clear what will happen.  People will credit BA flights to American and then BA has to pay American for those miles.  The worse case scenario for BA is one where there is a mass move to other oneworld frequent flyer schemes – and HFP will be happy to point out the nearest available exits.

There would be a great unwinding of balances which would be hugely expensive.  My wife and I are sitting on around 1.5 million Avios between us.  If redemptions were capped at 0.5p of value per point, there would be no point in keeping any sort of balance.  My next £7,500 of BA spending would be entirely in Avios.   This was also the undoing of Nectar – there is no benefit in running a balance in a scheme if redemption rates are fixed.  People emptied their Nectar account as soon as it hit the minimum £2.50 needed for a Sainsbury’s discount.  If members do not run balances, there is no cashflow benefit to Avios Group and less breakage as fewer points will expire.

Competition from Virgin Flying Club is increasing

Within 12 months, you will be able to redeem (and earn) Flying Club miles on KLM and Air France.  And we haven’t even talked about the new Virgin Atlantic credit cards.  This is not a good time to risk doing anything silly to Avios, especially as Virgin Atlantic is a strong competitor on BA’s lucrative North American routes.

So …. here are a few random thoughts for a Tuesday.  My general view is that you shouldn’t worry and all will be fine.  And if it’s not, another oneworld frequent flyer scheme or Virgin Atlantic will happily fill in the gap.

(Want to earn more Avios?  Click here to visit our home page for the latest articles on earning and spending your Avios points and click here to see how to earn more Avios from current offers and promotions.)

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Comments

  1. Now you have pointed it out – what were the three errors you changed?
    Cheers
    Henry

    • Yes, what are they???
      I think people were less interested because if it’s not you who pick up the errors, you lose interest…
      But for some geeky pedants like Henry and myself you should reveal now!

      • 1. Alex said he got a £20 discount for 2000 Avios. It is actually 2500 Avios.

        2. Alex said ‘some’ BA flights open up redemption booking at a year out. As we know, ALL BA flights open up a year out.

        3. He said redemptions were bookable 365 days in advance. It is actually 355 days.

        • Thanks!!! I was pretty sure about no.3 that it would be unlikely for him to know and use this in the interview!

  2. Stuart says:

    Hope Mr Cruz is one of your subscribers and reads this!

  3. sam wardill says:

    I contrast the Qantas strategy which is to leverage the brand and loyalty value beyond air travel. I think Qantas has got it right and BA (and others) are missing a trick. Your radio programme really brought it home to me. The marginal cost to an airline of filling an otherwise unused business class seat (either directly or via an upgrade) is minimal. The value a consumer attaches to this seat (and the other FF loyalty perks) is significantly greater than the cost. There has got to be an opportunity for airlines to leverage this loyalty in the same manner, but with greater impact, than Tesco does with Clubcard.

    • The flip side is that people (except large corporation travel departments) stop paying for business class seats if it’s too easy to get them cheaply via redemptions.

      • Except that it isn’t easy. If it where there would be no need for this site. In practice the limited number of seats released for redemptions is such that the downside is likely to be minimal and a considerable proportion of any spend that might be lost through that route would likely go to other airlines anyway.

    • the_real_a says:

      RFS aside the marginal cost is offset by the “taxes/fees/surcharges” – i would imagine long haul redemption’s on BA metal are profitable and the only thing stopping BA throwing availability wide open is Revenue management who are concerned about cannibalisation by people who would otherwise pay cash.

  4. One thing I learned working for the corporations is that logical reasoning wins only occasionally.

    But great article.

  5. I am a gold card holder who genuinely dislikes BA with a passion……why? because I spend my own money and don’t see any benefit by spending it on BA. My family (1 gold and 3 silver cards) travel together most of the time yet when we do I am downgraded to the benefits of lowest card member and my family spend counts for nothing. Redemptions for 4 are very hard to obtain and whilst in the past I have had 4 F my last two Amex vouchers were used to fly to Frankfurt!!!!!
    Combined with really poor quality premium products, targeted downgrades of redemptions, buy on board, etc I was driven to almost any other carrier for long haul.
    Family accounts and BA amex 241 are the only thing that keeps me anywhere near BA and so significant changes to these would see me gone.
    I just wish AA offered family accounts but BA have too much influence over the competition in the U.K. via ownership (QR) or commercial agreements with AA AY JL IB and others……
    So whilst I think your is coherent and well thought out, indeed entirely sensible and logical, I fear there is no evidence of this view coming out of Waterside.

    • If you spend your own money and don’t see any benefit spending it on BA, why are you a Gold card holder?

      • Because BAEC is one of the easier FFPs to become top (published) tier and you don’t even need to fly a BA plane (as codeshares and IB flights count).

        • Rashad says:

          True, but I still haven’t heard such poor use of Gold benefits as sore above. Fly F/J only with redemptions and my life has never been better since falling into Gold line

        • Some travellers enjoy the benefits of their BA Gold card without being at T5 or anywhere near any of BA’s aircraft.

      • I wouldn’t say its easy to get gold when spending your own cash but as others have said you don’t need to go near BA and I try not to.
        However they have a near monopoly at LHR and lounge access makes s/h bearable but it is marginal. I would still get lounge access at T5 as I have Amex Plat and Priority pass and would be able to get lounge access at most other terminal at LHR.
        Like other I want to see some return on my investment in flying and with a family BA is, sadly the only game in town.

    • FlightDoctor says:

      I have had the same experience with 2-4-1 vouchers and Avios redemptions. I am a long standing Gold BAEC member but with a family of 5 it is almost impossible to get decent premium cabin redemptions to a desirable destination over the school holidays. We are travelling to Nice next week with the family in CE as that was the only viable option for our (soon to expire) 2 x 2-4-1 vouchers…better than losing them but I calculate that at best I am cash neutral if you factor in the card fee and the flight taxes.

      I also have 4x upgrade vouchers (2 of which need to be booked by early May) and am desperately looking for a family option over the autumn half term or Christmas. Again, short of paying a fortune for PE or Club seats I can find any viable options (so will probably end up using them for business travel which is a real waste as we get to fly J Long haul anyway).

      • As a Gold, you can book the 4 Y seats guaranteed and then use double Avios for number 5.

        We have 4 seats to Stockholm in CE this week, no bother.

        • Is it only the gold member that can book the double avios seat?

          • No you can book for anyone and as many as you want. Gold member does not need to travel. I book them for Anika and parents in law all the time.

        • Andrew says:

          As an aside Rob how do you maintain gold status? I would have thought the vast majority of your flights were reward based and thus non-tier point earning. Any trick the rest of us are missing?

      • It’s just not true that you can’t get premium cabin seats with 241 in school holidays. I have a family of 5 and over the past couple of years we’ve done Washington DC (all in first both ways), Chicago, New York at Christmas, and have a trip to Denver and Vegas coming up. You just need to plan in advance and put some effort in.

        • 3 of us in CW into IAD and out of BOS in August. You have to be a bit flexible, but there’s generally v good availability to the Eastern US cities, from where you can connect to a multitude of other destinations, e.g. we are connecting to GCM for part of the trip, also using avios.

        • So what you are saying is that as long as you want to go to America, you are fine. Bit of a pain though for those of us that love travelling as long as it’s anywhere but America.

        • pauldb says:

          Obviously a disproportionate amount of BA’s are to the US, particularly the high frequency routes that give the best opportunities for a family redemption. But I went for the US as my own next flight, and picked out some future availability as that’s most likely to appeal to most families, not knowing the OP. The list of longhaul Christmas destinations isn’t a long one and most will be taken by now. However if you are adventurous with your family travels, BA can usually offer you something, for example maybe MEX, NBO, China or India. My blonde 3 year old was apparently a rare sight in CTU’s panda centre, drawing a bigger crowd of locals that the residents!

      • pauldb says:

        6 of us off to MCO at Easter – can’t get more prime than that.

        How about SAN on Boxing Day, returning 6th Jan?

        • Yeah, I have got First return in August for South Africa, which whilst being their winter is great for doing whale watching, going on Safari etc.

        • FlightDoctor says:

          Great to hear people’s comments. Agree that I’ve not been as disciplined as usual – historically we have tended to source ex-Eu flights but these don’t seem to be as generous or available as in previous years. However, now found a possible redemption opportunity to NBO and a safari holiday would be a neat family adventure.

  6. Mikeact says:

    Thankyou for your thoughtful comments today. As a retiree who has enjoyed the “good old days” of FFP’s, my only concern, and always been, is the reward availability, short and long term . If this means my wife and I could get out to Maderia today/tomorrow that would be welcome news indeed.

    • Enjoy

      14:25
      27 MarLGW
      18:15

      27 Mar

      FNC
      OFF-PEAK
      British Airways – BA2784

      3h 50m, Non-stop

      2 left
      Economy

  7. Not to mention Amex 2-4-1 vouchers? If complexity is increased will the product be available and would people use the Amex PP card?! I wouldn’t…

    • Who knows if the 241 voucher will remain given the reduction in transaction fees AMEX can charge now.

  8. The aspirational element is absolutely true. I was sitting in a pub in Auckland with my entire tour group boasting (in all honesty that’s what it was) about having got there in business class, and telling them to start collecting air miles from credit cards – one of the group even worked at Amex (as a software developer) and had flown economy from France!

    One of them had a 36-hour flight – including connections – to get back home, in economy. Even using air miles to get a shorter, more direct journey for the same price would have been good value for him.

    Avios should offer you the chance to do things that most people wouldn’t do with cash, because there are plenty of things cash can do that they can’t. I can’t pay my mortgage with Avios!

  9. Well, having a fixed redemption rate such as 0.5 or 0.8 pence will make it easier to value the liability sitting on IAG’s balance sheet and they’ll be looking to make it as small as possible of course.
    The improvement to their balance sheet may well be worth p*ssing off a bunch of frequent fliers who are clued up.

    • Why should IAG worry if there’s a mountain of Avios parked in all those BAEC/Avios.com accounts?

      It’s *good* for them, not bad!

  10. Richard McCartney says:

    Staggeringly succinct and insightful analysis – the cold air in Lapland clearly agrees with you!

  11. Maria J says:

    Great article Rob

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