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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. I’ve Tweeted a link to this article as I know a bunch of VTEC managers read my Tweets and I like to remind them as much as possible what a mistake replacing a decent rewards scheme with Nectar was! I hope BA doesn’t make the same mistake (of course they won’t use Nectar but making Avios purely revenue based would have the same impact).

    I also agree with the following in your article “Be very clear – having a bad loyalty scheme is worse than having no loyalty scheme, because they are expensive to run“

    VTEC replacing a great scheme with a bad one was probably worse that scrapping it altogether. Do a Homebase and claim you’re replacing Rewards with everyday low prices and less people will complain than they did when they were constantly reminded about Nectar in early marketing. Despite effectively outsourcing their loyalty scheme to Nectar they still employ a full time loyalty manager and loyalty assistant so there’s still ongoing costs for a scheme that delivers little value. (Yes we would have still been annoyed if Rewards was scrapped and replaced with nothing but in this instance Nectar was worse than nothing as it still cost VTEC something to run and the presence of it and marketing ‘make sweeter journeys’ rubbed many passengers up the wrong way)

    • Crafty says:

      Are you saying that Bunnings has done anything other than run Homebase into the ground?!

      • I’ve got no idea, there’s not even a Homebase near me, but I know on social media very few complained about Homebase ditching Nectar while thousands were unhappy at VTEC ditching rewards. I think if VTEC had offered 5% off for booking direct (5% is the commission they have to pay if someone else sells the ticket) people would have preferred it to Nectar points which are valued at 1% in most instances.

        In fact East Coast also had a web discount. It started at 10% and then became ‘up to 10%’ after Rewards was launched and the discount was gradually run down most of the time to 2%. VTEC then scrapped this discount in 2016. Even though it was mostly just 2% it was still better than the 1% Nectar gives.

      • Lady London says:

        IMV it was a mistake for Bunnings to take on Homebase. I am a huge fan of Bunnings as in Oz/NZ

    • Roger C says:

      While I also enjoyed the former loyalty scheme on the East Coast, the relationship with Nectar has not been all bad news. With relatively little effort on my part through credit card churn I’ve run up c£400 of free travel with East Coast. Regular travellers may get less now, but it’s much easier to earn credit in other ways.

    • Margaret says:

      I was so annoyed with VTEC changing to Nectar that I opted for Virgin Air miles from my train travel. I’ve a few thousand now, which is terrible, but it has opened an account which I can top up with Tesco rewards or even buy them when they have offers. I would never waste my Avios on many BA ‘premium’ options like CE on Heathrow domestic flights, PE on UK to US EC flights or on a number of business US flights as the quality is too poor and taxes too high. Better to pay cash fares for another airline or stick to economy in BA. I flew BA from EDI-LCY on Sunday CE, and despite being a smaller plane is so much better.

      • As I’ve had over a million Avios I have done some what would be considered wasteful redemptions if I had fewer Avios. For example my usual train to Newcastle (the 18:19) is often over £100 on a Friday in first class even if booked well in advance. I used to be more than happy paying that, the service on the train was excellent, it’s an evening meal service which means there’s a chef on board so the food is a better quality than the rest of the day menu. But with staff cutbacks last year I felt ripped off if my meal was replaced with a sandwich in a box. Therefore BA CE at £25 each way + points seemed a great deal. Eat in the lounge (I have gold so don’t need CE for that), but CE on the plane gives an additional salad and a few drinks rounds. I usually get offered more drinks on a flight to Newcastle than I do on the train.

        • Would £17.50 plus 4000/4500 not be preferable to paying for club Europe on LHR to NCL? Especially for a gold card holder.

          The only time I see any point in flying that route with avios is when I need to change my plans close to departure and the trains are too exoensive. If they did London City to Newcastle it would maybe change my mind (or when crossrail is fully up and running and it’ll be less than 40 minutes from my flat to Heathrow)

        • Andrew says:

          VTEC has some soft spots but if you are a gold card holder BA has always won hands down – and this is the key bit Save East Coast Rewards – even before Virgin/Stagecoach took on the route. Especially if you are happy paying £100 for a first class ticket on VTEC. Unless you live 500m from NCL station and 500m from LCY, BA Avios redemption in economy – as a gold card holder – wins hands down 99% of the time.

        • The problem with LHR to NCL is that for many people there’s no time saving to be made flying over the train. Unless you’re trying to get from Hounslow to North West Newcastle. I remember years ago, when I lived in Sunderland finding that it was only gonna cost me around £15 more to fly than to buy an off peak return on the train. It was only after I paid for the flight that I worked out that I needed to get up earlier to get to Newcastle airport and I wouldn’t really get to central London any earlier

  2. John Pagani says:

    For people running million plus Avios accounts,is it time to ‘jump ship’ and sell for cash? I’ve always had a two million Avios retirement plan as an idea to maintain my ability to fly.

  3. Mrs W.S Griffiths says:

    You Killed the Golden Goose !

  4. Intentionally Blank says:

    “Within 12 months, you will be able to redeem (and earn) Flying Club miles on KLM and Air France.”

    This is what I’m waiting for…. It opens up some fantastic places. Reunion, for one. I just hope that it also opens up short haul too… KLM can be VERY cheap, especially in Business, compared to others, so I’m genuinely excited about this.

  5. Philip says:

    Very enlightening analysis, Rob. Many thanks for sharing your thoughts.

  6. Great analysis. Rob – I’ll hire you if you ever need a job 🙂

  7. Rob this is a great run down and makes sense to the likes of us, especially when you factor in what happened to Necter and the difficulty BA will face with people moving to other airlines to redeem. However, I think you have failed to factor in one serious factor – Alex Cruz. Need I say more? ????

  8. D. Fuller says:

    We have been using BA from Heathrow to Nice two or three times a year for more than 25 years
    We are executive club members and have never gone up from the blue card which gives nothing.
    Why do I bother one might ask Well we can get to the airport on public transport
    And in the interests of economy go for the cheapest price
    Only BA does the sunshine route from Heathrow.
    So anyone with a blue card are not considered at all.

  9. Thomas Howard says:

    OT but are the terms on 241 vouchers regarding the voucher holder being on the flight enforced? I have one and I’m likely emigrating in the next 6 months with no partner and little time so it would be more useful to me being used to fly my mum and partner down to visit or even being sacrificed to my brother and wife for the same. If the booking system allowed me to make the booking is there any risk of it being cancelled closer to the flight date?

    • The booking system automatically puts the voucher holder as one of the passengers, I don’t know of any way to get round this.

    • Daftboy says:

      It won’t let you do that – you need to be one of the travelling party.

    • I live in Asia most of the time , to get use out of my remaining 241 i ensure we plan and book the Avios tickets from London , the only issue is availability and the only reason it works for me is due to using the Joker which means its easier to change

      If none GGL i think i would look to use them up ASAP before moving , they wont allow usage unless the account holder is traveling and/or the flight is booked from London

    • Physically not possible to book if you are not on it.

  10. I have been flying with BA/OW since 2010 , i am about 1500 tier points from LTG , once achieved i will let the GGL slide and carry on with just OWE , BAEC is great with GGL (2 Jokers etc) and to be perfectly honest i burn around 300-350,000 miles per annum, but if the below changes happen , then Star (Krisflyer) , Sky Team and Virgin come much more into play , the only reason i have stuck so long with BAEC is due to GGL, which does offer fantastic benefits

    if i was to start again now i wouldn’t be using BAEC or BA , if flying West it would be Virgin , if east it would be one of several carriers

    How i miss the days of the Diamond Card and the Earn/Burn Rates , that was when this game/hobby was in its prime………. I remember when the Seoul Flight Started and the promo cost was £777 in CW and upgrade to First was 20,000 , sadly those days have long gone

  11. RussellH says:

    Talking of Nectar, I am old enough to remember the days when shopping at Sainsbury’s got you Air Miles (before they became Avios). Back then the nearest Sainsbury’s was in Edinburgh (Cameron Toll) and there were times when we would travel the 40 miles to Cameron Toll for food shopping, just to get some more Air Miles too. No one would have ever done that for Nectar points! For a time I even had three separate Sainsbury’s loyalty cards – for Cameron Toll, for one in west London near other family members and one in Oxfordshire, near some of my partner’s family.
    I remember being told by an instore CS person after Sainsbury’s announced that they were stopping Air Miles that we should not worry as the new loyalty scheme wouls still include travel – which turned out to be paying for EasyJet at the same rate as for Sainsbury’s groceries, but with the disadvantage of a booking fee!
    And sadly, we still run too high a Nectar balance.

    • To be fair, the booking fee on easyJet redemptions with nectar didn’t make the flights more expensive than booking for cash on the easyJet website. It just priced the flights up cheaper then added the fee to make them the same price.

      • So just like redeeming on VTEC it offers no benefit. It’s easier to redeem in Sainsbury’s so buy your weekly shop on points and then use the money saved to pay for a flight.

        I’ve never tried to redeem on EZY (no longer possible) but the procedure on VTEC is a hassle so unless there’s a promotion there’s no value gained in doing so.

        Anyway summer rewards is round the corner and cheap pizzas is the most exciting Nectar gets.

        • Strange thing with myself was that most of my easyJet flights over the last couple of years I used nectar points to reduce the cost. I know easyJet seem to get a lot of love from people on this site but I never find them to be fantastic value. Ryanair are often considerably cheaper when they compete on a route and there’s often not a huge difference between their fares and BA’s. And with BA I’m going to have most of what easyJet change for for free as a silver card holder

        • We just wait until we have £25-30 of Nectarr points then buy a nice bottle of gin. Very sad we don’t have a convenient Tesco as that would massively boost the Avios collection opportunities for us.

        • OT @ saveeastcoastrewards
          You seem to be the train guy here so was looking for some advice if possible.

          I was booked on the grand central 1604 Kings Cross Bradford service yesterday which was cancelled I was put on the 1606 Virgin service and told to change at Doncaster to catch the connecting 1738 train to Mirfield , arrived in Doncaster at 1743 and due to strikes no more trains were running to Mirfield Had to get a train to Wakefield then taxi home. Arrived home 1hour 35 mins late and cost me a uber. Any recourse.

          Thanks

        • RussellH says:

          I assume that Grand Central are required to have some sort of delay compensation scheme, but as they are an open access operator, not a francise, I would not be altogether surprised if the rules were different (= in their favour).
          I would check around on their website and see what you can find.

    • I never paid much attention to Airmiles back then so by the time I realised they ceased being a partner. There was a big gap though between Sainsbury’s dropping Airmiles and Nectar partnering with easyJet (no longer an option) so for a long time I held onto my high Nectar balance in the hope that they may partner with bmi. I had lost hope when they ended up partnering with EZY.

      I had a high Nectar balance because Sainsbury’s was my local supermarket and until I had something better to collect points on I had a Sainsbury’s credit card (back when it was still Sainsbury’s Reward Card). Although with Nectar all the interesting redemption options disappeared I kept with it until I started flying. From that point on I paid much more attention to loyalty schemes.

      It was much more fun trying to maximise frequent flyer points and well before ahead for Points and before I had heard of frequent flyer forums I thought I was being quiet innovative in in planning my trips to maximise the points earned for the lowest cost but then it turned out many others did the same.

    • Oh, happy days! Back then, my nearest supermarket was a Sainsburys and I collected Air Miles with them for years. I even had a Sainsburys credit card that I used instead of my corporate Amex for expenses, because nobody accepted corporate Amex back then. I got a cheque a couple of days after I put my expense claim in and that went into my Sainsburys savings account to get huge (by today’s standards) amounts of interest before I paid the bill the following month.

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