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My thoughts on Alex Cruz’s thoughts for changes to Avios and British Airways 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.

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.

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.


how to earn avios from credit cards

How to earn Avios from UK credit cards (July 2021)

As a reminder, there are various ways of earning Avios from UK credit cards.  Many cards also have generous sign-up bonuses!

There are two official British Airways American Express cards:

British Airways American Express card

British Airways American Express

5,000 Avios for signing up, no annual fee and a companion voucher for spending £20,000 Read our full review

BA Premium Plus American Express card BAPP

British Airways American Express Premium Plus

25,000 Avios and the UK’s most valuable credit card perk – the 2-4-1 companion voucher Read our full review

You can also get generous sign-up bonuses by applying for American Express cards which earn Membership Rewards points, such as:

Nectar American Express

American Express Preferred Rewards Gold

Your best beginner’s card – 20,000 points, FREE for a year & two airport lounge passes Read our full review

American Express Platinum card Amex

The Platinum Card from American Express

30,000 points and an unbeatable set of travel benefits – for a fee Read our full review

We also recommend Capital On Tap for limited companies. You earn 1 Avios per £1 which is impressive for a Visa card:

Capital On Tap Business Rewards Visa

The most generous Avios Visa or Mastercard for a limited company Read our full review

Click here to read our detailed summary of all UK credit cards which earn Avios. This includes both personal and small business cards.

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

Comments (139)

  • Tom says:

    “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.’

    Not sure I agree. The entire Tier system is predicated on getting people to fly BA more, and then keep you flying BA. Avios, not so much since you can earn and spend Avios without ever using BA. But if you have elite status with BA then you earn a lot more Avios. Surely that is the definition of “loyalty”

    As a BA Gold, I feel rewarded, but not “over-rewarded”

    • Rob says:

      No. If the entire non-Gold (and indeed non-status) chunk of BAEC could be persuaded to increase spend by 10% that would dwarf anything the small Gold cohort could add.

      This is why Tesco is clever. They want a little more from everyone. They make no attempt at all to focus on big spenders.

      How many investment bankers, once fired, carry on doing 15 fully flex J trips per year on their own dime? None. Giving them 200% Avios during their career changed nothing.

      Also worth noting that in my experience many Lifetime Gold members strive for it just so they can stop flying BA long haul but retain Gold benefits on short haul. This is the law of unintended consequences.

      • Matt says:

        I’m nowhere near Lifetime Gold, but I have a similar thought. We generally (thanks to this site and FT!) fly Business class long haul and economy short haul. We go with Oneworld long haul to keep silver status to get lounge access etc for the short haul. If BAEC tiers are changed so we can’t qualify for silver then our long haul (and short haul) flights will go to whoever is cheapest and/or best, which is unlikely to be BA on either count.

        • Reinhard Schu says:

          I posted almost exactly the same comment before reading this thread.

          It cannot be stressed often enough for BAEC to understand:

          If status is made too difficult to attain, then people will simply chose the best value option for each indivvidual flight, regardless of airline. Given BA’s inferior product, they would lose middle segment premium customers in droves.

        • Pat says:

          You do realise you can get Virgin Atlantic Gold status after 5 business sectors, I find it a very rewarding program.

        • Leo says:

          I’ve said this (or something similar) many times on here before. I have though this year decided to give up chasing status – the only reason I am going out of my way to fly OW long haul J is so my short haul Y flights have the “benefits” – those 4-6 legs short haul per year then have to be on BA to benefit from the benefits and to get the 4 eligible flights…it’s a vicious circle.

        • Doug M says:

          But what does VS Gold get you? You get lounge with the tickets buying business anyway. I get BA gold because it means lounge on SH economy, more Avios, seat selection and at T5 the First Wing which really is better than fast track alternatives.

  • googley bear says:

    Outstanding job Rob, hopefully somone on the board gets wind of such simple analysis of the second order effects.

    Slightly O/T with this Nectar debate – with the “nets” of loyalty reward schemes to transfer miles in/out is there a six degrees of separation way to turn nectar points in to avios? Clearly the rate would be awful but for smaller orphan amounts this may be a better redemption than Nero. Although I do like Nero…

  • Jeremy Leonard says:

    Great comments.

    The fundamental issue though is not Avios. BA is in trouble. Their product is crap. Service is worse and they’ve gone from leading the world in flying quality and product too trailing just about everyone.

    Overhauling Avios isn’t the answer. The entire airline needs overhauling and that starts at the top. Alex Cruz is using every budget airline trick he knows to drive short term investor returns because he’s not smart enough to understand the long game.

    His handling of all BA’s failings in the past 12 months only reiterate how inadequate he is in the role. Get rid of him! Find a CEO that understands the value of customer experience and satisfaction and how to deliver that and BA might just have a chance at being Ann airline people want to travel on again. They might even pay a premium.

    American has a better product right now and I never thought I’d see the day that happened!

    • Davos says:

      Perfectly put. I couldn’t agree more. Although Rob’s points in the article are very logical and make lots of sense to thosr of us thinking long term, unfortunately all Alex Cruz is thinking about is improving ROE in the very short term. He will then get a big bonus. He will be long gone when the chickens come home to roost, and the BA brand has been dragged to the point of no return.

    • Will says:

      “ trailing just about everyone“

      They aren’t really, on short haul they are more or less equal or better than any European Aitlrlibe and on long haul they are OK. Many of the airlines viewed as superior are loss making.
      I’m not defending BA particularly here, but I don’t think it’s quite as bad as sometimes we make out on here.

      • Leo says:

        I agree. I’m not defending BA either – but there are plenty of other airlines in more trouble as you say. But I do hear more and more people in the real world moaning about BA. Man people hated losing that G&T.

      • Alex Sm says:

        I would say that on short-haul they are WORSE than their European peers (age of planes, standards of service, seats etc), will check the long-haul later this year and report back. But it’s my HO.

        But more objectively, does any one know any comparative analysis of economic performance of airlines? To have the recent results and key financials of several major airlines on one page?

    • HAM76 says:

      I think he understands very well what customer value. I’m reading this on a Eurowings flight to MUC sitting in row 1. I’ve more leg room than on BA, the armrest doesn’t fall off, the seat is clean and the table is stable. I’ve lounge access, free seat selection and two checked bags incuded. Granted, alcoholic beverages are limited to beer or win, food is my choice from the BoB menu, and I only get the M&M equivalent of 15-25 tier points.

      However, this flight is dirt cheap. 169 Euros, because I booked short term, 119 Euros when booking in advance. The next cheapest ticket is 50-70 Euros less and you can usually get an upgrade to Best for 35 Euros. If people would value lounge access, empty middle seats or even miles, this cabin would be completely sold out. Yet, I was the only one in this section. Not a single passenger on this A320 wanted to pay even 35 euros to get a better experience. Not one.

      • RIccatti says:

        How long is the flight?

        Perhaps 1-2hours hop is not worth it and lounges at German airports don’t have food to eat, no decent hot dishes usually.

        • HAM76 says:

          As long as most band 1 or 2 flights on BA which is what many of us fly… LHR-CDG, AMS-VIE, HAM-MUC, LHR-EDI… and that is where the alternatives are established LCCs.

          BTW, there is food and hot options in German lounges unlike in many BA lounges outside London. In SEA or SFO even in First class the only hot option is a soup with the others being sandwich and cheese.

  • Gavin MacBean says:

    Why do the airlines not offer a zero cost flight (using more airmiles) but not having to pay the taxes and surcharges? Thanks in advance 🙂

    • Rob says:

      The airport charges are a cash cost they incur, as is APD, so fair enough for recouping those. A bigger question is why BA adds its £300 of ‘carrier surcharges’ ….

      • Kathy says:

        I think we all know the answer to that! Because they can, because people will pay it.

        And honestly, before the scheme changed from Airmiles to Avios I actually redeemed for a totally free economy ticket to New York, clearing out most of my stash (it was 40,000 airmiles, if I recall correctly). Nowadays I wonder if I should have held off for my airmiles to be converted to Avios and flown Club instead….

        • Kathy says:

          Oops, 5,000 airmiles – forgot everything went up by a factor of 10 when Avios came in.
          Point is, the value of a free economy flight under the airmiles scheme wasn’t necessarily more than the value you get redeeming Avios for business class even though you have to pay charges.

          As long as there’s value to be had people who like the game will keep playing it.

      • Zoe says:

        This is what frustrates me the most. The way they are presented within the booking ties them nicely in with taxes so the consumer could assume that they are one and the same. On a separate
        note I was searching for flights next March to Tokyo on miles. Taxes and Fees were higher for premium economy than for business, I looked at APD and they are in the same tier so just can’t get my head around it!?

        • RIccatti says:

          Barring IT mistakes, simple, there are more PE seats released for redemption and more revenue can be collected.

  • Bill Rimmer says:

    Rob,
    I suggest that if you have the email address of Alex Cruz, you send him a link to your informed article!

  • Reinhard Schu says:

    The most profound line in this article reads “The point of ANY loyalty scheme should be to encourage INCREMENTAL business.”.

    Completely true. The only tickets I ever buy are discounted premium cabins (WT+ and CW), and I usually just about reach Gold with my amount of travel. So, I suppose I count as a “cheap” status customer and would likely be a big loser in a revenue based scheme.

    But Mr. Cruz should bear the following in mind: The BAEC scheme makes me fiercly loayal to BA and OW, as every flight counts towards reaching and maintainig that coveted status and once the status is achieved, I travel on BA or OW to enjoy the status benefits. If meaningful status moves out of reach for me, then I will simply buy the best value for money premium cabin ticket for each trip, irrespective of airline or alliance. My current loyalty would evaporate, as there would be no reason for it.

    I wouldn’t be suprised if many other regular premium passengers are in the same bracket.

  • Spike says:

    Can’t see VS getting any mindshare back with AF/KL redemption. They lost a ton of subscribers when they shacked up with Delta, and then all the loyal Flying Club members couldn’t actually redeem miles on VS metal any more because the much bigger Delta contingent got there first!

    Switched to BA at that point and have never looked back…

    • Leo says:

      I don’t get this – always plenty of availability to US and Hong Kong and China. Always get the days I want.

  • Eric Walmsley says:

    I have collected and spent Avios for a long time. Over the past three years I have accumulated 90,000 as a retail collector. I understand you have collected millions of points over the years and you are able to choose who travels. What I want to know is why commercial collectors of Avios are not taxed under the benefits for kind umbrella. A million points spent wisely must be valued at several thousand pounds. How many million points have you collected over the years? You have to pay tax on BIK eg a company car, discounted loans even BUPA how much have you spent Tax Free over the years and how many commercial collectors also benefit at this level. I can remember many years ago having to speak to a fellow director and draw his attention to how much time his PA spent in making sure he collected hotel points etc and planning his trips accordingly.

    • Rob says:

      The Inland Revenue has a stated policy that miles and points are not taxable.

      • Eric Walmsley says:

        Noted to save me contacting HMRC with my concerns can you comment how they arrived at that decision?

        • Rob says:

          a) they don’t belong me as per the rules
          b) they have a notional value of 0.001p as per the rules
          c) they are technically a rebate on a purchase in any event, so even if they had a value for tax purposes – which they don’t – all you would end is reduce the value of the original purchase which triggered the miles as you would with any other rebate

          No country in the world taxes frequent flyer miles or hotel loyalty points or any sort of loyalty points.

          Here is the technical discussion – http://www.learnpayroll.co.uk/index.php/news/news/item/11130-taxation-of-airmiles-4

        • xcalx says:

          “Noted to save me contacting HMRC with my concerns”

          I was investigated (1990s) by HMRC because someone had “concerns” (read jealousy) turned out I was owed just short of £2500 in overpaid taxes over the 6 years. The investigator brought in a few of his colleagues who were fascinated by an individual winning so many competition prizes. Thankfully I had kept all the LWEs (long white envelopes)

      • Mikeact says:

        Sounds a bit like sour grapes to me.

        • pablo fonseca domingo panto says:

          Rob has perfectly clarified things as usual.

      • mark2 says:

        May we assume that only people who collect more points than you should be taxed?

      • HAM76 says:

        They are in Germany. Lufthansa and Amex both pay taxes on miles and points issued to German accounts.

      • Doug M says:

        Any chance this means I can claim back the tax paid on income I’ve used to purchase miles and points 🙂

    • xcalx says:

      Eric. I suggest you pay more attention to Robs articles then if acted on you would have collected way more than 90,000 Avios in 3 years as a “retail” collector.
      HMRC concerns? really

      • Eric Walmsley says:

        Quote
        ‘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.’

        • Doug M says:

          Perhaps ask a fellow director or your PA to take the shovel away.

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