Airlines Frequent-Flier Programs

After years of shrinking benefits and increasing fees, frequent-flier programs are courting their most loyal customers again.

In recent weeks, American Airlines introduced new awards for one-way flights; United dropped its $75 to $100 fees for booking an award within three weeks of travel; and Delta Air Lines made it easier for elite frequent fliers to retain their V.I.P. status.

Carriers have also been dangling mileage offers, including double-mile promotions, and have even resurrected bonuses for booking online.

Those who follow the programs describe the changes as a slight shift in a more consumer-friendly direction, giving customers more ways to earn and redeem miles.

“What we’re seeing is a bit of a resurgence on the airlines’ part in focusing on their frequent-flier programs,” said Tim Winship, who tracks loyalty programs for SmarterTravel.com. But he added that the issue members care about most — being able to use their miles for free tickets — remains a challenge, especially with planes flying nearly full.

“I think award availability remains the elephant in the room,” he said. “The travel slump has not resulted in any increase in award availability, and in fact, if anything my sense is that people are having a more difficult time now.”

That assessment, while hotly debated on travel Web sites, is difficult to confirm.
Randy Petersen, founder of the frequent-flier hubs InsideFlyer.com and FlyerTalk.com, said 2008 was a record year for award redemption, which he attributed to travelers using miles for more mundane trips, like visits to relatives in less exotic locales.

“In a good economy, everyone wants to use their miles to go to Hawaii, London or San Francisco,” he said. “But when the recession hit, award redemption really started to spread out because people were using their miles not as much for vacation as necessary travel.”

Another factor spurring award redemption, Mr. Petersen said, has been the shift to “dynamic pricing.” If a seat that requires 25,000 miles is available for the outbound leg of a trip, but there is only a 50,000-mile seat on the return, many airlines now offer the itinerary for an amount in between — say, 37,500 miles — rather than charging the higher price for the entire trip.
In a similar vein, the new one-way award from American Airlines lets members book a flight after as little as 12,500 miles, a good option for students returning to college or snowbirds heading south for the winter.

There have also been changes in financial regulations that require airlines to account for unused frequent-flier miles as a liability, which has motivated carriers to make awards easier to redeem.
“There really is an incentive now for the airlines to get all of their miles redeemed because it’s expensive for them to carry them as a liability,” Mr. Petersen said.

Even so, he acknowledged that as travelers prioritize low-priced tickets over flying with a preferred airline, carriers need to work harder to earn loyalty, especially among their elite fliers.
Delta Airlines, for example, recently announced new benefits for its elite SkyMiles members, which take effect in 2010.

Among the more significant changes, Delta added a “diamond” tier to its existing levels of Medallion membership (silver, gold and platinum) — all referred to as having elite status, which comes with benefits like free upgrades and fee waivers.

Paul R. Skrbec, a Delta spokesman, said adding a fourth tier encouraged Medallion members to stay with Delta, rather than switch to another carrier after obtaining platinum status. The higher the tier, the better the benefits. For example, a diamond member will get a 125 percent mileage bonus versus a 100 percent bonus for platinum elites.

Seth Miller, a freelance technology consultant in Manhattan, is one of the elite frequent fliers airlines have been courting, having maintained top-tier platinum status in Continental’s OnePass program for 10 years.

“The legacy airlines especially are doing as much as they can to generate loyalty, and these days that means crazy bonuses — double miles for this, triple miles for that, miles are being given out like candy on Halloween,” Mr. Miller said.

“It’s great now,” he added, but he worries that the airlines’ largess could have a downside. “The question is, what happens when everyone tries to take advantage of all these benefits that are being handed out now? I’ve got elite status, but am I going to be able to get upgrades or will everybody else have status, too?”

Another question is whether nonelite frequent fliers have dropped off the radar as airlines focus on their biggest spenders — a message that average consumers may be responding to by shifting their loyalty to other rewards programs, like those offered on credit cards.

A research company that tracks loyalty programs found that membership in credit card reward programs surpassed membership in frequent-flier programs for the first time in 2009.

According to Colloquy, the company that conducted the research, the average household in the United States is signed up for 14 loyalty programs, ranging from grocery stores and gas stations to airlines and hotels, but actively participates in only six.

The recession has diminished participation in multiple travel programs, said Kelly Hlavinka, a partner at Colloquy. She said this could bring about a return to the original premise of loyalty rewards: to cement a relationship with just one airline or hotel.

“Savvy travelers may be saying, ‘I may not be able to spread my business out to two or three airlines, but I can consolidate my travel with one company,’ ” Ms. Hlavinka said. “The real opportunity for airlines is to try to keep that business with their airline.”

U.S. airline Mesa Air Group

Struggling U.S. airline Mesa Air Group (MESA.O) on Tuesday said US Airways Group (LCC.N) plans to reduce the number of aircraft it pays Mesa to fly regionally.
The carrier said the flight cuts, which are planned for January, July and next January, could continue, putting new strain on the company.

Mesa said that US Airways said it would eliminate three CRJ-200 flights by next year.
"We anticipate US Airways will continue to further reduce the number of covered aircraft in accordance with the agreement," the company said in a regulatory filing.
Mesa said that as of September 30, it operated 38 CRJ-900, 11 CRJ-200, and 6 Dash-8 aircraft for US Airways under a code-share agreement.

Mesa, which provides regional service for US Airways, Delta Air Lines (DAL.N) and other carriers has been looking to shore up its finances for months as it tries to ride out volatile fuel prices and a drop in travel demand.

Mesa said on Monday it received a letter from Nasdaq warning the company its stock is subject to delisting because Mesa was not in compliance with some listing requirements.
Mesa shares were down 10 percent at 26 cents in afternoon trade on the Nasdaq.

Delta Air

Delta Air Lines Inc. said Friday that systemwide traffic and capacity decreased in September compared with the same month a year ago.

The Atlanta-based carrier said it flew 9.71 billion revenue passenger miles last month, a 0.8 percent decline from 9.79 billion a year earlier.

A revenue passenger mile is a widely watched industry measurement accounting for one paying passenger flown one mile.

Available seat miles, or capacity, fell 3.7 percent to 12.14 billion from 12.61 billion a year earlier.
Load factor, or occupancy, rose 2.4 percentage points to 80 percent from 77.6 percent.

For the first nine months of the year, Delta recorded systemwide traffic of 94.46 billion revenue passenger miles, compared to 92.83 billion a year earlier. Available seat miles rose to 115.2 billion from 114.35 billion. Year-to-date load factor was 82 percent, compared with 81.2 percent a year earlier.

Shares of Delta Air Lines slipped 36 cents, or 4.6 percent, to $7.55 in afternoon trading

American Airlines Cancels Flights

Business trips and vacations were disrupted for tens of thousands of travelers Wednesday as American Airlines canceled more than 1,000 flights -- nearly half its schedule -- to fix faulty wiring that could cause a short-circuit or even a fire and explosion.

Executives at American said safety was never compromised, and they suggested the nation's biggest airline was the victim of suddenly stepped-up scrutiny by federal regulators.

American estimated that more than 100,000 travelers were booked on the canceled flights. Many had to scramble to book new flights and were stranded at hotels far from home.

The airline had already scrubbed 460 flights on Tuesday after federal inspectors found problems with wiring work done two weeks ago, during the first set of shutdowns.

A top executive said the cancellations would be a "significant" cost to American, and shares of parent AMR Corp. fell 11.1 percent, down $1.15 to $9.17.

The issue stems from an order that the Federal Aviation Administration gave airlines in September 2006 -- and gave airlines until last month to meet -- about the bundling of wires in the backup power system for the fuel pump of the MD-80 airplanes. The fear is that improperly bundled wires could rub, leading to an electrical short or even fire. However, no serious incidents have been blamed on the bundles, the FAA said.

American officials thought they had fixed the problem last month. But this week, FAA inspectors found problems with the work done on more than a dozen planes. American said it had no choice but to ground all 300 of its MD-80s to deal with the wiring bundles.

American operates about 2,200 daily flights, more than one-third with MD-80s. Nearly half the cancellations were concentrated at two airports, in Dallas and Chicago.

At New York's LaGuardia Airport on Wednesday, hundreds of passengers stood in check-in lines or milled about, using cell phones to get updates on their flights. The airline offered free doughnuts, coffee and orange juice, but there were few takers.

"They should be able to predict these kinds of things," said Laura Goodman, whose flight home to Dallas was canceled. She said would miss an important meeting because the airline couldn't rebook her until Thursday.

New Yorker Michelle Soss had hoped to steal a few days in Albuquerque, N.M.

"I covered my kids' schedules, I covered my work schedule to get away for a few days," she said. "I don't know if I'm getting anywhere."

American's cancellations came after similar delays at Southwest, Delta and United. Last week, hundreds of travelers were marooned when Aloha Airlines and ATA Airlines shut down and filed for bankruptcy protection.

Alaska Airlines said Wednesday it canceled 14 flights to inspect the wiring on its nine MD-80s.

For travelers, the bad news might not be over. Daniel Garton, American's executive vice president, said flights would be canceled Thursday -- he said it was too early to say how many -- and possibly on Friday, too.

A return to normal operations depends on how quickly mechanics can inspect and fix the wire bundles. As of Wednesday morning, only 30 MD-80s had been cleared to fly by the FAA.

Garton acknowledged that the bundling of wires had not met FAA standards, but he said "these were not huge errors" and posed no threat to safety. He said the agency used to give airlines "latitude" in interpreting safety regulations, but no longer.

The FAA began looking more closely at airlines' compliance with safety directives in recent weeks, after it was criticized for letting Southwest operate planes that had missed inspections for cracked fuselages.

In the past few weeks, the FAA levied a $10.2 million penalty against Southwest and conducted new inspections at all U.S. airlines, leading to flight cancellations at Southwest, Delta and United.

FAA spokeswoman Diane Spitaliere said inspectors found problems with the wiring bundles at 15 of 19 American MD-80s that it checked this week.

The 2006 safety order from the FAA directs airlines in how to pack and stow wiring to a hydraulic pump in the wheel well to prevent the wires from rubbing together.

According to the FAA, shorted wires could ignite fuel vapors and cause a fuel-tank explosion that could destroy a plane.

The explosion of TWA Flight 800 off New York's Long Island that killed all 230 people aboard in July 1996 was blamed on fuel vapors ignited by wiring. But it was a Boeing 747, not an MD-80, and investigators believe the disaster involved different wiring from the bundles now under scrutiny.

Brian Stirm, an aircraft-maintenance expert at Purdue University, said airlines had plenty of time for the inspections and that even an untrained mechanic could spot a problem.

The cancellations could hardly come at a worse time for American. Its parent, AMR Corp., is scheduled to report first-quarter earnings in two weeks, and analysts are forecasting a loss of more than $300 million. High fuel prices and the downturn in the economy are hurting the industry.

American officials said the company would give $500 travel vouchers to anyone stranded overnight. It also paid for hotel rooms and meals for an undisclosed number of passengers.

Bob McAdoo, an airline analyst, said passengers might soon forget the debacle, especially since several other major airlines have canceled flights recently. But he said passengers who missed big events like weddings might avoid American again.

Kathy Neer of Santa Fe, N.M., was caught up in both waves of cancellations to and from a vacation in Paris. She and her husband were stranded in Dallas on Tuesday on the final leg of their journey home. American gave the Neers a voucher for a hotel room and seats on another flight home Wednesday.

"They say our flight is leaving at 3:55 p.m., but do you think we trust them?" Neer said. "After being burned twice, we're a little skeptical."

Delta-Northwest Combination Deal

An impasse among pilot negotiators over blending seniority lists put a $20 billion deal to combine Delta Air Lines Inc. and Northwest Airlines Corp. in "serious jeopardy" as the boards of the two companies prepared to meet Wednesday, two people close to talks told The Associated Press.

The people said the pilots unions have agreed on a comprehensive joint contract, but they are unable to agree to how seniority for the 12,000 pilots would work under a combined carrier. The people asked not to be named because of the sensitive stage of the talks.

They said late Tuesday that the pilot talks were expected to continue Wednesday, but if no agreement is reached, a deal on a combination of the two airlines would be in real trouble.

The boards of both companies were expected to vote on a combination agreement Wednesday if a pilot deal is in place by then. Otherwise, they were expected to just get an update on the merger talks, three people close to the talks said.

One of the officials close to the talks said Northwest's board might only meet by teleconference or, if things fall apart, not meet at all.

A Delta spokeswoman declined to comment on consolidation issues involving Delta. Delta has previously said it was considering a possible consolidation transaction, but it has not commented beyond that.

Talk of airline consolidation has heightened in recent months amid persistently high fuel prices, which are eating away at the industry's bottom line.

A combination of Atlanta-based Delta and Eagan, Minn.-based Northwest would create the world's largest airline in terms of traffic. That's before any divestitures regulators might require them to make if they combine.

There also has been speculation about a possible combination of Chicago-based UAL Corp.'s United Airlines and Houston-based Continental Airlines Inc., which would be a bigger airline than Delta-Northwest in terms of traffic.

The clock is ticking to get any deals accomplished quickly, some observers say. That's because industry observers believe a combination has a better chance of surmounting the considerable political and regulatory hurdles under the current administration than under President Bush's successor.

Delta and Northwest don't need a labor agreement between their pilots unions before announcing a combination, but having one in place now could help them speed up the integration of the two carriers down the line.

One of the people close to the talks said Tuesday night that a small group of Northwest seniority list pilot negotiators want thousands of young Delta pilots to go to the bottom of the combined seniority list as part of agreeing to a deal on seniority. The person said that was a major hang-up.
A spokesman for the Northwest pilots union, Greg Rizzuto, did not immediately return a call and a page to his cell phone seeking comment.

The pilots from both companies have agreed to a significant equity stake for the pilots, including raises for some, one of the people close to the talks said. However, a second person close to the talks said it was not clear that the equity issue had been resolved.

Much of the terms of how the combined carriers would operate had been resolved as of Tuesday, two people close to the talks said. The combined carrier would be based in Atlanta, would be called Delta and Delta's chief executive, Richard Anderson, would be head of the new company, the people said.

It remained unclear what role Northwest's CEO, Doug Steenland, would play in the combined carrier, the people said. A combined Delta-Northwest would maintain a substantial presence in Minneapolis and there would be no furloughs for front-line U.S. employees, the people said. The two airlines have roughly 85,000 total employees.

Boeing Boosts 4Q Profit on Plane Sales

Boeing Co. rode continued momentum from its commercial airplane business to a 4 percent increase in fourth-quarter profits Wednesday, topping Wall Street's expectations despite ongoing concerns over delays in its 787 Dreamliner program.

The world's second-largest commercial jet maker said it continues to address problems in assembling the first 787s and slightly reduced its estimate for both 2008 revenue and deliveries because of the previously announced glitches. It said it remains on the revised schedule announced earlier this month for the new plane, which has been pushed back three times and now isn't due to enter service until next year, but won't assess the impact of the delays on 2009 results until April.

The company characterized the outlook for its military contracting business and commercial airplane programs next year as "very strong," with strong earnings growth anticipated.

That helped lift Boeing shares, which had fallen 30 percent since last fall, by $2.82, or 3.5 percent, $83.78 in midday trading.

While avoiding talk of specific timeframes for the 787 program, CEO Jim McNerney said the fundamental technology of the airplane remains sound.

We believe in both the business case and the technology of the 787 and we look forward to getting the airplane in the hands of our customers as soon as possible," he said on a conference call.

Despite the 787 problems and the threat of a U.S. recession that could hurt its airline customers, McNerney was bullish about Boeing's near-term future and noted that U.S. carriers account for only 11 percent of its airplane backlog.

"Notwithstanding some recent events and market volatility, we continue to forecast an extended commercial aerospace cycle driven by strong economic growth and solid traffic demand in much of the world," he said. "Even if we encounter a more significant economic downturn in the future, I believe the industry is better positioned than in past cycles and Boeing is even better positioned within the industry to weather any storms."

Boeing's net income for the last three months of 2007 was $1.03 billion, or $1.36 per share, up from $989 million, or $1.29 per share, in the fourth quarter of 2006. That was 4 cents per share better than the consensus estimate of analysts polled by Thomson Financial.
Revenue was $17.5 billion, flat with a year earlier but slightly above analysts' forecast of $17.3 billion.

The company increased its guidance for 2008 earnings per share to between $5.70 and $5.85 from an earlier range of $5.55 to $5.75, still short of the Wall Street consensus estimate of $5.95. It also lowered its estimate of 2008 revenue by $500 million, to a range of $67 billion to $68 billion, due to the 787 delay.

Boeing's continued resurgence in the quarter was led by its Seattle-based commercial airplane manufacturing business, where operating earnings increased 46 percent to $973 million and revenue jumped 17 percent to $8.9 billion. Deliveries rose 9 percent to 112 and the record backlog grew 46 percent to $255 billion, reflecting strong demand for the 787 and other planes.

The Chicago-based company closed the gap on Airbus in aircraft deliveries but still ended the
year trailing its European rival for a fifth straight year, 453 to 441, while outpacing it in orders. It scaled back its estimate of 2008 deliveries by about five airplanes to between 475 and 480 to reflect the rescheduling of initial 787 deliveries into 2009.

The unit's continued success depends on how quickly Boeing can untangle snags involving the 787, Boeing's first newly designed jet since airlines started flying the 777 in 1995. It will be the world's first large commercial airplane made mostly of carbon-fiber composites, which are lighter and more durable than aluminum and don't corrode like metals.

Boeing said Jan. 16 it would push back the 787's inaugural flight until the end of the second quarter due to supply chain problems and slow progress on the assembly line, with the first delivery not expected until early 2009.

Analyst Paul Nisbet of JSA Research said the 787's status won't be fully known until the company succeeds in "powering up" or turning on the aircraft and its 92 electronic systems. That event was pushed back two weeks ago until early in the second quarter.

Despite the 787 concerns, Nisbet said: "It was a strong quarter. They've been just knocking the cover off the ball as far as orders, with 520 for the quarter, and with a (companywide) backlog of $327 billion. Those are just unheard-of numbers."

The company's St. Louis-based military contracting business saw earnings from operations decline 5 percent to $978 million and revenue fall 14 percent to $8.6 billion. The revenue drop was largely because results from a year earlier included two months of revenue from its Delta IV family of rockets, which are now part of United Launch Alliance, a joint venture with Lockheed Martin Corp.

Boeing had full-year earnings of $4.1 billion, or $5.28 per share, up 84 percent from $2.2 billion, or $2.85 per share, in 2006. Revenue climbed 8 percent to $66.4 billion from $61.5 billion.