Frequent-flyer programmes increase business travel costs, study reveals

THE study authors found that, when points-programme members were travelling for leisure, their behaviour changed. Picture: Reuters.

THE study authors found that, when points-programme members were travelling for leisure, their behaviour changed. Picture: Reuters.

Published May 20, 2022

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Washington - AIRLINE frequent-flyer programmes are a staple for air travel, particularly among frequent business travellers, but they also add to the cost of business travel for employers, the findings of a new study suggest.

According to the study, frequent-flyer programmes are a win-win-lose when it comes to air travel. The airline wins because the programmes generate loyalty and repeat customers. The points-programme member wins because of incentives to receive flight upgrades and free plane tickets. But in cases where the employer is shouldering the cost, they lose because they could be paying more for the travel than they need to.

The study, "Reaching for Gold: Frequent-Flyer Status Incentives and Moral Hazard", published in the current issue of the INFORMS journal Marketing Science, is authored by Yesim Orhun and Andreas Hagemann, both of the University of Michigan, and Tong Guo of Duke University.

The researchers analysed the transactional database of a leading US-based airline's frequent-flyer programme. This included the histories and point accumulations of 3.5 million frequent-flyer programme members during the 2010 and 2011 point-earning cycles.

"We found that the closer frequent-flyer programme members get to 'elite status' the more likely they are to choose an airline even when it may be more expensive than a competitor’s flight," said Yesim Orhun. "While this decision is based on a number of factors, an important one is whether the air travellers are paying for the flight themselves, or whether it is covered by an employer or third party."

Other factors the researchers cited included whether the traveller was well ahead of pace or far behind pace to achieve elite status, and whether the traveller's home airport was the airline's hub. In cases in which travellers were off the pace to achieve elite status, they were less likely to switch bookings to earn points. At the same time, point members were more likely to choose higher fares and earn points if their home airport was also the hub of the airline sponsoring the points programme.

"We found that when travellers are close to their points programme's targeted pace, they are more likely to book with the airline on routes where the airline has lower appeal than competitors," said Guo. "Loyalty programme members, when they were close to target pace, on average showed an 8% increase in the price paid when compared with others taking the same flight."

The study authors found that when points-programme members were travelling for leisure, their behaviour changed.

"More than one-third of the overall increase in the average consumer's willingness to pay in the marketplace can be attributed to booking instances where the consumer is not likely to shoulder the cost of the ticket," said Orhun.

"If travellers had to pay out of pocket, our estimates suggest that companies would save at least 7% of their travel costs."

ANI

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