Fortune Magazine: So Wrong in So MANY Ways

I don’t usually go out of my way to agree or disagree with contrary opinions but Fortune’s recent article on airline loyalty programs by Stanford University professor Jeffrey Pfeffer is simply wrong in so many factual ways.

Sounding like he was separated at birth from soon-to-be BoardingArea blogger Christopher Elliott, Professor Pfeffer thinks everything about frequent flier programs – and elite status in particular – is one large scam. (Note: Chris and I are friends and I admire his work, though we live in different camps in regards to frequent flier programs.) “Loyalty programs seduce and abandon you,” he says. I am fine with the learned professor’s opinion. What I don’t like is when he makes conclusions based on incorrect facts.

First, Prof. Pfeffer says that airlines “invariably make it harder to earn miles”. This is not quite accurate.

Yes, Delta and United will change next year to a revenue-based earnings model for award miles (often called RDM’s). Not sure why he singles out these airlines since Southwest and others already have such a program. Anyway, contrary to the professor’s opinion, this will not necessarily mean that passengers will receive fewer miles.

In fact, some will receive greater miles. Those who fly shorter distances – particularly those who have elite status – may earn many more miles than they did under the previous plan. That’s because they tend to fly more expensive flights/miles flown. Other winners are those who already purchase expensive tickets like business or first class seats. Most of them will come out ahead, though Delta did put a cap on the RDM’s earned at 75,000. Really, this won’t hurt more than a handful of passengers, and even that can be gamed by purchasing one-way tickets.

Note to Professor Pfeffer: For many years, the hotels have used a revenue-based points model. Where’s the angst against them?

And how about Starbucks, professor? They offer gift cards (that are often not redeemed), they hook their psychologically addicted customers into buying overpriced coffee, and they have a loyalty program that rewards those who spend more money. When are you going to out them, too?

Then the professor talks about the “psychological principles” that gets people hooked on earning miles. In part I will defer to him since he is the grad school Professor of Organizational Behavior but he may be over-reading just how much people really are hooked. Are some? Of course, there always has – and always will be – those that are addicted to earning miles and achieving status. But really, is this any different than any other vocation, hobby, or passion? My husband is an accomplished photographer but he looks on in amazement at some of the photos he has reviewed that were taken with a cellphone. Does that mean he is ‘psychologically hooked’ on photography when he could get ‘similar’ photos with a cheap phone instead of an expensive DSLR?

As for Pfeffer’s comment that miles expire, this is true with some but certainly not all airlines. But then, those who are ‘addicted’ to earning miles will very likely use them long before they expire because most realize that miles decrease in value each year, not increase. Even the professor/author acknowledges this. It makes this a non-issue.

I also don’t agree when he says that “free upgrades are a thing of the past”. Maybe they are for him but many I know are doing quite well with upgrades, at least at the higher tier levels. Is everyone? Of course not but as always, upgrades are part art, part science. As has been said many times, upgrades are a function of airline, airport, day of the week, time of the day, destination, whether you are flying to/from a hub, type of aircraft, the size of your traveling party, etc. In any case, upgrades are definitely not disappearing.

Overall, is his preoccupation with travel really any different than one who is ‘psychologically addicted’ to anything else? C’mon, many people spend $300-400 for a couple to attend an NFL game or a concert. Heck, some chase their favorites all over the country. While I may think that’s nuts, they see the value in it. Who am I to say they are wasting their money, much less addicted to something?

Then he quotes a 36-page report prepared a couple years ago by my alma mater, Deloitte. He concentrated on one part that says 40% of business travelers fly at least 75% of their time on a certain airline. Frankly I am surprised the numbers are not higher but again, the professor does not understand the industry. Most business travelers are “loyal” to an airline because of the hub system. Why would I fly an airline other than United to Houston when the others only offer connecting flights with attendant consequences? Because my travels are diverse, I maintain top tier status on two airlines but how is this different than any other industry that offers better benefits to their better customers?

As a Professor of Organizational Behavior, Pfeffer must understand the concept of a sale. You know, when a business entices customers into believing they are getting discounts on overpriced merchandise they really don’t need. Where is his outrage about this?

This doesn’t mean I disagree with everything Pfeffer says. He is correct that airlines make a lot of money from selling miles. He doesn’t mention it in the article but they also make a lot of money off what is called ancillary fees like baggage, priority boarding and seating, and ticket change fees. Unlike the professor’s employer, these airlines are part of the for-profit world and while it may be surprising to him, they are supposed to make sufficient returns for their investors.

And I agree, generally, about the diminished value of award miles. They are in decline but one more time, this is true of other industries as well. Indeed some argue that his industry, higher education, is also in decline in the sense that it cost more to achieve fewer benefits. Know anyone out there selling their soul and future by running up a mega bill to pay for an undergraduate education or law school with limited opportunities for employment?

In my opinion, the professor doth protest too much. While he looks at behavior through a tube in a laboratory, fact is people spend their money on what gives them pleasure and enjoyment. For some it may be sports or entertainment, for others it may be travel. For those who understand what they are getting into and control their expenses, this can be an ideal way to fund future travel. At least you won’t have to worry that Prof. Pfeffer will be taking away an award seat that you desire.

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