The evolution of frequent flier credit cards and programs
By Emily Starbuck Gerson
Airline frequent flier programs as we know them today began in early 1981, first with the launch of American Airlines' AAdvantage program, and days later with United's Mileage Plus program. At the time, the only way to earn miles was through flying.
Stevan Grosvald is an independent marketing consultant who has spent the past two decades working with airlines around the world to develop and launch frequent flier programs and their credit card counterparts. He played a key role on the team that developed and launched the Continental-Eastern OnePass program in the mid-'80s, which his staff administered for both companies. He also directed the launch and marketing of the industry's first co-branded credit card -- the idea for which originated with his boss at the time, Jim O'Donnell, Continental's senior vice president of marketing. That was quickly followed by a partnership between American Airlines and Citi.
The creation of the airline credit card raised the stakes. "That changed the nature of frequent flier programs forever. It greatly expanded the geographic utility of the program -- you can earn miles and points doing almost anything, anywhere," Grosvald says.
So many Americans roll over their credit card balances each month, which presents a lot of opportunity for profit for both banks and airlines
|-- Stevan Grosvald
Frequent flier program marketing consultant
For some time, flying and making purchases with cards were the only ways to earn frequent flier miles. About 10 years ago, Grosvald observed the programs evolve, primarily as a result of the co-branded credit cards. Frequent flier programs allowed members to earn points in a variety of ways by partnering with certain retail business, hotel and rental car companies, long distance telephone carriers, Internet service providers, investment funds, moving and storage companies, automobile companies, flower companies, restaurants and more. Grosvald says the "frequent flier programs" morphed into "frequent traveler programs," but now sees them as "multisector travel and retail programs."
Grosvald says more than half of all miles currently earned are from nonflying activities, and the vast majority of those partner miles are from co-branded credit cards. "Credit card companies continue to be the most productive partner in the frequent flier programs," he says. Another reason the banks and airlines like their partnerships? "Since so many Americans roll over their balances each month, that's a lot of opportunity for profit for both sides."
"From a program design standpoint, it's still the most important partner to have, because people have to buy things. How they choose to buy them is up to them, but certainly, those people who are moderate to frequent fliers will be using a credit vehicle, and they might as well use one associated with their favorite airline and double dip," Grosvald says. Despite all the hassles and fees that come with redeeming frequent flier miles, "the reason airline programs have been so successful is that free travel is still the most desired award."
See related: Is it time to cash in your frequent flier miles?; A CreditCards.com survey of airline blackout dates; Frequent flier miles: Earn them quickly with these strategies; Do airline reward programs trump cash reward programs?; Bump up frequent flier miles with sign-up bonuses
Published: August 12, 2008