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Cathay Pacific

Elite fliers have their wings clipped: Cathay's overhaul of its frequent flier programme

Frequent flier schemes are getting less generous as airlines reap benefits by rewarding big spenders

PUBLISHED : Sunday, 10 May, 2015, 5:30am
UPDATED : Sunday, 10 May, 2015, 8:24am

Tony Lai's top-tier "diamond" membership of Cathay Pacific's frequent flier Marco Polo Club has earned him a complimentary upgrade to first class. The upgrade would not have been possible without his elite status.

Before he steps onto the plane, Lai, 41, will have access to such members' perks as Cathay's premium first-class lounge, The Wing, partaking of five-star restaurant fare, free-flowing champagne and a private cabana suite to help him relax before his 15-hour flight to Los Angeles.

Through the club, Cathay showers its best customers with generous benefits to reward their loyalty.

As experienced by Lai, flight upgrades are presented on the member's birthday, 5th and 10th anniversaries of joining the Marco Polo Club, and the accumulation of 500,000 or one million miles.

"Cathay definitely takes care of its top-tier members better," he says.

Last year the carrier signalled the start of the biggest overhaul of its four-tier frequent flier programme since its inception.

Lai, a businessman, flies at least one long-haul and one short-haul flight on Cathay each month in premium economy and business class, spending up to US$30,000 a year.

If he faces a lengthy journey from Hong Kong to Los Angeles, getting an upgrade to a front-row seat - a hidden perk of being a loyal Cathay patron - is a good deal when you have paid only the price of a business-class ticket that costs almost half of a fully flexible one-way fare of US$11,300 in first class.

That upgrade essentially gives him a double bed at 36,000 feet, sipping Krug champagne and tasting a spoonful of caviar.

However, providing these offerings is becoming increasingly expensive as the ranks of loyal travellers swell and the airline caters to more needs.

Among the many changes is a new focus on revenue-based spending, rewarding business and first-class customers, who pay much more than economy passengers.

Hong Kong's leading airline says its existing measures to reward travellers based on the number of flights and distance flown "are not the best measure of value", and that airlines all over the world are recognising these "anomalies".

"The frequent flier schemes are getting less generous," says Brian Kelly, founder and editor-in-chief of frequent flier website ThePointsGuy.com.

"We've seen the evolution switch. They're not frequent flier miles any more, they're frequent spender programmes."

Kelly's website is a platform for eager bargain hunters of cheap business and first-class tickets to share deals.

To enter the Marco Polo Club, a fee of US$50 is required. But all you get is a basic green card with no meaningful benefits.

Perks start at the second tier, silver, which people qualify for after they have flown 30,000 miles or 20 flights. The next level is gold, which requires 60,000 miles or 40 flights.

Both tiers of members are eligible for business-class check-in, The Wing lounge - with five-star hotel food and free-flowing alcohol - economy-class exit seats and extra baggage allowance.

The top tier, diamond, requires travellers to have chalked up 120,000 miles or 120 flights. Members are addressed by name by staff and receive perks granted to their gold counterparts.

Those include being allowed up to three pieces of baggage, access to all first-class amenities including the lounge, a private buggy to the boarding gate at Chek Lap Kok airport, express airport security checks, priority baggage handling, the highest priority on fully booked flights, and bottled water in economy class.

If diamond members have a problem, a dedicated hotline is there to help.

Unpublished benefits go further to include upgrades to the next class on the plane.

Lai compares Cathay's offerings to his previous top-tier membership of the American Airlines' AAdvantage scheme.

"As far as unpublished benefits go, there are none with AA. What is published is what you get. Nothing beyond that."

However, his previous AA benefits included free upgrades, if available, to the next cabin of service on North American, Caribbean and Central America flights, four international long-haul round-trip upgrades, first-class check-in, lounge access on international flights, and priority baggage handling.

Lai has seen the number of top-tier AA "Executive Platinum" members skyrocket and service standards decline. Even as a top member, he can face days of delays to resolve a problem.

Another Marco Polo Club member, consultant Wayne Tan, 53, recalls what membership was like in the early 1990s.

"At that time, you think of the word 'club', and it's something prestigious you're joining," says Tan, a veteran connoisseur of frequent flier benefits.

"It was really, really special. It felt like a proper club."

Cathay set a high entry threshold, he says. A traveller was bestowed a green club card - and a door to the airport's lounges - if he or she accumulated at least 30,000 air miles or 10 flights only within business and first class in six months.

Still, free flights were out of reach even with the accumulated mileage.

"Any miles you flew … you couldn't redeem flights," Tan says. "Way back then, even pre-1995, frequent flier miles didn't really exist with Asian carriers … Before Asia Miles, people had it less. No perks, no benefits."

Gold cards, normally given to business executives and corporate accounts, mean holders with an economy ticket almost always get an upgrade to business if a seat is available. Last year Cathay was feted by the global passenger Skytrax survey as the "world's best airline" for the fourth time, recognised for its in-flight services and products.

But this has not come cheap. In an attempt to enhance the premium experience, silver-tier members are likely to lose unlimited lounge access. At a stroke, the change will ease congestion in its lounges, notably at Chek Lap Kok, and save money.

Cathay is not the first airline in recent years to explore a shift towards rewarding by spending.

Last month British Airways revamped its frequent flier scheme to shift the rewards towards high-spenders, at the same time saving money by charging members more to redeem flights. A first-class return trip between Hong Kong and London now requires 240,000 air miles, up 33 per cent.

Troubled Malaysia Airlines has also slashed the high costs out of its own loyalty scheme, as new management scales back its ambitions in the face of a double-tragedy last year.

US airlines Delta and United, which are among the largest carriers in the world, have led the devaluation in the loyalty game.

During the turbulent times of post-September 2001, US airlines were rescued from bankruptcy, according to Kelly. Credit card companies bought billions of miles to give away to customers, often to redeem the cost of a business-class flight between New York and London.

With so many free miles in circulation, airlines have found their most expensive seats being taken by frequent fliers redeeming free flights.

"[Airlines] don't want to give away the house with the economy up and people buying full-fare business tickets," Kelly says. "They'd rather give away first-class seats to people who paid for them."

In his own experience, he has redeemed miles on Singapore Airlines first class with 75,000 points and US$200 to fly Singapore, San Francisco and Seoul, then Korean Air first class to Hong Kong, Seoul and New York for 80,000 miles and US$90.

He cites Singapore Airlines' decision to pull all first-class redemption seats from partners. Now, one has to be a full member of its Krisflyer frequent flier programme in order to redeem a first-class flight.

As for Cathay, the current round of proposals includes providing thousands more reward seats to its own Marco Polo Club members by denying its airline partners the benefit of redemption.

Among other changes being considered is a tightening of rules on access to its airport premium lounge. Cathay has always given members in three of its four tiers access - a policy seen as generous. Other full-service airlines such as British Airways grant access only to the top two of its four-tier club.

Kelly warns: "Cathay's system has been overly generous, and what you're about to see is a correction of that."

Cathay has drafted in a senior manager from Qantas Loyalty, the Australian airline's hugely profitable rewards programme, to spearhead its own Asia Miles revamp, which together with the Marco Polo Club will earn more money for the Hong Kong carrier.

Qantas has reaped huge profits that are the envy of its peers.

The manager, Jason Adessky, brings with him a decade of experience in rewards and loyalty that includes Virgin Australia and Britain's Nectar loyalty card scheme, the biggest scheme of its type with nearly 19 million members.

Daniel Tsang, of Hong Kong airline consultancy Aspire Aviation, says: "Bringing in a QFF [Qantas Frequent Flier] veteran is a smart move, given its tremendous success in Australia and at the industry forefront. Not only is it a high-growth business, it also offsets the notorious volatility of airline earnings."

In the five years until 2014, Qantas Loyalty generated A$1.45 billion (HK$8.8 billion) in pre-tax profits, compared with a loss of A$74 million suffered by the airline's domestic and international division, according to Tsang's analysis.

In that light, Cathay, which recorded combined net profits in the last three years of just HK$6.6 billion, still has some way to go.