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Alaska Airlines recently hosted an investor event and offered a rare peek under the hood of its frequent flier program, one that’s really interesting after a month of big mileage devaluations from United, Delta, and even Alaska itself.
The money chart is right here. It shows what percent of award redemptions are spent on each partner group in its network.
Alaska is a relatively small airline, but has a frequent flier program with wide range – it offers more partners to earn and redeem miles than even the big airlines like Delta, American, and United. And for the big carriers, about half or more of traffic is on international flights.
Which is why it’s so surprising that…
84% of mile redemptions stay on Alaska Airlines flights
And Alaska flights are only in the U.S., Hawaii, and Mexico. Which shows people want to use miles close to home. The big international trips that get a lot of talk just aren’t feasible for most people, either because they don’t have enough miles, or they just don’t have the time or desire to go far. Which is why good value to places like Hawaii and Arizona are so important for a valuable frequent flyer program.
2x as many awards are on American than Delta
This makes sense – Alaska members only have access to ‘Saver’ level awards. And Delta has much worse Saver level availability than American, so although Delta is a bigger airline than American with more flights into Alaska’s Seattle hub, it’s just much easier to get an award on American. One caveat is the calculation is based on flown segments, so since more American tickets involve a connection out of Seattle than Delta, there is some inflation there, but we think the Saver availability is the big driver.
And despite having an incredibly broad array of partners to use Alaska miles on…
Only 3% of awards are on international partner flights
This is surprising since Alaska has no transoceanic flights of its own and is very transparent about making it easy to book international partners on its own website. No airline has been more progressive in this regard.
But they revealed another fascinating fact in their comments…
40% of international partner redemptions are in first / business class
It’s hard to earn Alaska miles unless you do a lot of flying. Alaska has only one credit card and it’s not one with huge offers (though gamers do like to open multiple accounts). So this probably means that Alaska’s most frequent flyers – the ones with big mile balances – like to save up their miles for big, expensive international tickets. Which makes a lot of sense, since these are the best value redemptions available.
The good news is they didn’t make this comment in a negative tone. In fact they noted how satisfying and important it was for their flyers to have access to these awards, which makes us think there won’t be any big changes there anytime soon.
1/3rd of first class seats are filled with paid tickets (it will grow in January)
Alaska was asked point blank whether it should shrink the size of its own first class cabins. Its response…
Half of its cost disadvantge with low cost carriers is driven by its cabin layout. They always think about shrinking first class, but recognize that people really like the ability to upgrade to first class. The company has 16 first lass seats on most planes, and the average flight has 5 paying first class customers, thanks to the fares becoming lower in first class now than they were years ago, so they are monetizing first class.
Right now there is only one first class fare bucket on Alaska. But starting in January they will have different prices for the first class product via new fare buckets. On the weekdays they plan to reduce first class prices to stimulate paid demand but still keep room for elites to upgrade. Reading between the lines – it will be harder to upgrade on Alaska next year.
Delta and Alaska may be parting ways. American may fill the gap.
Alaska was asked repeatedly about the status of its relationship with Delta given a big step up in competitive activity by Delta in Seattle.
The answer was that their relationship with Delta will shrink over the next year and the one with American is in a position to grow. American has had a lot on its plate the last few years and Alaska says it hasn’t spent as much time as it would like with them the last few years. They say that will change significantly. They say they need to get together with the US Airways management team that will be running American, but see more opportunity than not: “Given the portfolio of partners we have and how we work together – we have a couple that are more important in the domestic scene than others, and to the extent the landscape changes, and if we need to change and make tweaks to our loyalty there are options.”
Is Delta friend or foe? Alaska says these relationships are complicated and they will need to live with some ambiguity. They are happy to help feed Delta’s flights to Asia (though said the market for Asian passengers out of Seattle is only about 650 a day). The domestic markets Alaska loves – they will defend those markets hard. And their team is ready to live with ambiguity. They were also emphatic that the bulk of the $100 million in ‘domestic interline’ is from United, which has no partnership whatsoever with Alaska. Meaning even if Delta’s frequent flyer / code share relationship went away, they’d still get good feed from Delta.
Which seems to leave room for an exit when American is ready to offer stronger reciprocal loyalty benefits.
1/3rd of MileagePlan members have an Alaska credit card
Alaska says there are 3 million members in MileagePlan, and 1 about million have the Alaska Mileage Plan credit card (our interpretation is that the vast majority of active members carry the card). They are focused on increasing members and cardholders in new growth markets like the Bay Area and San Diego. They’ve seen double digit growth in those areas. As to whether Alaska mileage members and credit card holders are saturated? They say what’s been interesting is over the last couple years what happened with Club 49, which gives Alaska residents free checked bags and discounts on Alaska flights.
There are about 700,000 people who live in Alaska, and 300-400,000 are Mileage Plan members. They managed to sign up 300,000 to Club 49, and another 50,000 became brand new MileagePlan members. That in a market they thought was saturated.
Alaska *gets* loyalty
Alaska said the big learning for the company was that the business and leisure traveler are really the same. 10 years ago they were obsessed with their share of business travel. But they say the reality now is on Tuesday the flyer is a business traveler, on Friday that same traveler is a leisure guy heading out of town for the weekend. Leisure is a much bigger share of the pie than it was years ago, and in fact is a majority according to them. They get that a business flyer will travel on Alaska for business enjoying the upgrades, sitting up front ‘sometimes’ (their words), but when he wants to travel for leisure he books with Alaska, takes advantage of Mileage Plan to keep earning and reap the benefits earned from business travel.
Which is a sharp contrast versus other airlines, particularly United, and their approach to loyalty today.
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