IBM FAILS TO GROUND FREQUENT FLIER EFFORTS

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Don't mess with airline frequent flier programs.

That's the message IBM Corp. got loud and clear last week when it became known that Big Blue tried to exchange employees' mileage awards for deeper travel discounts with at least two airlines.

American Airlines and United Airlines both rejected IBM's proposal.

"We are not interested in the idea of exchanging frequent flier miles for discounts," a United spokesman said.

American officials wouldn't officially comment, though an executive familiar with the IBM talks said the carrier "turned down the offer."

In the 13 years since they were introduced, frequent flier programs have become airlines' single most effective marketing tool to generate loyalty. The plans create arguably the strongest one-on-one customer relationships of any industry.

And the airlines' rejection of IBM's plan shows the power wielded by frequent flier programs. Because the programs were created to influence travelers' choices, air carriers are deeply concerned about the potential backlash prompted by eliminating rewards for individuals.

"This gives credence to the point that these frequent flier programs actually work," said Randy Petersen, editor of Inside Flyer. "If they were borderline, it would be a point of discussion. It's definitely a statement that the programs do work and that they are more powerful than any corporate deal."

Most companies, including IBM, let employees accrue mileage awards as a perk for business travel.

But now that corporate travel budgets are under harsher review, frequent flier miles earned on business travel could again become a hot debate.

IBM said it's still negotiating with the airlines about fares, but a spokesman declined to offer details.

"We do have regular, periodic discussions with major carriers," the IBM spokesman said. "We're having discussions with them now, and we are looking to reduce [travel] costs. We offer and exchange numerous ideas and proposals."

The negotiations are expected to be completed within a month.

Attempting to ban mileage awards altogether appeared misguided from the start, industry consultants say. Policing the ban would be a difficult, if not impossible, task for airlines. Eliminating the program-even for a company like IBM with its $300 million annual travel budget-would give little cost benefit to the carriers.

"Frequent flier programs are so deeply embedded in most airlines' infrastructure that any attempt to selectively eliminate them is doomed to failure," said James O'Donnell, chairman of Seabrook Marketing, a Houston-based airline consultancy. "Big companies negotiating for cheaper fares might as well promise that their employees won't eat or drink between takeoff and landing."

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