Loyalty schemes under attack

Date: 23/01/1997

By Tim Jones

EASYJET, the low-cost UK airline, is preparing to file a complaint with the European Commission against what it considers to be the misuse of 'frequent flyer' schemes by larger carriers.

“These are simply a way of distorting free and fair competition,” said easyJet chairman Stelios Haji-Ioannou. “They are tying in customers who are not paying out of their own pocket by offering them incentives that they can use personally. I believe this system is one of our biggest competitors.”

All major airlines operate schemes designed to instil loyalty in their customers. Benefits include straightforward air-mile credits, easier check-ins and the use of club class lounges. But they can go much further as, for example, in the case of British Airways' Executive Club, allowing air miles to be swapped for 'leisure activities'.

Haji-Ioannou's complaint is that while the tickets are bought by companies, the benefits accrue to individual executives.

“That is the equivalent of IBM saying to a computer manager of a company: 'For every ten PCs you install in your office, I will give you one to take home and play on with your kids',” he said. “It is a very powerful tool because in most airline loyalty schemes, the miles are only earned if you fly at the highest fare, so there is an incentive to spend more.”

At the moment, easyJet and its lawyers are piecing together evidence for the complaint. The company acknowledges that this will be hard to prove, given that business executives will be reluctant to admit that they choose expensive tickets just because of the perks.

Haji-Ioannou is fond of quoting a survey carried out for travel agents Carlson Wagonlit last year which revealed a conflict between companies' travel policies and frequent flyer programmes.

The poll, conducted by MORI, showed that 64&percent; of company decision-makers felt frequent flyer benefits should go to the firm while 56&percent; of travellers felt they should be the beneficiaries.

EasyJet's move comes in the same week as Commission competition officials sent a formal statement of objections to BA regarding commissions paid to travel agents for winning large numbers of customers.

The complaint against BA's 'target rebate' scheme came originally from Virgin Atlantic, but has lain dormant for three years. Virgin claimed that the incentive scheme was so structured as to put maximum pressure on travel agents to give preference to the largest carrier in the market regardless of price, quality of service or scheduling, and that this pressure was growing every year.

“Every year, agents are pressurised into favouring BA flights, or the flights of any other carrier with a dominant market position and using a similar system, in order to obtain the target rebates,” said Virgin Atlantic adviser Hugh Welburn in a speech last year.

Virgin alleges that the system is geared towards major airlines even at a time when passenger numbers are falling when smaller airlines are particularly exposed to tough market forces because agents fear their commission from the leading airline will drop unless they sustain their target growth on ticket sales.

But BA spokesman Michael Blunt said: “What we do mirrors what is standard airline industry practice in Europe and elsewhere in the world. We cannot imagine that the Commission would want to prevent people from obtaining cheaper travel.”