American Express
You may have seen TV commercials featuring American Express or Capital One credit cards that promise points or miles with the clout to get you any seat on any airline without blackout dates. Those financial services companies try to distinguish their own loyalty schemes from airline programs, which restrict access to award seats.
Non-airline programs are not affected by award seat limits, because they don’t need award availability to book you on a flight. Instead, they sell you a regular revenue ticket, charge the ticket price on your credit card, then credit the cash amount back to your card and take miles or points out of your account, whose number is based on a standard formula.
Let’s say that you want to use your Capital One miles for a free ticket. The Capital One website performs a flight search and you choose a flight that costs $100. Once the ticket is issued, 10,000 miles will be deducted from your account.
While Capital One values $1 at 100 miles, the American Express Membership Rewards program converts $1 into about 80 points, though the precise number varies based on the type of card you have.
By any measure, that is a lot of points. If we assume that the average U.S. domestic round-trip ticket costs about $500, Capital One will charge you 50,000 miles and American Express 40,000 points. In comparison, you need only 25,000 miles from most airline programs — if there is award availability, which is a big if.
Of course, many airlines will also give you any open revenue seat on any flight, but for double the miles required for a “saver award” — they call it “standard” or “anytime” award. If you need a First or Business Class ticket, the airlines will actually give you a better rate even on a “standard award.” Such an award from North America to Europe in Business Class will be about 200,000 miles. Assuming that the average revenue ticket costs about $5,000, Capital One will charge you 500,000 miles and American Express 400,000 points.
It’s worth noting that the airline mantra about giving you the last available seat on a flight as a “standard award” is changing, and that privilege is no longer available to everyone. For example, it’s one of the benefits of United’s new Mileage Plus Explorer Visa card from Chase, which means that customers who don’t have the card — and are not elite fliers — won’t have access to that last seat.
The real advantage of the tickets purchased with non-airline miles or points is that they earn miles, because they are in effect revenue tickets — the airlines will never know that you didn’t pay money for them.
That same model is used by some hotel loyalty programs, including Starwood and Priority Club, which allow points to be redeemed for flights. Even some airlines offer such options, in addition to their regular award redemption opportunities. For example, United’s Mileage Plus Choices program is very similar to Capital One’s scheme, valuing $1 at 100 miles — only miles earned from Mileage Plus co-branded credit cards can be used for such tickets.
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When was the last time you used a travel agent? I asked that question in my book “Decoding Air Travel.” Last month, President Obama asked it, too, and the American Society of Travel Agents speedily protested. So let’s examine the modern — or perhaps not modern enough — travel-agency system and the value it brings.
Many young people don’t even remember the time when using a travel agent was the only practical way to book a trip. While many consumers today book their own travel, using travel agencies is still quite prevalent in the corporate world.
However, many business travelers I know are unhappy with their company’s travel agency. It’s clear the current system isn’t working well anymore for a variety of reasons. Without taking sides, let’s look at those reasons from the perspective of travel agencies and their customers.
If you are a traveler — for work or pleasure — you probably have at least one of the following problems with travel agents:
• They don’t always offer you the lowest fares or best itineraries;
• They only book tickets and leave the rest to you;
• They know little, if anything, about frequent-flier programs, elite status, miles and upgrades;
• They are not familiar with on-board products and don’t know which airlines have flat beds in Business Class;
• They don’t travel frequently, if at all, but sit in an office and rely on computers to tell them what to do;
• They are inflexible when schedule changes affect your tickets;
• They don’t take care of all your travel needs.
As the air travel system has become more complex and customer-unfriendly in recent years, the needs of the modern traveler have grown and diversified enormously. The traditional travel agency model has so far survived the Internet threat, but its relevance has diminished significantly, because it hasn’t caught up with the changes in travelers’ needs and demands.
Booking a ticket is no longer even close to enough. You have to be able to compare fares and products of different airlines and alliances, and to offer your customers the options that provide the best combination of price, comfort, convenience, maximizing frequent-flier miles, progress toward elite status, best upgrade opportunities and the most effective use of elite benefits.
For this to happen, you need a wealth of knowledge, which most travel agents don’t have. For example, you need to know what booking classes are eligible for upgrades and which don’t earn miles. It’s certainly unreasonable to expect one person to be familiar with each airline’s requirements, but there are ways to deal with that — an agency can have employees or teams specializing in the different alliances or groups of carriers.
Probably the two most important and consequential weaknesses of the agency model are its use of limited data and booking sources — often just one Global Distribution System (GDS) — and its almost exclusive reliance on automated systems to do all the work.
If you’ve read my book, you already know more than the average travel agent — and you realize why those two weaknesses result in millions of customers paying much more than they could be. Automation is no doubt vital for the travel-booking process, but given the intricacies of airfares and the tricks airlines have adopted to “maximize revenues,” sometimes we need to rely more on our brains than on machines.
One other thing to keep in mind when dealing with a travel agency is whether it has contracts with specific airlines. Airline commissions were discontinued years ago, but large agencies still have contracts. How does that affect you? The purpose of those contracts, of course, is to encourage agencies to send more business to the respective carrier. If your agency receives its biggest commission from American Airlines, it might book you on American even if Delta has a lower fare.
Now let’s look at the above-described picture from a travel agency’s perspective. Most agencies don’t have the pull of American Express and Carlson Wagonlit, and they don’t receive airline commissions. They do get GDS kickbacks, as well as transaction fees for provided services directly from clients — about $35 on average, though some charge as much as $90.
For what you pay them, they have decided that it’s not worth more than several minutes of an agent’s time to work on booking you a ticket. Then how do you expect them to do more than letting the computer do all the work? Would you pay them more to take care of your upgrade and other needs? I suppose it depends on whether you trust that agent to do a good job. There is no point in paying for something that you later have to fix yourself.
So what’s the solution? Should everyone stop using travel agencies? Of course not — they do have a place in the travel industry. Many companies simply can’t handle their travel volume without outside professional help. At the same time, the gap between agency services and travelers’ needs keeps widening.
One solution could be for agencies to have teams dedicated to high-end, high-demand executives, who are willing to pay more for additional services. Some large agencies already have such teams, but their tasks usually don’t include creative ways to save on airfare or any of the frequent-flier services described above.
There is another solution, which was suggested to me by — ironically — travel agency owners last year. They shared my observation about the gap between what they do and what their clients want, and urged me to bridge it. How? First, by educating their clients in seminars and private training how to do for themselves what the agencies don’t offer. Clients who don’t have the time or patience to learn can ask me to provide those additional services to them.
So to bridge that gap, I started my company, Kralev International LLC. As one of my clients says, we can do your homework if you don’t have time to do it yourself.
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As if the existing methods to overcharge travelers weren’t enough, some airlines have just found a new way deeper into your pockets. It comes in the form of sophisticated software designed to increase prices based on your desperation and lack of choice. Will you fall for the latest gimmick?
The new application is courtesy of Amadeus, one of the major distributors of airline and other travel-related data worldwide. This week, it announced the launch of “Active Valuation,” an “IT solution that enables airlines to maximize revenues across multiple channels,” or to charge you more for something you can otherwise get at a lower price.
Amadeus was surprisingly open about how it will help carriers to take more of your money, although it makes marketing sense to point that out in order to attract airlines to sign up. Amadeus already has contracts with several major airlines, including Lufthansa, Singapore Airlines, Brazil’s TAM, the United Arab Emirates’ Etihad and Air Baltic. The first three carriers are members of the global Star Alliance.
“‘Active Valuation’ works by enabling the application of sophisticated business logic to dynamically adjust the yield (revenue expected) of an airline product, according to the context in which a booking is made,” Amadeus said in a statement posted on several travel news sites.
“These yield modifiers are used in a seamless manner in order to perform an origin and destination calculation,” it added. “This allows a dynamic segmentation of customers, taking into consideration their characteristics, the point of sale used and any connecting flight data, in order to better capture their willingness to pay.”
My feelings about this statement are strong and mixed at the same time. On one hand, Amadeus obviously deserves credit for developing a new product that will no doubt boost its business. On the other hand, “Active Valuation” sounds like a recipe for screwing consumers over big time.
How does this work? If you live in the United States and want to buy a plane ticket between two European cities, you may be paying more than someone who makes the purchase in Europe. The airlines are banking on your lack of knowledge about European fares and betting on your willingness to spend more money than a European traveler, who can distinguish a good fare from a bad one.
As Amadeus pointed out this week, airlines have been doing similar tricks for years through their inventory management and are now simply expanding them. “For example, when a customer requests availability information for a multi-leg journey, the solution automatically considers the complete value of the trip and delivers appropriate availability information to the customer,” it said.
What does that mean? Let’s say you need to go from Washington to Hong Kong — there are no nonstop flights on that route, so you’ll connect in Chicago. Let’s assume that the Washington-Chicago flight has availability in the lowest booking class, as does Chicago-Hong Kong. However, when those two segments are “married up” to produce your connection, the lowest-priced seats would often disappear, and you’d have to pay for a higher booking class, which could mean hundreds of dollars more.
None of the major U.S. carriers uses Amadeus, but American Express and Carlson Wagonlit, two of the country’s largest travel agencies, do. It also powers online booking engines, such as Expedia and CheapTickets. Plus, if Amadeus figured out how to do those new gimmicks, its competitors won’t be far behind.
So how would you fight against all those airline attempts to “maximize revenue”? Demand an addition to the Passengers Bill of Rights? Complain to your congressman? Good luck. We live in a capitalist society, and every company has the right to maximize revenue in any legal way it can find — although some have found questionable methods, such as the fake “direct” flights I wrote about last month.
As you might have guessed, my approach is education — learn as much as possible about what the airlines do, and about the entire air travel system, and beat them at their own game. If you don’t know that something is happening, how would you know how to avoid it?
In my last column, I explained why corporate travel lacks innovation. One of the reasons is companies’ heavy reliance on old-style travel agencies, which in turn rely on computers to tell them what to do. The result is millions of dollars in unnecessary spending.
The Amadeus announcement is another reminder that if you keep using the old approach, you will continue to waste money. My method is simple: having mastered the system and its intricacies, I rely on my knowledge and experience buying tickets and flying around the world — that’s how I beat the computer.
Is that good enough advertising for my “On the Fly” Seminars and the Kralev International advisory services?
In all seriousness, this summer I decided to dedicate myself to travel education, even though such a concept doesn’t even exist, and I’m probably the only person who uses the words “travel” and “education” together. I’ll continue to preach it until people start listening.
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Why have corporate travel managers become so prone to inertia and averse to innovation in recent years? Why are numerous companies spending millions of dollars more on travel than necessary? Is it time for the travel manager’s job description to change?
I’ve been trying to find answers to these questions since I dedicated myself to travel education and training this summer, through my “On the Fly” Seminars and the Kralev International advisory services.
But it was a post by Scott Gillespie, who writes a blog on procurement and corporate travel management, that prompted me to air my thoughts in public. Although my arguments aren’t quite what he had in mind, I was happy to see that others share my concerns about corporate complacency.
Why do I feel qualified to pass judgment? Because I almost always pay the lowest coach fares, but I haven’t sat in coach since 2002 — and I’ve flown nearly 2 million miles and visited 38 states and 82 countries. And because this year, I’ve flown 100,000 revenue miles, for which I paid a grand total of $747. I’ve never admitted this publicly before, although friends have repeatedly urged me to use it as a selling point — I just didn’t think anyone would believe it. That’s why I’m writing a book, so I can explain it.
I’ve been shocked by how many companies still rely on large travel agencies without almost any meaningful supervision. I’m not suggesting that they stop using travel agents, because this may be the only way to handle high volume. The problem is that, in many cases, they are not getting the cheapest available tickets — but they don’t know it.
Why does that happen? One reason is that many travel agencies have lucrative contracts with certain airlines that encourage them to send more business their way. If your agency receives its biggest commission from American Airlines, it will likely book you on American even if United Airlines has a lower fare. Did the agency disclose any of this before you signed a contract?
The other reason is much less obvious, but hopefully this column will change that. While technology and automation are enormously useful and efficient, they discourage us from using our brains. Automation is no doubt vital for the travel-booking process, but the extent to which travel agents rely on computers to tell them what to do is stunning — and it costs your company a lot of money.
Let me give you an example. Last year, my former managing editor at the Washington Times had to go to Mongolia at a week’s notice and asked if I could find an affordable business-class fare. The cheapest ticket from Washington to Ulan Bator we could find — both from a travel agent and online booking engines — was about $8,700, which was out of the question.
So I started thinking outside the box and decided to try splitting the fare — if I could get a much lower business-class fare to a northeastern Asian city where one would connect on the way to Ulan Bator, I’d book the short haul in coach. Sure enough, I found a $3,250 business-class ticket to Beijing on Air Canada, and coach on to Ulan Bator on Air China for about $550. Both carriers are members of the global Star Alliance.
While any company most likely would have paid $8,700, I saved almost $5,000 — and it took me 15 minutes to do it. When was the last time your travel agent did that? I’m not suggesting that splitting the fare makes sense every time, but there are other creative — and legitimate — ways to save money that computers are not yet fully capable of mastering.
There are also things you can do to help your travel agency save you money. One of the services I offer is strategic travel planning. What does that mean? If you have more than one trip coming up, why not plan them at the same time? You don’t have to take them together — in fact, they can be months apart.
Several months ago, I had a client in Washington who wanted to go to Paris in the spring and to Buenos Aires in the fall. I knew that coach fares from Europe to South America are generally lower than fares from North America, so I suggested an unconventional way of booking two tickets simultaneously — one originating in Washington and the other one in Paris — and the savings exceeded $800. I won’t bore you with further details here, but send me a message if you’d like to know more.
How do you think most travel managers respond when I offer to train them and anyone in their company who might book travel directly? Some say their travel agency already takes care of all their needs and there is no reason to rock the boat. Others are unhappy with the travel agency, but they don’t have money to invest in learning how to save much more money. Yet others don’t seem to understand what exactly I can do for them.
Last week, a friend in Phoenix recommended my services to his company’s travel manager. The response was that, “due to budget cuts to travel budgets and their departmental budget, they felt that they could not justify the expenditure right now.” No comment.
In June, a business-development specialist from a Washington law firm took one of my seminars and saved $500 on her first ticket, so she recommended to the firm that I train their executive assistants who book travel for the attorneys. Management, however, saw things differently. “We have an agreement with American Express, so bringing you in would conflict,” they said.
I asked how exactly that would represent a conflict, since I wasn’t offering to book tickets for them, but I never received a response.
Nor did I hear back from the Association of Corporate Travel Executives, having contacted Megan Costello, then-acting executive director, Kate Farrell, senior director for global education, and Amber Kelleher, director for global education, three months ago. I suppose they have better things to do than listen to new ideas that can actually benefit their members.
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It’s no secret in the hotel loyalty business that Hilton HHonors has been probably the least creative and attractive among the major programs in recent years. Fortunately, its management has recognized that weakness and begun to address it, albeit cautiously.
While competitors such as Starwood, which includes the Sheraton, Westin and other brands, and to a lesser extent the InterContinental Hotel Groups Priority Club, came up with various promotions quarter after quarter, Hilton’s strategy seemed heavily reliant on name-recognition and reputation.
Jeff Diskin, senior vice president for global customer marketing at Hilton Worldwide, said in an interview last week that the company considers the quality of its hotels and the distribution of its network to be its main strengths…
