Embattled Airlines Try Their Best to Keep Frequent Fliers

The two major U.S. airlines in bankruptcy have made tough choices about jobs and wages, while largely protecting the free tickets and other perks offered to their frequent fliers. At Delta (DAL) — which soon could become the third major carrier in Chapter 11 — frequent fliers are being told their rewards program also will be honored.

Wage reductions and service changes are often a fact of life when a company reorganizes. Sometimes there are even job cuts. The airlines, however, realize that the one constituency they can't mess with are their most valuable customers, observers say.

"It's all about fixing the company," said Bill Warlick, an airline analyst with Fitch Ratings in Chicago. "If you recognize you have a significant revenue ordeal, you certainly don't want to undermine your high-yield revenue base. That is job one, to ensure your best customers are still with you."

Atlanta-based Delta Air Lines Inc. this week sent an e-mail to its frequent fliers telling them their program will remain intact if the nation's third-largest carrier files for bankruptcy, a move that grows more likely by the day without concessions from pilots and debt holders.

"We continue to work to avoid this outcome," Delta marketing chief Paul Matsen said in the e-mail. "However, even if it were to happen, we will continue to provide you with safe, secure, and reliable service both in the air and on the ground."

Matsen said that in the event of a Delta bankruptcy, tickets will be honored, refunds and exchanges will be made as usual and, most importantly perhaps, its frequent flier accounts will not be affected.

Elk Grove Village, Ill.-based UAL Corp. (UAL), parent of United Airlines, and Arlington, Va.-based US Airways Group Inc. (UAIR) say they have not reduced any benefits in their frequent flier programs as a result of their bankruptcies. In some cases, they say, the programs have been strengthened.

"These are our most important, loyal customers," said US Airways spokeswoman Amy Kudwa. "Maintaining that relationship and upholding the standard is very important. We don't have any intention to change the program in our reorganization."

US Airways requires a minimum of 20,000 frequent flier miles to get a free coach-class ticket within the United States; The minimum at United is 25,000. Those minimums have not increased during the two airlines' bankruptcies, spokeswomen for each airline said, though in US Airways' case its frequent fliers now have to book their free tickets online to qualify for the minimum level.

In United's case, the airline at times offers promotions in which frequent fliers can get free tickets with only 15,000 miles, spokeswoman Robin Urbanski said. Both airlines also allow their frequent fliers to earn and redeem their miles on other carriers with whom they are partnered.

Bruce Schobel, a New York actuary and Delta frequent flier program member, said that despite the job and pay cuts announced of late at Delta, he believes the airline when it says it will protect its SkyMiles program.

"They'll behave the same way United and US Airways did. They'll leave the program alone or even strengthen it," he said.

In the past, Delta has made changes to its SkyMiles (search) program that have affected some of its premium members. Schobel was one of the frequent fliers angered when Delta two years ago cut in half the frequent flier miles earned on economy flights when applied toward qualifying for the program's top-tier benefits, including upgraded seats and more free flights. Delta also stopped counting some short flights toward qualifying for those benefits.

Delta has said in the past that its SkyMiles changes benefited its premium customers and have generated additional revenue — close to $40 million in 2003.

After a revolt of sorts by some SkyMiles members, Delta agreed to restore benefits to people who fly a lot of short, inexpensive flights, and it allowed upgrades for frequent fliers who bought tickets of any fare, not just the higher fares. Left in place were some complicated qualifying requirements and limited upgrade availability.

If Delta files for bankruptcy, Schobel said, there can be no guarantee frequent fliers won't be affected in some way, though he believes the airline will do everything possible to keep its most valuable customers happy.

"It seems like the statement was a little strong for a company about to enter bankruptcy to make with such confidence," he said of the Delta e-mail. "At the same time, I think it's a true statement."

He added, "This is putting everybody on notice, 'We're heading toward bankruptcy, but we don't want you to worry too much.'"