Jim Eagles: Big bucks for big spenders

COMMENT

Over the next two or three weeks about a million Air New Zealand airpoints members will receive a letter explaining how many of the new airpoints dollars (or airbucks) they are getting for their old airpoints.

And on November 16 the airline will implement its revolutionary new loyalty programme which, among other things, dispenses rewards on the basis of money spent rather than airmiles flown, and allows members to use their airbucks to book any seats rather than a limited number of designated seats for a flight.

It's a huge change which will affect a lot of people, cause some confusion and raise a lot of questions.

The most obvious ones are: Why has Air NZ done it? How will it work? And will you be better off?

The reason Air NZ is making the change is fairly straightforward.

As part of the process of rebuilding the airline after its near-collapse, a business transformation team was set up to look at every aspect of operations and ask the question: "If we were starting an airline today how would we do this?"

The loyalty programme was one of the areas looked at and, as you would expect, it immediately became apparent that the practice of rewarding customers on the basis of miles flown rather than money spent did not make much sense.

It also emerged that because of the problem of redeeming airpoints under the present system, not only were customers getting grumpy, but the balance-sheet liability represented by unused points was growing by 15 per cent a year and heading towards unsustainability.

"At that point," says John Whittaker, who as loyalty and alliances manager has headed the development of the change, "it was a question of whether we could come up with a programme that was viable for customers and the airline. And the answer was, yes, we could."

The airline says it has come up with a system which is fairer, easier to use, reduces the airpoints liability over time and, in the short term at least, is financially neutral.

In the long term, Whittaker says, the expectation is that "once customers understand how this new system works, we'll get extra business as a result of people choosing Air New Zealand and their easier-to-use airpoints".

Okay, so how will it work?

Letters about to be sent out will tell customers that their airpoints have been converted into airbucks on the basis that 75 airpoints equal one airbuck.

In future, airbucks will be accrued on the basis of money spent rather than miles flown.

So, for example, a return flexi-saver flight from Auckland to Christchurch will earn 24 airbucks; a fully-flexi single flight from Wellington to Sydney is worth 50 airbucks; and a single business-class flight from Auckland to London will earn 350 airbucks.

Those airbucks can be used just like standard dollars to book any seat on any Air NZ flight, including smart-saver fares, advertised specials and the cheaper fares for children.

The focal point of the new set-up will be an internet booking system - although cyberphobes will also be able to use the call centre for a fee of $25 for international and $15 for domestic - on the airline's website at www.airnz.co.nz

From November 16 the internet system will handle express network bookings - domestic, Australian and Pacific Island flights - and all upgrades in airbucks or folding money. Next year, long-haul bookings will be added.

Airpoints members will also be able to see their airbucks balance online instead of having to wait for the monthly mail-out, and to claim online.

The object of the exercise, Whittaker says, is to make it much easier to book using airpoints.

"If you're booking for a family, say, you'll just go online, make the booking in the usual way by looking at price and availability, and when you come to finish the transaction you'll just go, well, I want to pay for these two with airpoints dollars, and give your airpoints number, and these two with my credit card, and give your credit-card number."

Right, so now it's the crunch question. Will you be better off?

Whittaker rejects the suggestion that anyone could end up worse off. "We hope that everyone will be a winner one way or another."

But it is clear that, at the very least, some people will benefit more than others. The greatest benefit will go to those who tend to buy full-price fares, often businesspeople without sufficient flexibility to take advantage of the cheap discount fares.

With rewards based on price paid rather than distance flown, they will obviously get more airbucks than the people sitting alongside them who bought flexi-savers.

Air NZ agrees such people will be the biggest winners because, as Whittaker says, "the programme is about rewarding those who create value for us".

Rather less advantage will accrue to customers who take long-haul flights on cheap special fares and who previously picked up heaps of airpoints as a result of the long distances flown.

In an attempt to offset any disadvantage to them, Air NZ will continue to offer a limited number of seats on long-haul flights at special cheap fares which may only be paid for with airbucks.

The airline acknowledges that will, in a sense, leave customers wanting to use those fares locked into something similar to the unsatisfactory old system. But, says Whittaker, "that will ensure they aren't any worse off. And now, if there are no airpoints seats available, they will at least have the choice of using airpoints dollars to buy fares at the regular price".

There will be a limited advantage to customers flying on Air NZ's Star Alliance partners. Anyone travelling, say, from Auckland to Los Angeles with Air NZ and then on to Chicago with United will get airbucks for the whole flight in the usual way.

But the use of airbucks to buy seats on a United flight will still be restricted to the seats it has available for airpoints. There will be a clear loss to those from provincial centres who previously had a free connecting flight from their local airport as part of any airpoints package.

It seems that's a conscious decision by Air NZ, which saw it as an unfair subsidy to one group of customers. "We believe the greater flexibility of the new system, and that domestic fares are now cheaper, will offset that," Whittaker says.

Air NZ argues that even those who may initially not think they are getting much out of the changes do stand to benefit if they change the way they use the airpoints system.

It expects the new system will result in more people using their airpoints and much greater use made of airbucks to buy domestic flights.

"I've spent a lot of time looking at individual impacts, trying to come up with something that would be fair to everyone and that would make all our customers winners, and I genuinely believe we've done that."

* Air NZ has set up a webpage answering the main questions about the scheme. It is at Air NZ Airpoints. Customers can also ring the airpoints call centre on 0800 247 764.