Airmiles agony

http://www.independent.co.uk/travel/news-and-advice/simon-calder-free-flights-that-now-cost-a-small-fortune-2348214.html
I was rather shocked, if not surprised, to hear on Breakfast News this morning about the devaluation British Airways has announced for converting Airmiles into credits with its new scheme Avios. Simon Calder’s full piece for The Independent is above.
BA says it’s introduced the new scheme to have one common frequent flyer name across all its brands (it can’t use the name Airmiles outside the UK).
But although Airmiles will be converted into 10 times the number of Avios credits, the actual redeemable value will drop by 25% AND you will have to pay towards flight costs too.
Which will leave many long-time Airmiles members, such as me – I even used them to decrease the cash cost of our honeymoon in New York – feeling somewhat cheated.
So why the devaluation?
Well, firstly BA would look to be wanting to tidy up its legacy loyalty scheme by transferring everyone into the new one (it already has another called BA Miles).
Second, this should encourage Airmiles members to use them for flights, or other things, before the November transfer and devaluation – which would provide more BA with more activity and profits.
Finally, what I suspect is the main driver and unpublicised reason – reducing the contingent liabilities on their balance sheet.
Basically, the more customers build up loyalty points but don’t spend them, the more a company has to put aside money in case lots of them decide to use them. Similarly, car firms have huge amounts set aside in their contingent liabilities in case of expensive recalls or lawsuits. It’s “rainy day” money.
In BA’s last annual accounts the company (rather than the group) had £385 million set aside for contingent liabilities (http://bit.ly/nUvIIi). Which is a lot of money you could be doing something else more profitable with.
It seems to me that the new boss may be wanting to free up some of this by reducing the need for it through having fewer unused Airmiles hanging over the company’s head.
It’s a fairly sensible business decision, but from a longtime member’s point of view, a hardnosed and somewhat unfriendly one. How many people with whom BA has a long-time relationship will spend their miles and not join the new scheme? Many will probably transfer over but feel somewhat aggrieved.
But maybe that’s just the harsh reality of the airline business in a recession.
Whatever, PR-wise it’s not looking very customer-friendly.
And it makes using the phrase “the world’s favourite airline” a little harder.