Sky Hook: Financial Firms Woo the Air-Miles Crowd

Dr. Craig N. Lamb was driving in Tulsa, Okla., recently when a billboard caught his eye.

It said "The Sky's the Limit" - promoting the Bank of Oklahoma's promise of 500 airline miles for every $5,000 invested in a certificate of deposit or 1,000 miles for opening a checking account.

Dr. Lamb, president of International Health Sciences University, said he hasn't had time to stop into a branch to inquire. But with more than a million miles in his pocket and a yearning for more, chances are he will make the effort.

Banks and other financial services companies are quickly learning that frequent travelers like Dr. Lamb are potentially loyal and profitable customers.

Once, they might have been reeled in by free toasters, calculators, or boom boxes. Today they want rewards that at times seem even more valuable than money.

"Frequent-flier miles are the affluents' toasters of the 1990s," said banking consultant Les Dinkin. "They represent surrogate currency for a lot of people."

And increasingly they are seen as a hook for loyalty - not just to an airline, but also to financial services as basic as checking accounts.

Many frequent fliers are as tenacious as Green Stamp collectors used to be, and the motivation is much the same. They relish the opportunity to rack up miles by opening an account, spending on their credit cards, making mortgage payments, using a home equity line of credit, or investing in a certificate of deposit or mutual fund.

Banks that want to play in the big leagues of customer rewards can find willing partners - the airlines - that are experts. They invented the idea, after all, and may be able to teach bankers a thing or two about marketing, loyalty schemes, and customer retention.

Conversely, American Airlines, which in 1981 launched the first such program, AAdvantage, sees good reason to work with banks.

"The bank customers are almost equal to the pure airline frequent- fliers, who are really extremely desirous of earning miles," said Bruce T. Chemel, president of the AAdvantage marketing division.

Airlines succeeded in changing consumer behavior because their formula is so simple, said bank card consultant James Accomando: Generally, $1 equals one mile.

"It's very easy to adopt, whether you are a telecom, a mutual fund, or a credit card company," he said. "It's the No. 1 value-added."

Customer satisfaction being the name of this loyalty game, American is continuously trying to stroke its AAdvantage members by giving them more opportunities to earn miles and more ways to redeem them, Mr. Chemel said.

In addition to its partnerships with hotels, car rental agencies, and MCI Telecommunications, American has AAdvantage tie-ins with Citicorp and five mortgage lenders.

One of the latter companies, Great Western Financial Corp., Chatsworth, Calif., has since April reaped the rewards of slick advertisements American has run in upscale magazines. American awards a mile for every dollar of interest a customer pays Great Western.

"In this business, everybody kind of looks the same, and you need a little something to set you apart from the competition," said Sam Lyons, Great Western's senior vice president for mortgage banking.

Charles Schwab & Co. may have felt the same about the mutual fund business. This month, the discount brokerage teamed up with Delta Airlines to give customers 3,000 Delta Skymiles for depositing $30,000 in a Schwab account and 1,000 miles for every additional $10,000.

"If Fidelity (Investments) and Schwab had the same programs with the same growth rates but Schwab offered 5,000 miles, I would transfer mutual funds into Schwab," Dr. Lamb said.

As credit card companies can attest, it is hard to find loyal customers and keep them, especially when the product is rate- and price-sensitive.

"You can switch cardholders from almost any benefit, except for frequent-flier miles," said K. Shelly Porges, a San Francisco-based marketing consultant. Cash bonuses may not even work. "As long as you have miles outstanding or the ability to redeem more miles, that kind of keeps you in there."

Are financial services companies gaining loyal customers as the airlines have?

Citibank believes it has. In addition to its cobranded credit card with American Airlines, the bank arranges 10,000 AAdvantage miles for opening any new Citigold account. Other promotions include miles for deposits and for choosing the bill-payment option in PC banking.

"We know credit card members are very loyal to American and Citibank," said bank spokeswoman Maria Mendler. "We want to deepen that loyalty and encourage new customers."

"Loyalty has a price - two cents per mile - which still might be cheaper than acquisition costs of a new consumer," said Randy Petersen, editor and publisher of InsideFlyer magazine.

Companies are buying leads, he added, more than just loyalty. Loyalty programs generate repeat business and the revenue streams that come with it. "The Citis, Charles Schwabs, and MCIs have been willing to pony up ... for it," Mr. Petersen said.

"Customers are hard and expensive to obtain," said Mr. Lyons of Great Western. "Once you have them you do everything you can to hold onto them."

He said Great Western regards the American AAdvantage program as one of many business-origination channels. Others are: retail, wholesale, correspondent, affinity lending, and computer-generated.

"You have to do everything to compete on a national basis," the thrift executive said.

Old Kent Financial Corp. had similar marketing reasons for introducing the CardMiles Rewards enhancement with its credit card program in January 1995. Cardholders earned one mile for every dollar they charged. The miles could be redeemed on any carrier after 5,000 were obtained.

But the Grand Rapids, Mich.-based company had to revamp the program last month because it was so popular it was losing money.

Stan Dale, editor of the newsletter Mileage & Points, said the real value of a frequent-flier program partnership is the financial service company's ability to use the airline's data base "to manipulate and identify captive audiences."

High-end frequent fliers are an attractive lot, with an average personal income of $134,000, according to InsideFlyer.

"There are more people who are greedy than there are true loyalists," said Mr. Petersen.

To Janice Maniatis, a management consultant from Chicago, accumulating miles has become something of a game. She is an "elite-level" frequent traveler and has more miles than she can use. She adds about 10,000 miles a week. And each month she gains at least that many more through Membership Rewards points on her American Express card.

Ms. Maniatis said she is intensely loyal to her preferred carrier, Delta, but loyalty to a financial services company is secondary. When American Express hooked up with Delta this year for the Skymiles Optima card, she applied immediately. But because the card would award her a maximum of only 50,000 miles a year, she canceled.

If it removed the limit, she said, she would get the card again. In fact, Ms. Maniatis said, she would sign up for any financial service - a money market fund, certificate of deposit, checking account - that offered miles, as long it came at no additional cost.

"I would consider any program that allows you to rack up the points," she said.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER