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ON BOARD WITH RANDY PETERSEN

HOW US AIRWAYS RECOVERED FROM FREQUENT FLYER DISASTER
May 2003
by Randy Petersen

As if frequent travelers haven't been hammered enough this past year, now they're confronting another potentially devastating blow—the bankruptcy of their preferred airlines.

US Airways was the first to succumb to "the realities of today's economy" when it filed for bankruptcy on Aug. 11, 2002.

Exceeding all expectations, though, US Airways is emerging from bankruptcy less than eight months after its Chapter 11 filing—surely a record in the airline industry.

When the airline originally filed, most airline analysts and a substantial number of Dividend Miles members thought the airline had breathed its last. It is estimated that the bankruptcy filing caused nearly 84,000 additional award redemptions during the past year, accounting for over 2 billion miles burned off by alarmed members. Even worse, thousands of members stopped booking paid travel on US Airways and stopped earning Dividend Miles, preferring instead to start anew with other, ostensibly safer, frequent flyer programs.

So almost immediately after filing for bankruptcy, US Airways began formulating a plan to bolster loyalty through the Dividend Miles program.

"The loyalty of Dividend Miles members is one of the keys to the success of US Airways and helped offset the natural avoidance factor that is inevitable with Chapter 11 reorganizations," said Mike Isom, director of marketing programs and services at US Airways.

The effort to utilize the Dividend Miles program as an instrumental component of the recovery process was nearly cut off at the knees, though, when on Aug. 27, 2002, a series of airline policy changes was announced, including a change to the Dividend Miles program stating that miles and segments earned on most non-refundable fares would not count toward elite status.

For an airline that needed all the loyal business it could find, this was viewed as a risky gamble. The changes were immediately assailed in the press and incensed members voiced their extreme displeasure.

Just 10 days later, on Sept. 6, 2002, US Airways announced that the airline would revise several of the recently announced policy changes. Most importantly, mileage earned on non-refundable fares would continue to count toward Dividend Miles tier status.

Ironically, this decision to rescind the changes to the Dividend Miles program might have actually done more to bolster sagging confidence than any planned enhancements could have ever achieved. US Airways was now perceived as being "attentive" to their members. And the message sent by Dividend Miles members was crystal clear— if US Airways hoped to retain their loyalty and their business, the airline was not to make any devaluations to the frequent flyer program—period.

So, despite a run on the proverbial bank, the Dividend Miles program proved to be a major player in the US Airways recovery, and today the program has expanded to become even more valuable to members.

You can contact Randy Petersen at randy@insideflyer.com.