How Alaska Revamped its Loyalty Program
I spoke with Brett Catlin, Alaska Air Group's vice president for loyalty, about the decisions behind the decisions for the new Atmos program.
Dear readers,
After Alaska Air Group announced its new Atmos loyalty program and introduced a premium credit card to accompany it last week, I got a text from Brett Snyder, my podcast co-host and author of Cranky Flier.
”You got time to talk about Atmos briefly?” he wrote. “I don't get why people like this.”
Once Snyder got me on the phone, I learned his concern. Snyder has an MBA from Stanford and has far more quantitative agility than I, and before he commits to chasing elite status, he builds a spreadsheet to guide him to the most rational choice, such as whether to seek American’s gold elite level or what is now Atmos silver (the programs are interchangeable, since each airline gives credit for the other’s flights).
Snyder, with his analytical mind, is bothered by a new and innovative Atmos feature that adds even more complexity to his spreadsheet: Soon, Alaska and Hawaiian flyers will choose how they’ll earn status and points — by distance, segments, or revenue. Having options generally is good, but since Alaska’s customers must choose their preference once per year, they can’t optimize each trip. Snyder is concerned that people will make the wrong decision and blame the airline when they earn too few points.
As a consumer, I agree with Snyder. Like him, I’m big loyalty geek, and if I choose to earn Atmos points next year based on distance when revenue would have been more lucrative, I’ll whine about it for months. But the thing is — and this is what I told Snyder — the vast majority of consumers are not like us. They don’t read Gary Leff or lurk on FlyerTalk, and while they expect to extract value from a loyalty program (people love free flights), they’re not rational about it. If they were, why would so many people amass SkyMiles? Or redeem Rapid Rewards to go to Omaha during Thanksgiving?
Before Alaska announced the Atmos program publicly, I had a nice discussion with Brett Catlin, Alaska’s vice president who oversees loyalty. We discussed the why behind the changes his team made to the program, as well as how it developed the new credit card. I’ll get to those machinations below. But I think Snyder’s question about choice and consumer rationality is a good way to dive in, because it gets at how Alaska redesigned the program with a broad swath of potential customers in mind.
When I look at the new Atmos program as the author of this newsletter, I find a lot to admire in it. Even if Snyder may need more advanced math to discover how he benefits, it appears to be a program that will work well for everyone, and that includes people who care about earning points and free trips and perks but aren’t obsessed by the chase. I like that something-for-everyone approach because over my years on this beat, I have learned that the best loyalty programs are the ones that are built around a good understanding of human behavior — how and why people value certain outcomes. And when it comes to earning elite status or spending miles, people often do not behave rationally.
So here’s the not-so-secret answer to Snyder’s question: Alaska’s customers want to have choices, according to the airline’s research. And, with this choice of accrual method, there is a way for customers to ‘win’ — to earn more points and a higher status from Alaska than they might otherwise. That, though, assumes customers choose the most optimal accrual method in a given year for their travel plans. And most people either have no idea how to do this math, or they don’t care enough to do it.
"More than 50 percent of people get their choice wrong, and they generally get it wrong in a way that benefits Air Group, financially," Catlin said. "That allows us to be generous [because] a lot of consumers simply are not going to optimize. And those that are going to optimize the value — [we say] 'have at it.'“
How does Catlin know this? Before finalizing the Atmos program, Alaska surveyed customers about which option they would choose. Then the airline matched the customer’s choice to each customer's travel profile — essentially a record of all their previous travel.1
Catlin said customers often choose the revenue option, even when they won’t benefit from it. He says that’s because — as nuts as this sounds to mileage nerds who once racked up lots of miles on cheap tickets — people have been trained to only understand the revenue model.
Think about it. It’s been 10 years since Delta shifted to that approach, and all U.S. airlines (except Alaska, the one holdout that still gives people points based on how far they fly) have had it for years. And it’s not just airlines: pretty much every loyalty program — including Marriott Bonvoy, Starbucks Rewards, and Sephora's Beauty Insider — all dole out benefits based on spending.
In fact, Alaska was worried it would lose customers if it didn’t offer a revenue-based accrual option in addition to the distance-based one it’s had for years. Yes, this group probably includes business travelers who buy expensive last-minute tickets, but Catlin said it also includes other cohorts that won’t benefit. “Gen Z didn't grow up with distance-based accrual,” Catlin said. “They don't get it. They think it's complicated.”
If that's the case, why didn't Alaska join everyone else and go fully revenue-based? Well, Catlin said, many current members do know how good they have it with the distance-based option.
"If I got rid of distance accrual, it would be ugly." he said. "It would be, like, Rotary Club-ugly. I would be backing off in two weeks. So we're not going to do that."
If it’s not already clear, I really like talking to Catlin, because he was willing to share some fun information about how the new program came together, including the challenge of creating a new name from scratch, why Alaska might have more elite passengers than ever (and why that’s OK), and how his team set the annual fee and benefits for the new premium credit card.
Let’s get into it.