July 20, 2016
This article is brought to you in partnership with American Airlines.
Most people understand the basics of a travel loyalty program. Travelers earn a number of points or miles for every dollar spent that they can later redeem for flights or other awards. If they travel enough, they can also receive status within the program that comes with additional perks, including things like complimentary checked bags, access to better seats and upgrades, and a host of other benefits.
However, these rewards are generally limited to the individual traveler — which can be a sore point for the employer when the business is footing the bill and not receiving any benefits (other than the obvious that their employee got where they were needed for work). This is where a small and medium-sized business (SMB) travel program can offer value, but one question keeps surfacing: How much is it actually worth?
Racking Up Points
A whole subindustry is dedicated to loyalty program “hacking” and optimizing the returns on travel, but it hasn’t spent a lot of time evaluating SMB travel programs yet. However, the valuation process is much the same: determining how much you have to spend to earn an award and how much that award is worth.
Earning points in an SMB travel program varies from airline to airline. Some have bonus multipliers on more expensive fare classes or offer fewer points on flights in and out of their hubs. Others offer a set number of points per dollar, regardless of where you fly and how much you spend for that ticket.
The value of a point varies based on how you can use it and how you actually use it. Most SMB programs have at least two levels of award tickets: a lower-cost option that generally has less available inventory and a more expensive option that can be used more easily. But regardless of which award ticket suits your flying behavior, you will encounter instances in which points are more valuable than others. If a round-trip award ticket costs 2,000 points, redeeming them for a $400 ticket yields twice the value per point as using them for a $200 ticket.
Now that we’ve covered the basics, here are two examples using American’s Business Extra program:
• If a company spends $10,000 on flights, it will earn 2,000 points, which is enough for a domestic round-trip PlanAhead award ticket. If that ticket would’ve cost $350, the company receives an effective 3.5 percent return on its $10,000.
• If a company spends $125,000 on flights, it will earn 25,000 points, enough for an international first-class Anytime Award. If that ticket would’ve cost $10,000, the company would receive an effective 8 percent return on its $125,000.
This math will work out a little differently for our competitors’ programs, but you get the idea. If your employees are already traveling extensively — but not enough where you have contracted pricing with an airline — you should be leveraging SMB loyalty programs to create additional value for your company.
The Best Value to You
Finally, SMB travel programs can offer value to a small or medium-sized business in a way that’s very difficult, if not impossible, to quantify: employee loyalty and productivity.
Some customers use award tickets not to offset travel costs but rather for employee recognition, sales incentives, or holiday party door prizes. Giving employees trips they always will remember, especially as recognition for contributions to your business’s bottom line, can probably generate a much greater return than the SMB program ever could on its own.
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