February 6, 2019 (2481 words)
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As airlines' products have gotten more and more consumer-unfriendly - made possible through consolidation and shareholder pressures - their loyalty programs have become more like games.
Tags: financialisation, personal, games
This post is day 37 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.
A few years back, when I was your typical upwardly mobile subject under neoliberalism, I got really into travel rewards programs. I’m talking frequent flyer programs, hotel loyalty programs, credit card churning. It started when I opened a bank account with Citibank (I needed a US bank account in order to get paid during my internship) and the Citibank employee suggested I also apply for a credit card, with a rewards program.
Now, I already had a credit card with my bank in Canada, but it didn’t really have rewards, and anyway it was more of a functional thing. In America, though, credit cards were both ubiquitous and part of the social fabric in weird ways. They were a necessity on a macro level, as people were turning to debt in order to fuel consumption in an age of stagnant wages vs rising cost of living, especially in cities like San Francisco. But they also had a cultural aspect, as symbols of wealth, taste, status.
I started doing research into credit card rewards programs, and was instantly inundated with advertisements for various shiny cards. They all promised similar things: perks, discounted travel, a whole glamorous lifestyle. It was an easy sell, and I went deep into the rabbit hole, learning all the intricacies of the different programs and how to get the most value out of your points. I never really stopped to question why the system seemed too good to be true, or consider who ultimately benefited from consumers’ obsession with the arcane details of these programs. I just saw a game that I could win.
I got really into it my last year of college - writing software to help me optimise mileage accrual, making travel decisions primarily on the basis of frequent flyer / hotel program loyalty. I put several thousand dollars’ worth of bus hiring costs on my personal credit card when organising a hackathon, simply because I would get the credit card points.
It peaked soon after I graduated, in the early days of my startup. One of my cofounders was also really into frequent flyer miles, and we spent one weekend doing what’s known in the frequent flyer world as a “mileage run”. We booked an extremely convoluted series of flights which involved, among other things, a two-hour layover in Puerto Rico on the way from San Francisco to Montreal, purely because the cost per mile was ridiculously low (something like $400 extra).
When I tell people this story, they tend to think I’m exaggerating the complexity of that trip for comedic effect. Sadly, I am not. We were traveling nonstop for almost 40 hours, passing through Houston, Newark, and Chicago along the way, effectively criss-crossing half the country in what felt like the world’s least efficient travel route. As for Puerto Rico itself: our four-hour flight from Newark landed at 1:43 am, and so we deplaned, soaked up the Caribbean darkness for a bit, then went right back through security to get on the 3:29 am flight back to Newark. Same plane, same seats, same crew, even. (“It’s you guys again!” exclaimed one crewmember, with less surprise than I would have expected. I think that was a common mileage run route, at the time.)
It sounds incredibly stupid, I know. But you know what? It worked. My travel companion renewed his elite status, and I made Star Alliance’s Gold tier for the first time. That got me lounge access, priority boarding/check-in, more free baggage, free upgrades to business class. I was even able to parlay that into elite (mid-tier) status with the two other major airline alliances (SkyTeam and OneWorld) through vigilant monitoring of status-matching opportunities.
Despite all the time and energy and unnecessary flying I had put into this pursuit, I still felt like I had come out ahead. I was saving money, and gaining access to perks I wouldn’t have gotten otherwise. I had figured out how to game the system, and the rewards were great enough that I didn’t stop to consider whether I wanted to be playing at all.
In an interview with Seth Ackerman for Jacobin Magazine, J. W. Mason presents an alternative definition of “financialisation” which is a little different from how it’s most commonly used. For most, financialisation implies “more finance” - a growing financial services industry, encouraged by deregulation and technological advances, leading to the rise of finance capital as a distinct social actor. For Mason, however, financialisation is “a system for constraining the choices of other social actors”, and we should think of the financial sector as “the enforcement arm of the capitalist class as a whole”.
it starts from the idea that the logic of the market doesn’t enforce itself — the logic of the market has to be enforced. And one way of looking at the role of finance is that it enforces the logic of the market and ensures that a whole range of decisions that could potentially be made in many different ways in fact end up being made according to the logic of commodities and of accumulation.
This provides an illuminating lens through which to consider the airline industry. Consider that the last few years have seen a really unprecedented amount of consolidation among major airlines. In the US, 4 carriers represent 80% of domestic travel (American Airlines, which recently saw essentially a hostile takeover by US Airways; United, which merged with Continental before that; Delta, whose merger with Northwest precipitated United’s; and Southwest, a low-cost, mostly domestic carrier).
Now, these airlines are all massive, publicly-traded corporations, which means they’re ultimately ruled by the dictates of shareholder value optimisation. Their competitors are either confined to the margins of particular routes, or are getting bought up by the conglomerates. It’s essentially an oligopoly, with all the major players subject to the logic of financialisation.
What does this mean for consumers? Well, nothing good. Conditions are deteriorating - more restrictive tickets, fewer checked bags, less help from actual employees - and price-gouging is everywhere, especially if you don’t have status. Even those who do have some sort of status are complaining, as loyalty programs are constantly being “updated” to “better serve our customers” which is universally PR-speak for “screwing them over”.
The prevailing attitude toward the consumer seems to be one of contempt, unless you happen to be paying for an extremely expensive fare and/or have top-tier status. If you’re traveling in the lowest class, enjoy your seat at the very back of the plane, with no overhead bin access, food or water, plus all the other classes get to kick and spit on you.
But isn’t consumer-friendliness meant to be the whole selling point of markets? How did things go so wrong?
What went wrong is that the companies got too powerful, and simultaneously became beholden to interests that clashed with those of consumers. I’m hardly a fan of neoliberalism, but even Hayek probably would have appalled at this clear case of market failure, and would have recommended the companies be broken up or otherwise better regulated to allow for real competition, not the coordinated race to the bottom we see now.
The point is that there are material reasons for these degrading consumer conditions. The underlying political economy of the airline industry produces a particular organisational logic, which then gives rise to the social and cultural arrangements we see today. In the interview, Mason talks about the recent rise of shareholder commonality among large corporations:
We cite a nice paper by José Azar where he reports that in 1999 less than 20 percent of firms in the S&P 1500 had a substantial shareholder in common, a shareholder that owned 5 percent of more of their stock. In other words, if you randomly picked any two publicly traded corporations, it was relatively unlikely — a one in five chance — that they had a large shareholder in common.
By 2014, the proportion had reached 90 percent. In other words, almost every corporation shares large shareholders with other large corporations. […] from a shareholder-value perspective, that really changes the logic of profit maximization. If each firm has a different set of shareholders, “maximizing profits for the shareholders” is basically the same as “maximizing profits for the firm.” But when you have the same shareholders across all these different firms, those two objectives are quite different.
The example that people like to talk about is the airline industry, because a lot of what the airlines do to compete with each other is to get more market share by offering lower prices than their competitors. That’s what capitalist businesses are supposed to do. That’s supposed to be a big part of how living standards and productivity are raised under capitalism: businesses try to undercut each other, offer lower prices, better quality, and steal customers from their competitors.
But if they all have the same shareholders, then that behavior, from the shareholder’s point of view, is really counterproductive. Because basically, you’re putting money into the shareholders’ pockets from one of these airlines just by taking it out of their pockets from the other airline.
If you’re a shareholder who owns all of the major airlines, you want them to just divvy up market share in a stable way. The last thing you want is to see them all competing and offering fare cuts that are just going to the customers and not to you.
In sum: the financialisation of the airline industry has produced a system where airlines are shielded from having to compete in any meaningful way. People have to fly, and their choices are limited, so why not extract as much money from them as you can?
So what does all this have to do with frequent flyer programs?
Yesterday, Logic Magazine put on an event about gamification and the gig economy, featuring Sarah Mason (who wrote a stunning piece on Lyft for the latest issue of Logic), Caroline O’Donovan (reporter at Buzzfeed), and Rebecca Stack (Lyft/Uber driver and part of Gig Workers Rising). During the panel discussion, Rebecca compared the gamified interface imposed on gig economy workers with the appeal of frequent flyer programs for consumers.
I thought the comparison was fascinating, and it inspired me to write this post tonight. Because it’s easy to see the value of gamification on the production side - gamifying the experience for workers is a good way to keep them engaged during what would otherwise be a stultifying job done for little pay. It’s a way to trick them into putting in more work while distracting them from the reality of their condition, dispersing tension laterally (towards other workers, consumers, the self) so it’s not channeled upwards, where it could pose a threat to management. As Sarah Mason writes in her piece, citing research by sociologist Michael Burawoy:
Gamification also serves the useful function of redirecting conflict away from capital, as workers become consumed with the more urgent task of beating the game.
But gamification isn’t only a way to discipline and pacify workers. In today’s airline industry, where massive consolidation and faceless and unfeeling corporate bureaucracy is the norm, frequent flyer programs become ever more necessary to both retain and mollify consumers. And the more complicated the system - the more byzantine the award charts, and the more stratified the tiers - the more achievement the consumer feels when they’ve managed to “game” it by getting first-class tickets or a room at a Ritz-Carlton for “free” (if you ignore the time spent researching, and the hidden financial, lifestyle and even mental costs of orienting your entire lifestyle around gaming loyalty programs).
In other words, the game makes you feel better about the fact that you’re getting pretty much fucked over. As a consumer, you have so little power, and so little recourse if things go wrong. The game offers an illusion of power, but the corporation always sets the terms of the game; you end up hooked on the system, desperately trying to attain slightly more of the prize they keep dangling just out of reach.
That’s not to say that the corporations are doing this just to be evil. People get mad when corporations water down their loyalty programs, but sometimes they don’t really have much choice, if they’re trying to maintain their profit margins to keep shareholders happy. Lots of these companies have embraced blitz-like marketing campaigns for their loyalty programs, enticing people to try out their brand with a shit ton of free points. Sometimes these companies partner up: American Express had a good deal with Starwood (now merged with Marriott); Citibank and Hilton were pretty firmly in bed with each other; Chase had Hyatt and United Airlines. Sign up for a credit card, spend a few thousand dollars in the first months, and get like 50k points. It’s a deliberately inflationary approach, counting on the fact that not all the miles will be redeemed at a good value (and modifying the terms & conditions if necessary to make that happen) - preying on people’s cultivated ignorance of how the system works.
So that’s how things work now. What’s the alternative? Well, as a general horizon, I would love to see the decommodication of travel as a whole. Rich people should not be able to buy their way into such dramatically better experiences being moved around the earth. For airlines in particular, dear god do we need to be transitioning away from fossil fuels, which probably means fewer unnecessary flights. But that requires lots of other changes to the economy (killing parasitic industries/companies) and how we see leisure travel, which I may explore more in another post.
Ultimately, though, I feel that this oligopolistic and highly financialised travel industry is reaching a stasis where it’s clearly suboptimal for the consumer, despite the claims of market fundamentalists. In the short run, you could fix it by breaking up the conglomerates and enacting more consumer-friendly regulation. In the long run, though, the whole thing should be decommodified and turned into a public service, with collective ecological considerations in mind. At the very least, it would mean that rich people don’t get to feel smug about how much better travel is for them.
This is the first of several pieces on frequent flyer programs. Future posts will discuss the concept of elite status (and the usefulness/limitations of slogans like “fully automated luxury communism”) and the movie Up In The Air (where George Clooney and Anna Kendrick collect air miles while flying to various parts of the US as professional layoff messengers - i.e., firing workers). Thanks to Andrew Kortina for inspired the section on market failure, by telling me about Hayek’s views on monopolies.