The case for Vueling's zero-Avios move

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Spanish low-cost carrier Vueling made an interesting announcement a few weeks ago. On 23 January the Barcelona-based IAG member said that they will no longer be offering Avios mileage currency to all flyers.

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Only travellers spending more than €200 (£173) or taking three Vueling flights a year will earn the points. In the new programme:

1. “Smart” tier travellers will earn three Avios per Euro – qualification: €200 annual spend or three Vueling flights a year

2. “Basic” tier travellers will earn five Avios per Euro – qualification: €2,000 annual spend

3. “Premium” tier travellers will earn seven Avios per Euro – qualification: €4,000 annual spend.

The new programme’s structure does not seem to have been thought through. As presented, there are no tangible benefits to registering if people only expect to take one or two flights. This could limit the number of people who reach higher tiers even if their flying pattern qualifies.

I think that in due course we can either expect auto-registration as a condition for booking a Vueling flight (if that is allowed, legally speaking) or a small Avios bonus “to get you started”.

Regular readers will know that I am not enthusiastic about earning miles or status based on spend alone. A good loyalty programme should reward people who use their own money buy seats that would otherwise go unsold.

High prices tend to be paid by business travellers. Many will have corporate discounts so net revenue received by an airline is not necessarily as shown on the sticker.

High prices also indicate high aggregate demand, which limits the loyalty value of people paying those prices since the higher the price, the more likely they can be replaced with somebody else.

Most of Vueling’s sister airlines in IAG – Aer Lingus, British Airways and Iberia – all offer comfy higher cabin seats. It is understandable that their loyalty programmes reward people buying these services. Vueling meanwhile offers an all-Economy service.

So why is Vueling making this move? Is there a method in their madness? I think there might be. In this article I attempt to answer six questions:

Q1. How might Vueling earn extra revenue from zero-Avios on flights? (it probably won’t)

Q2. How might Vueling save money from zero-Avios flights? (it probably will)

Q3. How might Vueling’s parent IAG earn extra revenue from zero-Avios flights? (they won’t)

Q4. How might IAG save money from zero-Avios flights? (they won’t)

Q5. Might Vueling be a test-case for other IAG airlines? (probably)

Q6. What are the long-term implications? (potentially significant and good news!)

Now read on…

Q1. How might Vueling earn extra revenue from zero-Avios on flights?

It is hard to see Vueling earning significant extra revenue from this policy.

Those who fly a lot anyway, perhaps on other people’s money, are not affected. Those who fly a little are unlikely to buy extra tickets just for the 500 Avios, worth around €3, promised on moving from “Smart” to “Basic” tiers.

It might even lose Vueling a bit of revenue if Avios collectors fly other carriers or take the train as a result.

But there might be a small revenue stream of Vueling customers flying once or twice a year not using their Avios to save €3. Enough of them could add up to a small amount of revenue that is significant enough that they airlines does not want to throw away.

Q2. How might Vueling save money from zero-Avios flights?

The prospect of Vueling saving money however is much more realistic.

IAG member airlines are well known for their degree of operational autonomy. Unlike at, say, the Lufthansa Group, each airline in IAG can design it’s own products, networks and strategies without too much interference from the centre.

From a loyalty perspective, the accounts will look something like this:

Avios Group Limited sells Avios to Vueling

Vueling pays Avios Group Limited

Vueling gives Avios to it’s customers

Vueling is paid for a few customers redeeming on their metal by Avios Group Limited

Vueling gives more Avios to it’s customers

British Airways and Iberia are paid by Avios Group Limited.

If enough Avios earned on Vueling are spent on BA and Iberia, it is easy to see how Vueling might see that giving Avios away simply transfers their cashflow to other partners in the group.

It is understandable that Vueling would want to save this money.

Q3. How might Vueling’s parent IAG earn extra revenue from zero-Avios flights?

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