I saw this article on the bing community blog - it talks about how Loyalty Programs have become so lucrative because customers are 'locked in'. I had made a post earlier as well where I said somethig similar. Once a person is locked in even if your service quality went down, would he/ she walk away?
Do you become loyal because of the rewards (transactional) or because of true service quality? Would you choose your airilne (or other product) if the only thing that mattered was service quality?
We all know that customer acquisition cost is higher than customer retention and of course if your customer is 'locked in' then the costs can conceptually approach zero - so it all makes eceonomic sense for the airline but does it make sense for the customer?