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Loyalty – Frequent Flyer Programs

Have FFP’s destroyed airline loyalty?

Are Frequent Flyer Programs lucrative for airlines or are they a source of frustration for their members?

When American Airlines launched the AAdvantage program in 1981 they created a much copied blue print. Today every airline around the globe offers a Frequent Flyer Program [FFP] of their own. Inspite of the ubiquity of FFP offers, more and more travelers behaviour challenges the ‘stickiness’ the FFP should create for the airline.

Life has become very challenging for loyalty programs! On the one hand, loyalty programs do cater to a core idea: Keep contact and create repeat customers.

At the same time FFPs get relatively little attention from Wall Street, and their financial importance to the airlines is not widely understood by travelers. The traveler just hopes to earn a free flight every now and then. On the other hand, since most airlines have unbundled their product status elements that were once exclusive, these status elements can be now purchased by everybody. Status customers perceive this as dilution of the programs and their tier benefits. With full price transparency there is little loyalty, and airlines need to reshape their programs to get them back to their original intention: Don’t sell your FFP – Use it!

Loyalty is decisive in moments when we have a choice. Are we willing to pay extra for the product of a supplier? Are we willing to accept disadvantages in purchasing the product of a specific provider?

Typically, airline loyalty programs or FFPs are built on three pillars:

  1. Status and status benefits

  2. A currency that funds rewards

  3. The relevance of communication

Airlines are a slim margin business and the benefits of loyalty are hard to measure. The cost is easily transparent and very few airlines have managed to capitalize their FFPs in tangible ways.

Air Canada sold the last shares in Aeroplan in 2008. Qantas aimed to acquire A$1 billion in 2008 by selling up to 40% of their Frequent Flyer Program. Timing was not the best with the global financial crisis, so the sale was put on hold. At the time, the Qantas Frequent Flyer Program represented 25% of the stock value of the Airline.

This was more than a decade ago! Is the time for FFPs over, and do airlines need to find new ways to secure the loyalty of their customers? Customers are happy to collect the miles and redeem them for leisure travel, but does it really change their buying behavior, or do they just enjoy the windfall benefits? Let’s take a look at the three pillars and their relevance for driving loyalty in 2018. Rules and mechanics were established more than 30 years ago. Do they still cater to today’s airline industry and today’s customer requirements?

Status and Status Benefits are both emotional and enjoyable, but do they still deliver?

Are customers still aiming for status symbols such as a name tag on a carry-on bag or a bronze/silver/golden/platinum card in a wallet? In most Western cultures status and prestige are demonstrated differently. A fancy car does not serve anymore as a reflection of social status for most Millennials (and others as well). Why should a FFP status card serve that purpose? The informed hybrid shopper makes smart, educated, and flexible choices in the moment and is not ‘glued to’ or restricted by some antiquated or shallow status.

The tier systems of most FFPs deliver useful benefits to the top tier, but how many of the millions of members are even getting close to that top tier? How many times do you have to circle the globe predominantly in First or Business Class to achieve this tier? What benefits are left for the lower tiers? A better position on the stand-by list?

A free coffee in a crowded lounge saving you €3.50? In the current aviation world a gold tier member is thankful for a free advanced seat reservation. How likely will a traveler in 2018 get to that status? Discounted or special fares will not get you the status you would enjoy. Will a traveler really pay considerably higher air fares to reach the desirable tier? The use of metasearch is common practice for leisure travelers, and when it comes to business travel the company sets the rules of choice. Receiving miles for this decision creates a windfall benefit rather than a decision stimulated by loyalty.

Currency for the FFP is typically a mile or a point.

The currency serves as a counting tool for the FFP, but it also allows the purchase of tickets, or even products in exchange for the currency in some FFPs services. It seems, though, that the fight between the airline’s loyalty manager and the controller has ended with a knock out by the controller. This victory is a double victory, since the opportunities for accrual have been cut considerably over the last years. Additionally, most members complain about the lack of availability for redemption seats. Since many affluent members accrue while traveling on business, they use the redemption opportunity for their leisure travel. Try to grab redemption seats for you and your loved ones to Mallorca or Capetown at the beginning of the school holidays. Your hours of frustration spent on the FFPs website searching for availability typically end in buying full fare tickets. After you’ve found the desired seats, the cost of taxes and services add up to being higher than shopping for a special fare via the metasearch. And then you are treated like a scrounger by the service staff. No award based program can work without the award!

Communication and the importance of relevant communications cannot be underestimated.

Ancillary revenues are most relevant for the airline n a world of unbundled products and the urgent need to optimize the total revenue beyond ticket fares. All processes in pricing, revenue management, sales, accounting and communication need to be redesigned towards their full contribution in an unbundled services world.

But if you do not make your FFP relevant, ‘unsubscribe’ is the weapon of the harassed consumer. Why is it the emergency break that we all need to use so frequently? All loyalty programs collect so much transactional data about us that they should know and understand us a little, at least. When you have never been to South America and have no intention to ever go there in your whole life, why do you have to know that the airline has started a new service? Probably the central marketing department forced by the production unit (aka network planning) has decided to ‘do something’ for the new route. Therefore the FFP educates the world on something the world finds irrelevant. This is not only a shortfall of the FFPs, but many retailers fall into that trap as well.

What is the way out?

Aviation is a very slim margin business. The yields have been under pressure since decades and will continue to be so. New loyalty programs will have to be designed for this economic environment but also for the new priorities and behavior of consumers in 2018 and beyond. The old ways to create loyalty will not deliver anymore.

The future loyalty programs need to deliver for the new millennium situation. They need to be prepared to match the big trends in the B2C segment:

  • Readiness for Generation Google

  • Commercialization of Big Data

  • Increased appeal via cooperation outside travel industry

  • Stronger leverage of the currency effect

In repositioning the existing loyalty programs and conversion to a future-proof design, there are three strategies which should be implemented:

  1. Individualize the communication (Use big data concepts, relevant offers, etc.)

  2. Commercialize the programs (Extended use of miles as currency, sell targeted communication to banks; offer appealing and relevant shopping options);

  3. Expand internationally (build customer profiles dedicated for non-home market members, invest into a more local offer, be more relevant for passengers abroad)

Targeted and relevant are the key parameters for success. Positive, enjoyable, totally unexpected surprises are the cherry on top. All this for an audience of millions. Data driven, automated, but not done in a robotic fashion are the backbone requirements. A little less controlling and a little more cre-ativity are the necessary changes in the recipe. Everything else is a waste of money and energy!

UNEX makes your airline business profitable and future proof!

For more than 15 years UNEX consults airlines in strategic and operational challenges. Various domestic and international projects e.g. in process adaptions, strategic business development, sales optimization as well as pricing and revenue management give proof to our industry specific expertise.

We are happy to support your business to get the most loyalty from your customers. We would be happy to analyse your current offer and come up with suggestions to strengthen the relationship.


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