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The world is currently carrying over 700 trillion loyalty program points in their pocket, and in a shaky economy, that could mean great headache for many carriers. Innovative new in-flight models could easily play into chipping away at those outstanding miles, regenerating the value in loyalty programs all while increasing profitability in this new a-la-carte era.
Loyalty programs remain an enormous staple in the travel industry; Air Miles, Aeroplan, S’Miles, WorldPerks, SeaMiles, AAdvantage, SkyMiles, OnePass, Rapid Rewards, Aeropass, Airpoints and the list goes on and on. But are the programs a positive or a negative in this economy? The answer lies in both who you ask and the innovation used in developing new means of redemption.
Travel loyalty programs represent hundreds of millions of dollars in revenue generation but likewise bring a large-level of liability to each air carrier. The benefits truly depend on one’s perspective. Sales and marketing teams champion a solid program. The accounting department on the other hand, not so quick to cheer. And then what about the airline customer? The passenger who has bought into the program, racked up their miles through loyal travel and spending on co-branded cards, and is now ready to take that ‘free’ ride especially now that their purse strings have tightened.
Back in 2005, when the airline industry was rebounding from its post-9/11 decline, North Americans were sitting on about 9 trillion frequent flyer miles (14 trillion miles worldwide). That was actually a 50% increase from pre-9/11 figures. The points equated to more than 300 million trips around the world. Companies tracking the status of these programs claimed that even if no more points were given to travelers from that point forward, it would take nearly 23 years for consumers to use them up. In terms of revenue generation, this was massive. That same year, Canadian-based Aeroplan took in C$701.4 million as a result of their frequent flyer program. For each reward company, the program works. And it works well!
With over 120 various frequent flyer programs worldwide, the heightened potential of customer loyalty by way of exclusive member incentives makes it a virtual standard in the airline industry. The added bonus of being able to track your passengers’ travel habits and channel your advertising dollars more effectively is just icing on the cake. But as a risk, the revenues and liabilities are both economically sensitive. In these tumultuous times, while airline capacities decrease, the ‘not-knowing’ of when and how many consumers are going to cash in on a “free flight” leaves a big question mark on a balance sheet. Granted, standard fees and taxes will still be earned, but while operations have dropped fare prices to minimums already, there is reason to reevaluate.
One of the largest reasons for discontent among program members is the difficulty involved in redeeming points. Airlines often reserve only a few seats on each flight that can be used for redemption purposes. This reduces their liability factor but also decreases the perceived value in these programs for the consumer. After earning 25,000 miles that will take one from DFW to JFK one would probably have to book 6 months in advance and risk getting bumped by someone who is 500,000 points ahead of you. Airlines recognize the need to balance their commitments to loyal customers with their need to increase their per passenger revenue intake.
As airlines continue the “unbundling” trend, allowing passengers to use their miles in-flight for food and beverage service or other, more advanced items like destination offering discounts, airlines may be able to make those outstanding points work for them in new ways. And for those in markets who have been reluctant to adopt the a-la-carte model, such as in Asia, carriers are now starting to seriously think about creating a loyalty point redemption program onboard.
GuestLogix has sparked new conversations in the Asian market in particular, as their sophisticated Mobile Virtual Store™ platform supports transacting onboard sales with loyalty points. Taking an airline’s new charges for food and beverage, pillows, blankets and headsets and allowing loyal customers to cash in frequent flyer miles not only avoids giving the impression to loyal customers that you are reducing your previous service model, it can actually increase the value of your overall program and still allow you to still gain a higher per passenger intake from those passengers who have yet to buy in.
With fares as low as they are now, if one can pay that fare and then opt to use 5,000 points to purchase an in-flight meal, not only will one have a new way to reduce all of the miles that they are carrying around with them, but the airlines will be able to prove that being a member has even more perks today.
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