How Frustrated are Frequent Flyers?

Considerations by

Roger Williams, Managing Partner, Airline Information

&

Ravindra Bhagwanani, Managing Director, Global Flight

Looking at all the poor comments about FFPs on the internet and in the media, one could think that most frequent flyers are deeply frustrated. Are these frequent flyers just the tip of the iceberg or victims of media hype?

Roger Williams:

As I look at the around 175 FFPs in today’s market, it is apparent that some airlines view their programs as an institutional marketing tool and others treat them as a “promotion du jour”. This phenomenon can be historically traced to the inception of the first two loyalty programs that were, in retrospect, designed to be lasting value institutions- AAdvantage and Mileage Plus. Many, but not all, of the other US-based airlines that followed suit with their own programs during the early Eighties engaged in reactionary tactics and did not consider the long-term viability of FFPs. This is evident when American pre-empted some majors by introducing accrual automation with their AAdvantage program only months after launch.

The four “Ps” of marketing: Pricing, Product, Placement, and Promotion are elements to be matched, rather than benchmarked by other airlines and new entrants. To our industry’s credit however, the “CRM” buzz since

the dotcom age has encouraged airlines to customize their promotion vehicles, including their FFPs. But many airlines do not demonstrate their commitment to FFP institutional marketing when they spend millions on distribution and departure control systems, but still run their FFPs with antiquated systems and procedures.

Ravindra Bhagwanani:

There are certainly issues, but for me, this whole discussion points to two other underlying factors: Customers, who don’t understand FFPs and airlines, who fail to communicate them properly. And both think the fault is with the other. The resulting frustration is not really a system issue per se, but rather based on mutual misunderstandings. And maybe even to a sub-optimal conception of most FFPs…

Roger Williams:

…but Ravindra, let’s honestly address the question of what airlines could improve?…

Ravindra Bhagwanani:

I was just about to do that, but I feel that you can’t hold back on your favourite award availability topic. So, go ahead!

Roger Williams:

Okay, thanks. The statistics widely quoted in the media are laced with hyperbole and reporters do not examine the root of today’s FFP issues. Article after article reports astronomical figures of contingent liability in the form of trillions of miles without recognizing the spectrum of programs and that airline-sponsored award availability is diverse. There are, however, real problems, especially in the US market, that deserve more in-depth examination rather than reporting that the sky is falling. First of all the problematic issues are: award availability, accreditation irregularity, and user-friendliness. Secondly, geographical areas affected tend to follow the expansion of FFPs, starting with the United States, Europe, and some parts of Asia.

Hawaii, the first-ever award destination offered by a program, today ranks as the highest demanded award destination among US airlines. Fulfilling demand to a destination like this is an unenviable challenge, however, among US Majors there are stark differences with macro award availability that don’t always seem to add up. All US-based programs offer the promise of FREE award travel, yet among these programs the awards, as a percentage of seat capacity, vary from between 5 and 10% of available capacity- a difference of 100%. Consequently, airlines, starting with those in the US, need to take a fundamental look at award availability and adjust their loyalty strategy accordingly. Awards are a cost of doing business, just like booking segment fees.

Customers that are genuinely frustrated with FFPs feel that these programs do not fulfill the expectations that were marketed to them so aggressively. The average traveller expects free travel - end of story. Another part of the problem is that FFP attractiveness is still (logically) designed around a high-frequency passenger just as it was from day one. Many elite members appreciate regular upgrades more than free award seats, because they rarely have time to take an award, or if they do, they can easily afford the ever-present anytime award. But the X-factor here is incremental accrual opportunities that have become so lucrative to airlines. These offers, led by co-branded credit cards, owe much of their success to low-frequency passengers who eagerly use them and accept their generous accrual bonuses – only to be met with denial when they try to exchange this promise for an award.

Ravindra Bhagwanani:

In a nutshell, there has been too much focus lately on what works well for airlines. It is now time to address some of the fundamental and justified complaints by customers. FFPs can be such a wonderful CRM tool - so let’s exploit it! Just remember that “R” in CRM stands for “Relationship” and not for “Refusal”. As a matter of fact, contrary to general wisdom and as you’ve just expressed in a side remark as well, Roger, research shows that many customers are not interested at all in free flights and other standard benefits FFPs offer. But airlines tend to refuse to acknowledge this as it would involve them having to rethink the whole concept of FFPs.

My point here is that airlines do little, and in most cases nothing at all, to eliminate one fundamental source of frustration of customers by not providing them what they really expect. Based upon such a flawed starting point, it is no wonder that the misunderstandings continue all down the line. Airlines sometimes expect that frequent flyers should do nothing other than try to understand the complexity of their FFPs, although airlines haven’t done their homework upfront to really understand what really interests customers. Airlines often invent systems that may make sense for themselves, but certainly not for any average customer. One easy example: there are so many rules these days related to the booking class (level of mileage accrual, eligibility for upgrades etc.) - but which frequent flyer ever knows the booking class of his ticket? Most airlines do not even provide this information when you book online!

This airline-centric view can often be witnessed in a different area demonstrating a huge gap between airlines and their best customers: Frequent flyers are generally people who have “succeeded” in their lives. They often hold important job positions and are accustomed to managing others, but when they book air travel, they are dictated to by call center agents telling them what they need to do. I agree that there are many frequent flyers that could behave in a less arrogant manner as well - but the arrogant person should not be the call center agent either.

At least the short-term solution for me is in three words and I am sure you agree with this, Roger: Communication, communication, communication. This might be a hard task, but probably the only one that works. I think airlines are well advised to take the frustration, whether real or presumed, very seriously and not consider it a threat, but rather an opportunity to improve. But if such an improvement is taken seriously, it will obviously take some time to be realized. In the meantime, simply tell your customers what you do, why you do it and what you intend to do.

Roger Williams:

Definitely I agree. But I would even take this a step further and advise airlines to tailor their brand communication to their currency and award management strategy. As airlines begin to rely more upon their supplementary reward mix, they need to promote accordingly and work on enhancing the quality and variety of the mix.

Using US airlines as an example, again we can identify two distinct award management models among Delta, Continental, American, and United. The latter two, even though they have their share of limitations, tend to open up more awards as a percentage of revenue inventory, however, their upgrade policies are not as liberal. The two SkyTeam carriers tend to be more conservative with award seats, but promote a liberal upgrade policy that really gets exciting at the second tier level. With that said, all of these carriers offer similar “anytime” awards for an inflated mileage price.

The danger of operationally shifting to supplemental rewards like upgrades without communicating a diversified reward theme is that people will feel unfulfilled. If you alter the delivery means and methods in business, then you will need to adjust your messaging for customer expectation. Customers that qualify for an occasional discounted domestic award, primarily by patronizing their mileage credit card, and who do not travel enough to be greatly rewarded by upgrades, are the ones who are really frustrated.

I compared the aforementioned airlines, because of their different award models, but it is important to point out that all of them share discounted award limitation issues. One thing that programs facing these problems should begin to do is to limit the size and frequency of bonus promotions – this only fuels false expectations. The remainder of the solution involves, as Ravindra has already said, taking difficult corporate decisions on the next generation strategy of the program and finding ways to use customer feedback.

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Read similar discussion segments from FFP Online:

Will the FFP Market Consolidate?
Considerations by Roger Williams and Ravindra Bhagwanani

Go ahead!  throw your hat in the ring and tell Ravindra and Roger what your thoughts are on the subject.

Your comments may be quoted by one of them the next time they meet One-on-One.

Contact Ravindra: ravindra@globalflight.eu

Contact Roger: rwilliams@airlineinformation.org

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