Philip Charlton is the Managing Director of Trident Loyalty Systems, a company that has developed an innovative strategy and enabling technology that precision-targets and enrols only active flyers into an airline's loyalty database. Before founding Trident, Philip was the Group Account Director at OgilvyOne Dubai, guiding Emirates' Skywards programme, and International Account Director at Carlson Marketing Group in the UK assigned to British Airways' Executive Club.

FFP Online Editor Ravindra Bhagwanani asks Philip Charlton to re-examine the definition of a frequent flyer programme and discuss how to focus effectively on the real target group of any FFP - high-yield travellers.

Ravindra Bhagwanani:

Who keeps legacy airlines flying?

Philip Charlton:

Profitable passengers on full-fare tickets, especially those in premium-cabins.

Ravindra Bhagwanani:

How would you define “profitable”?

Philip Charlton:

Depends on the airline. In respect of revenue, assume an average Life Time Value of US$22,000 over 5 years per premium-cabin passenger. Moreover, there is something delightfully predictable about enrolling premium-cabin travellers into a FFP.

Ravindra Bhagwanani:

Tell me more.

Philip Charlton:

That on average, members activating on premium-cabin tickets take 70% of future flights in the same cabin, 15% in full-fare Economy and 15% in discounted Economy. 

Ravindra Bhagwanani:

In other words, they represent the key target market of a FFP?

Philip Charlton:

Indeed. Targeting, targeting, targeting. The core FFP objective is to identify, recruit, activate and retain profitable passengers, the future Silvers and Golds of the programme. To illustrate this point, look at these triangles.     

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Ravindra Bhagwanani:

I guess he would. Wait a minute! Let’s back track. Earlier you said that until recently, recruitment was done by paper or the Web. What haven’t you told me?

Philip Charlton:

A 3rd way. The world’s first dedicated FFP Kiosk developed by Trident Loyalty Systems. Our kiosk, like the web, is on-line. However, unlike the web, it is sniper rifle accurate rather than scatter gun inaccurate. In fact, from a targeting perspective it is more like paper but without all the hassle. I’ll draw you a Venn Diagram to show you what I mean.

Ravindra Bhagwanani:

Does Trident have any clients?

Philip Charlton:

Yes, Qatar Airways. We deployed a solution for Privilege Club back in August. Have a look at our website at www.tridentloyaltysystems.com. Judging by the comments of the airline’s CEO and Senior Manager Customer Loyalty, Qatar Airways is pleased with our service and solution. To date, the Trident FFP Kiosk has exceeded Privilege Club’s enrolment target by 100%. Take a look at these photos and screen grabs.

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Ravindra Bhagwanani:

Does the Trident Kiosk only recruit and activate members?

Philip Charlton:

No. It can also offer retention functionality and generate advertising, mileage and in-flight retail revenue.

Ravindra Bhagwanani:

But why would a FFP use the Trident Kiosk rather than adapt their check-in kiosks?

Philip Charlton:

You’ve answered your own question. Check-in kiosks expedite check-in. It is not the time and place to slow that process down with enrolment and statement printing. Besides, check-in kiosks don’t have a card printer and statement printer. There are other reasons but I’ll stop with these.

Ravindra Bhagwanani:

So how are these flyers recruited?

Philip Charlton:

Until recently, by paper or the Web.

Ravindra Bhagwanani:

Which is better?

Philip Charlton:

Paper.

Ravindra Bhagwanani:

Come on. Website acquisition costs virtually nothing!

Philip Charlton:

You get what you pay for! If you want unprofitable members by the bucket load, nothing beats the Web. The objective is to recruit profitable FPP members and only 2-4% of these, according to McKinsey, account for 33% of an airline’s profit, while Accenture reports that 9% of an airline’s passengers buy 50% of an airline’s premium seats. The web provides quantity not quality.

Ravindra Bhagwanani:

Yes, but as 90% of frequent flyers have web access they are bound to enrol on-line.

Philip Charlton:

No. I know of one FFP that only uses e-communications with one notable exception. They retain paper applications. Why? Because they know that 70% of their premium-cabin activating members used a paper application to enrol. Generally, business travellers don’t book their own flights on-line. They have secretaries or travel managers or travel agents do it for them. As the majority of business travellers don’t book on-line, they don’t enrol on-line.

Ravindra Bhagwanani:

That might help explain why the average inactivity rate of a FFP is 70%  

Philip Charlton:

Yes, and these inactives erode profit alarmingly. According to McKinsey, 5% - 20% of a FFP’s costs could be saved through better targeting, while AMR Research calculates that 50% - 60% of customers are not profitable and customers providing less than 20% of the profit potential consume 60% - 80% of front office support. This is especially significant given that McKinsey estimates that the average FFP churns by 15% to 25% per year.   

Ravindra Bhagwanani:

What do inactives cost?

Philip Charlton:

I don’t have airline costs. However, First Direct, a UK bank, is about to charge their 40,000 inactive customers US$20 a month unless they deposit US$2,900 into their current account or maintain a monthly balance in excess of this sum per month thereafter. First Direct says this is to cover administration charges. So First Direct calculates the cost of an inactive at US$240 per year.

Ravindra Bhagwanani:

I would estimate costs lower for FFPs, but agree that this is an issue nevertheless. But what does it cost to recruit an active premium-cabin member?

Philip Charlton:

Let’s take Bain’s assertion that it costs 10 times more to recruit a new customer than to retain one; then apply Colloquy’s estimate that the average annual cost to a FFP to retain a member is US$14, and the result is US$140 per active member.

Ravindra Bhagwanani:

Impossible!

Philip Charlton:

OK, say 5 times. Just US$70! Given that the average credit card company pays US$125 to recruit anybody, it seems generous to assume US$70 for an active premium-cabin member! When Jim Stewart, the President of Barclaycard US, announced a co-branded credit card with US Airways, he said:  "They are great customers. Not only do frequent fliers tend to be affluent and credit-worthy, but they also channel their spending into one card.”  Jim must know what he’s talking about if he’s prepared to spend US$125 recruiting them. In fact, it is US$125 for anybody, so I wouldn't be surprised if Jim would pay US$195 per premium-cabin passenger signed up to his card.

Ravindra Bhagwanani:

OK. Sum up Trident Loyalty Systems’ offering in 60 seconds.

Philip Charlton:

The kiosk is located in-lounge so it recruits premium-cabin passengers. It issues a personalised and magnetically encoded FFP card on the spot, in seconds. Bye-bye paper fulfillment. When linked real-time to a FFP database, a 90%+ activation rate should be achieved. That’s good when the industry average is 50% across all cabin classes. For existing members, the kiosk can print statements and issue promotional coupons. In fact, any retention functionality on a FFP’s website can be re-purposed to the kiosk. It can generate revenue. For advertising alone, the estimate is US$115,000 per annum for a lounge with a kiosk. This picture shows the ad panel and printer slots.    

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Ravindra Bhagwanani:

How can FFPs get in touch?

Philip Charlton:

Via our website’s contact page at www.tridentloyaltysystems.com or direct via e-mail to philipcharlton@tridentloyaltysystems.com. After asking a few questions we produce a tailored proposal and can send a PowerPoint demo. Even better, we can bring a portable kiosk to an FFP’s office.

Ravindra Bhagwanani:

Most of our readers will also attend our FFP Conference in Vancouver. Is there a chance to meet you there, too?

Philip Charlton:

Indeed, we look forward to attending the industry’s most important event of the year and learning from the experts. If all goes to plan we will bring a full size kiosk to the conference.

Ravindra Bhagwanani:

Thank you for the valuable information, Phil, and I am sure that your credo for targeting the right people is well shared by FFP Managers worldwide.

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