Frequent Flyer Programmes critical to the success of airline CRM strategies

By Anisuddin Syed, Project Manager Information Systems, Mercator

Little more can be added to the already well documented benefits brought about by Customer Relationship Management (CRM) as either a business or as a culture within a business. Customer loyalty, business growth, industry recognition, reduced cost of customer acquisition and retention, improved employee morale and an overall pleasant working environment are all among the many returns on a CRM investment.

However there is still a lot of hype and misunderstanding surrounding CRM. It is often regarded as being a technology whereas the reality is that CRM itself is a not a technology, even though technology is required to enable it. CRM is best described as a technology-enabled business strategy used to increase customer knowledge. This helps to build profitable relationships based on optimising the value delivered to and realised from customers.

The airline industry is the same as any other industry when it comes to customer relationships. Whilst airlines traditionally used CRM as a competitive "catch-up" rather than as a means of differentiation, many in the industry now have access to the same technologies, reducing the ability to introduce services with sustainable differentiation. Obviously it is not enough to simply mimic the competition for the sake of offering identical services, and airlines need to understand how their core customers respond to specific initiatives, and to be able to evaluate the ROI for each new service.

Therefore some airlines have begun to distinguish themselves by concentrating on the relationship building aspects of CRM. Finding different and innovative ways to understand the customer and segment them accordingly in terms of both value and needs is vital to success of airline CRM strategy.

Airlines are being constantly exposed to global competitive pressure, challenged to maintain high yield factors against high operating costs and low fare tickets. The quick solution to meet this challenge is through frequent flyer or customer loyalty programmes, a very basic and earlier form of CRM. Frequent flyer programmes (FFPs) have been very successful in establishing airline brands, giving competitive advantage and critical knowledge about its customers.

To date, FFP is the most important source many airlines are using for customer segmentation. Air travel spending is driven primarily by the customer’s profession, in the case of business travel, or by the location of a customer’s family or vacation destination preference, in the case of leisure travel. Using frequent flyer status, based on miles flown, to segment customers is a somewhat better indicator of profitability. Further value-based segmentation allows an airline to better understand the profitability of each customer and their key needs, and give a clear picture of which customers it should retain and how it can migrate lower-value customers to higher-value segments.

Customer recognition is another important aspect of CRM and FFP helps in building a customer friendly culture within the airlines. Many airlines have confirmed that there has been a significant improvement in recognising and satisfying the high value customers since they started their frequent flyer program.

From a technology point of view, the frequent fliers database is a valuable asset for any airline, containing a wealth of information about high value frequent travelers. Carefully selected and implemented frequent flyer applications compliment and provide the strong foundation for airline CRM efforts and initiatives. The diagram below illustrates the important role of an effective frequent flyer application delivering the CRM benefits for both customers and the airlines.

In summary, loyalty and frequent flyer programmes offer a sustainable and renewable competitive advantage through continuous innovation, service differentiation and cost leadership. Frequent flyer programmes should be at the heart of airline CRM strategy and provide a solid platform for healthy and profitable customer relationships.

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