Ai Video: Keeping a vigil on fintech and its impact on payments + loyalty
7th July, 2020
By Ritesh Gupta
Five recommendations to get corporate structure right for FFPs
4th June, 2020
Nik Laming, Airline Loyalty Consultant
This is the second post in our two-part optimizing airline loyalty programs series. In this, Nik has shared five recommendations to get corporate structure right for FFPs.
History has presented us with large and progressive events where airlines have failed and succeeded with loyalty programs. Innovators such as Qantas and Air Asia are pushing the boundaries of loyalty programs to become substantial data, media and digital businesses. In the previous article I explored these events and innovations. I have distilled the lessons into 5 key points below. The objective is to learn from innovators and past mistakes optimizing structure and governance to best serve members, partners, shareholders, and parent airline. What should we take from the past and how do we optimize corporate structure to serve all the stakeholders sustainably?
- Form a Separate Company Entity under Airline Holding Group -There is a huge opportunity for airlines to diversify income streams by adding digital and data businesses on top of a well-structured and managed loyalty program. The airline is left to focus on its core operations and ecommerce distribution functions and the new business serves as an incubator for new businesses to disrupt the market using the rich data and marketing engine of a loyalty program as the foundation. The sheer scale and discipline required strongly suggest adding loyalty as a separate entity under the holding company which results in the following corporate structure:
As more digital and data businesses are incubated it may become necessary to follow the AirAsia approach and put in a mini-holding company above X Loyalty, perhaps X Digital Ventures, but for now the simple addition of an independent loyalty subsidiary would be a major step forward.
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Experienced and Independent Leadership Team - The loyalty company must have an experienced and independent leadership team to ensure governance and maintain focus on the business in hand. It should not just be folded into the core airline hierarchy several layers down from the board with occasional CFO influence. There should be a board of directors for the loyalty business containing professionals from airline, loyalty, financial services and other industries with its own independent CFO and governance in place. It should not be dominated by the airline and treated as an afterthought as the stakes are now way to high.
The scope of the management team should be loyalty, data, analytics and digital business incubation such as payments, fintech, e-commerce and insurance. The skill sets required are diverse:
- Loyalty
- Fintech and payments
- Marketing and CRM
- Insurance
- UI/UX, mobile app and technology
- Partnerships
- Operations and member care
- Data management & analytics
- Privacy and other support functions
It therefore makes sense for the new business to become a centre of excellence for analytics, data monetization and targeted marketing which should be available to the airline and other anchor partners to use.
- IFRS Accounting and Establish a Trust - The IFRS accounting principles need to be followed with rewards properly accounted for at fair market value and as a cost of sale rather than a promotional expense. A trust should be established to ring-fence a sufficient percentage of future redemption monies owed to members. This is to ensure the program can continue to maintain the value to its investors – the members and partners under any situation and to prevent a cash-starved airline from dipping in to feed from the cash.
- Develop a Solid Legal Agreement - There must be a detailed, well thought through, totally binding and very long term agreement in place between the airline and the loyalty business to prevent it being exploited at the expense of any shareholder, but also to set out the rules and the way of operating very clearly. These agreements are often neglected but become incredibly important as sunny days turn to rain and leadership of the entities change together with revenue management policies, CFO pressure and market changes such as Aeroplan, AIMIA and Air Canada.
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Generate Cash from the Program but Consider the Longer Term - The holding company can choose to sell a minority stake to generate cash but more importantly as a strategic partner to provide support, increase governance, discipline, commercial drive, and rigorous accountability. However, it does need to be approached carefully and with caution. Under no circumstances should the airline ever relinquish control or its majority interest in the loyalty business.
When a crisis strikes or times are tough there are mechanisms for using the loyalty business as collateral, for finance or to pre-buy redemption seats as exemplified by AeroMexico. I would advise against pre-selling points to banks unless times are very desperate, and the terms are not too onerous as the amount of unencumbered cash generated net of future redemption cost will be relatively small.
The future is bright for airline loyalty businesses that are set-up, structured and managed for success. Digital disruptors are prospering under more realistic business conditions presenting opportunities for airline loyalty programs which come with a rich and well affiliated member base, broad digital marketing channels, low cost base and a strong underlying business model. As a long time practitioner, builder of loyalty programs and advocate of their transformation into digital and data businesses I am excited by the potential and will make every effort to continue to drive the industry in the right direction.
Nik Laming is the founder of Urban Leopard Ventures a boutique consultancy helping companies reboot and build loyalty programs to extract which deliver maximum value and revenue for airlines, banks, retailers and other companies. He is now focused on helping companies optimize and build loyalty programs into digital and data businesses.
Formerly he was SVP Asia Pacific at AIMIA both managing the SEA regional business and working with clients across all disciplines in loyalty marketing and consulting. Most recently he designed and built the GetGo coalition lifestyle rewards program for Cebu Pacific Air, an LCC and the largest airline in Philippines. A next-generation, lifestyle rewards program targeting and monetizing a broad base of 5.5 million members and serving 250+ partners.
He is a regular commentator and adviser on all things loyalty including the potential and requirements to create a new model - digital and data incubator business from traditional loyalty programs or under-utilized customer data assets.
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Ai Video: Getting corporate structure right for FFPs
2nd June, 2020
Interview with Nik Laming, Airline Loyalty Consultant
"The future is bright for airline loyalty businesses that are set-up, structured and managed for success. Digital disruptors are prospering under more realistic business conditions presenting opportunities for airline loyalty programs which come with a rich and well affiliated member base, broad digital marketing channels, low cost base and a strong underlying business model," Nik told Ai's Ritesh Gupta in an interview.
Ai Editorial: Counting on real-time demand data to target loyal customers
21st May, 2020
Interview with Seth Cassel, President, EveryMundo
Airlines must leverage a variety of data sources to assess demand for travel, even as they take initiatives to support their loyal customer base in the best possible manner.
Be it for forecasting an airline loyalty program’s liability, getting the messaging right, offering relevant deals etc., nothing is straightforward.
EveryMundo has indicated that after a crisis, previously loyal customers will not be as dependable as they once were, and airlines need to "treat loyal customers like they need to be earned again".
Seth spoke to Ai’s Ritesh Gupta about the same:
Ai: This is an extremely uncertain situation for airlines, with liquidity crisis garnering the maximum attention. How can airlines bank on fare marketing and content-related initiatives to target their loyal customer base?
Seth: We are witnessing our airline customers begin preparation for the “restart”: the immediate moment when they return capacity to the skies, and load factor increase becomes critical. Airlines can walk and chew gum at the same time, i.e. manage liquidity while returning to the market. Fare marketing is at the heart of the restart, given the attractive fares airlines will leverage to help capture the limited demand available in the market at the moment. This applies to loyal customers as well - airlines will need to re-acquire their loyalty base and encourage them to be early adopters of the restart. Fare marketing will bring the loyal customer base back into the fray faster. We've detailed our plan for this in our playbook.
Ai: How can airlines evaluate demand to aptly target loyal customers? What are the challenges considering that there is no empirical data to examine and envisage how things are going to shape up in the future?
Seth: During these uncertain times, airlines should consider alternative data sources to understand demand.
Using historical data to forecast future demand is clearly off the table; EveryMundo advocates a switch to real-time demand data coupled with the agility to react quickly to changing indicators.
Specifically we are providing real-time demand data to our airline customers using IBE search data via our FareNet technology, as well as Google Ads search impression data. Between these two sources, we can piece together an accurate picture of route and travel date demand as a series of real-time snapshots.
(For instance, data tools to enable airlines gauge real-time demand on a route level during this highly dynamic period. These tools will help airlines better understand the fluctuations in consumer demand and the needs of their customers, particularly in the context of their local markets. A way is to place a pixel on an airline’s booking engine to collect in real-time the flight and fare information based on user searches. Every time a flight search is initiated by a web visitor, relevant information about the user search including origin and destination, travel dates, number of passengers, cabin class etc. is garnered. This can aid in network planning by determining which routes to reopen according to traveler interest. Plus, there is a provision for an insight into route performance, volatility in search demand and average fare via their actionable Internet booking engine (IBE) dashboard).
Ai: What would you term as common mistakes when it comes to reaching out loyal customers via airline-owned channels?
Seth: At times, it seems airlines' loyalty strategy is to extract more value out of a loyal customer on a per-transaction basis: premium perks for a premium-paying customer. Given the current circumstances, airlines should re-focus efforts on loyal customers flying sooner and more often. Loyal customers can be the early adopters that accelerate the restart. We believe fare marketing -- presenting attractive, compelling fares to the loyal customer base -- is a key pillar of the strategy to re-acquire loyal customers.
Ai: How can airlines bank on their databases and platforms (for example – customer data platform, CRM and frequent flyer databases) to complement some of the tools, for instance, an API that can return the lowest fare available for a given route?
Seth: This depends on the extent to which these databases, platforms, and tools are integrated.
For example, an airline can execute email campaigns targeting its customer/loyalty database, featuring the best available fares on routes frequently flown in the past by each customer.
Ai: It is a delicate balance to get that messaging right in these times. How can airlines focus on content and make booking rewards travel easy for members of their loyalty program members?
Seth: Airline messaging regarding health and sanitation measures is, needless to say, critical for the foreseeable future. But that is not mutually exclusive to the messaging of deals and offers, including reward travel. This starts with promoting reactivated routes as airlines restore their networks. With improved network visibility, airlines can then market award travel through redemption tools where customers can search by route, date, and award budget.
Ai: Airlines are offering members options to purchase miles, gifting of miles etc. How can airlines make the most of their digital assets, such as the desktop site, mobile app etc. to make the most of the same?
Seth: A consistent flow of messaging in high-traffic areas of the website and mobile app of miles offers will be useful in creating a sense of normalcy for previously frequent fliers. That being said, valuable digital real estate (i.e. high-traffic pages) should be leveraged to drive flight search and booking. Increasing load factor -- starting with mobilizing the loyalty base - is priority #1.
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Ai Editorial: Showing elite FFP members that loyalty is a two-way street
15th May, 2020
Airlines have taken a couple of initiatives to safeguard the interest of its esteemed members. Ai’ Ritesh Gupta spoke to IBS Software’s Binay Warrier about the same.
Airlines have been trying to soothe the concerns of their FFP members, especially those who are accustomed to travelling frequently. These members are worried about their loyalty currency, benefits etc. and keen on gauging whether loyalty is a two-way street.
A challenging scenario
The entire economics of loyalty works on maintaining a tight-rope balance of managing liability while preserving cash. On a normal day, a majority of redemptions are seen as a positive sign of member engagement, and is encouraged. Redemptions in general, ultimately lead to further earn and is therefore reasonably encouraged.
“What we see now across programs are panic redemptions, while at the same time the opportunities to earn miles/ points and bring back cash into the program are limited. This is indeed a challenging scenario,” Sydney-based Binay Warrier, IBS Software’s Head of Business Development told Ai’s Ritesh Gupta.
“While some are putting restrictions or a temporary clamp down on redemptions, earning member's ire and causing anguish, a few others have been innovative to channelize and extra incentivize redemptions that are ultimately most profitable for them. This include extending points validity, offering cheaper cash + miles options for future bookings, cheaper award tickets for flights well into future, higher prices for consumer good (citing lower availability) etc,” shared Warrier.
Reciprocating for esteemed members
Key initiatives to cope with the liquidity crisis and expectations of members:
- New ways to retain the spend within the program: One way is to ensure the currency spend is retained within the airline/ program or at least incentivize redemption where the profits are higher than normal.
Also, airlines with enough clout have also been negotiating hard with redemption product suppliers to defer payments to preserve cash.
- Earn tier status miles for spending with partners: Airlines are exploring various ways of improving ability to earn on the ground working closely with their partners. For instance, an opportunity to earn tier status miles for spending with partners.
While extending member's status makes sure that they do not get auto-downgraded due to lack of flying (not their fault), this additional move presents an excellent opportunity for members who had already retained their status, and were on the verge of getting to the next elite tier, but now are left with no flying based option to rake up tier miles. This encourages elite members to continue being loyal on the ground within the program's partner ecosystem, so as to reap the benefits of a higher tier when flying resumes, says Warrier.
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Ai Video: Did coronavirus kill travel loyalty?
12th May, 2020
Is the burden of economic woes and other consequences of the pandemic too heavy that loyalty has vanished?
Gabi Kook, Loylogic’s Chief Commercial Officer spoke about the same to Ai’s Ritesh Gupta:
Ai Video: A Loyalty Program for Doing Good
4th May, 2020
Interview with Andy Choi, Founder, Do Good Points
The COVID-19 pandemic is resulting in unmet needs above and beyond the usual. During these times, Do Good Points, being described as the first loyalty program for doing good, has emerged as apt example of how one can overcome issues like donor fatigue, and rather enable one donate to charities without spending a single dollar.
“We are the first platform where a user does not have to spend a single dollar in order to make a charitable contribution. So just by engaging and interacting, and learning about social causes and organisations within our network they are able to make a charitable contribution. And something we talk about a lot in social impact marketing is donor fatigue. People, honestly from a user standpoint, are getting bombarded with request to donate etc... we intend to offer people a unique way to engage in social impact,” Andy Choi, Founder, Do Good Points told Ai's Ritesh Gupta in an interview.
Choi spoke about the company, association with the travel sector etc.
Do Good Against also recently bagged The Ai’s Lions’ Den (Ancillary Revenue Edition) Best Product award (judges' choice).
Ai Editorial: Airlines must stay in touch, bank on the magic of communication
20th April, 2020
Ai Editorial: Airlines can’t ignore the significance of being in touch at this juncture. A visual depicting benevolence or a message sent in advance regarding the cancellation policy (be it for offering a voucher or facilitating a refund) can go a long way in soothing the concerns of a passenger, writes Ai’s Ritesh Gupta
Being safe, healthy, social distancing, work from home…all of this and more continues to engulf our lives today.
In this context, certain travel brands are managing to strike a chord by exhibiting empathy and compassion. Be it for an ad or any other creative campaign, or regular operational messaging, airlines need to keep the conversation going.
Drifting away from selling
Rather than taking no initiative to be in touch or not opting to run any ad campaign, the likes of S7, Kuoni and Hotels.com are reaching out to travelers. Drifting away from unrealistic communication or ads ones that revolved around a dream holiday or indulging in an extravagant experience, certain travel brands are doing great in terms of being with their audience.
- Hotels.com is encouraging consumers to stay at home. Their ad features Captain Obvious using hand sanitizer.
- S7’s new initiative is also about staying at home. “Confirm that you are staying at home by pressing “I’m at home” button on this page and receive 100 miles from S7 Priority — you may need them for your future travels,” states the airline.
- Acknowledging that fresh travel stories cannot be crafted, certain brands are encouraging travelers to share travel memories on social media channels, for instance, #TogetherInTravel and #kuonimoments.
In case a travel company intends to work any communication or campaign around the latest developments, then as GetYourGuide asserts, guidance of governments is being followed carefully.
Tao Tao, GetYourGuide’s COO recently mentioned: “At this time, there are no ways to message around COVID-19, or to carry on with business-as-usual in spite of it. The only appropriate response from tourism businesses is to acknowledge the situation head-on, be clear and direct about the actions they are taking to ensure safety, and to uphold commitments to customers and partners.”
Operational messaging
Equally important is being proactive when comes to be in touch.
As a specialist, 15below asserts that travel companies can't afford to stop communicating during the COVID-19 crisis. “…the airlines that are going to be in the best position when the crisis ends are those continuing to maintain communications with passengers, despite a significant number of aircraft being grounded,” asserts Nicholas Key CEO, 15below.
In its short guide, 15below has listed few key aspects to focus on:
- It is imperative to communicate with all the affected customers quickly, clearly and reliably. The company highlights the significance of managing a huge volume of cancellation notifications and related messaging daily. Is there any way an airline can encourage a passenger to opt for a voucher instead of a refund? How to automate such crucial piece interaction for millions of affected passengers with a minimal input?
- How to restore confidence and inspire at the same time?
- Using an apt communications platform for greater customer satisfaction.
Travelport also recently came up with a guide for airlines with the objective of helping airlines to capitalize on the prowess of mobile as communication channel. Travelport focused on how airlines can identify opportunities that would require little or no development. Referring to the functionality built into the iOS and Android operating systems, it mentioned the same offers travel brands a distinctive avenue to pass on information about COVID-19 to their travelers using Wallet passes.
These are valuable tips for airlines. They can’t ignore the significance of being in touch. A visual depicting benevolence or a message sent in advance regarding the cancellation policy (be it for offering a voucher or facilitating a refund) can go a long way in soothing the concerns of a passenger who is currently unsure about many things. It is worth being in touch with consumers at the time of crisis, and letting them know you care!