Ai Editorial: Marketer being a technologist is fine, but how to excel?

First published, 6th May 2016

Ai Editorial: While optimizing digital spend, every marketer needs to remember that technology is extremely important but it’s only a key facilitator; not a driver of digital transformation, writes Ai’s Ritesh Gupta

 

The journey of a brand creating an aura of desirability to interspersing the booking funnel with apt messages and offers to eventually enticing a customer to transact repeatedly is riddled with a series of challenges never experienced before. 

One disappointment at any touchpoint and the customer can desert this journey.

So in a marketer’s parlance, every penny be it for crafting superlative content, messages/ ads, offers etc, optimizing ad spend for a healthy mix of brand awareness and performance marketing, setting up a digital infrastructure for a unified view of a customer etc. needs to be accounted for.

And is all of this enough?

Not really.

I remember interacting with a senior marketing executive from ClubMed North America in 2013.

His perspective on the role of a CMO is still vivid: “(my role is divided in following ways) 30% around analytics–related subjects, 30% for IT-oriented discussion, 30% to manage the marketing mix and 10% as “internal politician” for the change management in the company linked to the overall transformation!” 

Today the task entails capturing that perfect the blend of data, analytics, algorithms, content and screen (chosen by the customer) at any given point of time. 

No wonder every marketer has to be a technologist.

Challenges that never existing before

The benchmark for delighting a customer has touched unprecedented levels, with everything being talked about in real-time. Here are some aspects that need to be addressed:

-       Addressing individual needs - In the era of personalisation, one has to be spot on with the timing of message, the stage of the booking funnel, location, behavior pattern, context etc. So if a particular FFP member uses his company desktop for a particular pattern of travel and his mobile app for a completely different one, then it is vital to evaluate context based on data. Singapore-based Frank Bornemann, Head of Marketing, Loyalty Programs and Provider Management APAC, Lufthansa German Airlines says the industry at large is falling short when it comes to “personalisation to individual needs”. He says airlines have so much data available to address individual needs, but yet they usually blast offers to all customers in newsletters, apps, social media etc.       

-       Going overboard and spoiling the experience - Bornemann also referred to the danger of information overkill while attempting to be customer-centric. It is very easy to blast everything to everybody, but respect for our customers’ time is crucial to break through the communication clutter and build trust, he said.

-       Dealing with time consuming, uncertain areas - It is of course very challenging to merge all data points, apply the right algorithms and have the right text and visual components come together to create a seamless flow of information to customers. Also, today airlines are struggling to cope up with the tendency of shopping on several avenues such as PC site, mobile site and app. Definitely not easy to coalesce unidentified visits that initiate on desktop, mobile web, or the app, and then unify them post log ins.

-       Ad tech developments – In the world of programmatic buying and real-time bidding everything happens at a scorching pace as each bid request can be processed in under 100 milliseconds. Buying media programmatically is not the hard part, but buying it at the right price and optimizing it efficiently is where most novice ad buyers fail.  For instance, a U. S.-based ad tech specialist might be do an excellent job in their territory, but the same might not be enough to run programmatic ads in China. The plumbing required for China is very different, the programmatic networks are different. As I learnt from Criteo, owing to the powerful firewall in China, time out and missing of data may occur when displaying ads in China. So this can have a negative impact on any campaign, considering the real-time, dynamic nature of this medium.

-       Coming to grips with power of Google, Facebook, PayPal etc. – If I land up on Google, and am being given an opportunity to wrap up my booking with airlines in a Google-hosted domain, airlines need to pave way for such booking environment. Google can stitch unstructured behavioral data like social posts or searches together, providing context and determining intent. This data helps shape the audiences for its advertising network. So are airlines are at risk of being positioned as “just logistics providers?” So yes, airlines need to find ways to provide more value-added services when searching, and reasons for travellers to book with them, but they also need to partner with Google and others to be a part of a customer’s shopping experience.

Prioritizing expenditure

It is an arduous task to remain afloat and not miss out on any technological advancement. Everything needs to be timely, and rolled out in a way that it becomes a part of a customer’s journey with a brand.

Of course, airlines shouldn’t miss out on leveraging their own assets. For instance, as highlighted during Ai’s recently held Ancillary Merchandising Conference in Barcelona, there should be consistency in airline content, be it for airline-owned channel or 3rd party distribution. Irony is that content exists, but the industry struggles to show the same in the transaction flow. If an airline invests in improving the quality of the food it serves, and if doesn’t show during the flight shopping process, then airlines are not fully leveraging its product.

Also, when I asked how airlines need to prioritize their digital expenditure to ensure a top notch travel experience can be offered, Paul Byrne, Senior Vice President of Development at OpenJaw Technologies, referred to the significance of sticking to “basics”.

“I agree that it’s extremely challenging for airlines (or any retailer) to keep pace with all the new technological evolutions. But do they really need to? Airlines are not technology providers. They are service providers,” highlighted Byrne.

He said airlines need to follow a customer-centric approach rather than a technology/ solution-centric one. Byrne recommended few steps, underlining the significance of “back to the basics” –

·          Research your market(s) and customer base extensively. Get business insights from the data you already have and try to understand how technology is disrupting your markets. 

·          Identify the low hanging fruits and the long term initiatives needed to provide a rich customer experience.

·          Most probably you would have enough information at this stage to start planning how the latest technologies could be used to exploit identified market growth opportunities.

·          Prioritising your digital spend and aligning KPIs becomes a much more manageable task at this stage.

“The key point is that it’s more important to keep pace with your market and customer base than to run after the technological advancements. Digital transformation needs a user (and market)-centric design thinking and execution strategy. Technology is extremely important but it’s a key facilitator; not a driver of digital transformation,” explained Byrne.

Importantly, airlines should be focused on their customers and making the customer experience as seamless and painless as possible. “A great customer experience will create customer stickiness, loyalty and increase lifetime share of wallet. A recent Forbes survey showed that top airline executives believe customer experience is the primary brand focus,” shared Byrne. He highlighted that customer expectations are set by other industries; technology is the enabler for customer experience ; however, lack of (investment in) technology is the biggest obstacle to achieving this goal.

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Ai Editorial: Serving loyal flyers – can we keep it simple?

First Published, 15th April 2016

Ai Editorial: It's an art to develop and implement a loyalty experience that is simple yet impactful. Processes are in place, but are they efficient? Ai’s Ritesh Gupta finds out

 

Travelling is refreshing. Meeting new people, trying new cuisines, exploring unknown places and things etc. has its own charm. That’s what travel is all about.

Plus, the sheer joy of embarking on a trip or even receiving a confirmation pertaining to your hotel or flight booking are simple things that build up the crescendo. But sometimes simplicity gets overshadowed. Let’s explore some unwanted areas and areas that can be improved:

Go beyond the mundane: This week I planned a surprise for my wife and daughter, booked at room (Pullman New Delhi Aerocity) three days prior to my travel. The purpose of travel was a city break, a weekend getaway to celebrate my wife’s birthday. I also downloaded Accor’s app and checked-in for my stay. Post this I received an email, enticing me to avail a deal (either for Pullman and Novotel in the same area), something that I had already done. At the bottom of the email there was a note that did mention that the offer “may not take into account the latest transactions passed on the previous 24 hours”. Fair enough. But I expect a better piece of communication. I had spoken to an executive at the time of booking. I conveyed to him about this special day and the reason behind the trip. So I would rather expect a post booking email which has something to do with it. This will be my fifth stay at an Accor property in three years, including a stay with my family in Goa last year.  

Emails and push notifications need to be more meaningful, relevant as per the status of my journey, and luring enough to lend a “feel-good” factor.   

Be cautious with tracking of digital footprint: Recently I interacted with Atlanta, Georgia-based Del Ross Managing Partner, Noctober Value Partners. He mentioned that he doesn’t generally seek “surprise and delight” experiences when he is travelling unless it is purely a leisure trip that features travelling with his wife.  “Since most of my trips are business-related, my biggest priorities are to avoid hassle and problems.  To an extent, I would prefer that my accumulated behavior were not tracked and leveraged without my explicit permission - unexpected offers, no matter how relevant, run the risk of being creepy,” he said.

There is a need to build trust with travellers and offer assurance that personal details/ information will not be utilized other than for the exact reason that the passenger grants access.   

Redemption options: Airlines need to find ways to overcome complications and inefficiencies associated with their respective loyalty programs. In a recent interview, Sean Dennis, Co-Founder and COO, Ribbit.me highlighted that travellers want their points right away, and they want more redemption options. “As a customer, I often feel undervalued in loyalty programs. Examples include the `event-type’ reduction in the value of points that I have already earned, in order to limit the operator's liability,” he said. This happens more often than people realize, and can actually have an opposite effect of loyalty.

Also, tier qualification is poorly done sometimes – for example only business or first contributing to top status is too restrictive and just isn’t viable in this day and age.

Understand my journey, my preferences: While loyalty used to be measured by how much you spend, how many times you fly, the number of miles you do – this simply isn’t the case anymore in a data driven world of analytics and business intelligence. Its important to ensure how does a loyalty program offer the perfect level of personalization, rewarding and recognizing each customer throughout the entire pre and post trip process. This should be done without creating a heightened level of expectation that is difficult for the airline to meet consistently – while keeping in mind the potential costs of providing the deepened level of personalized insight.

Effective personalization requires a “collect, predict, act” approach. As a senior executive from GuestLogix told me, airlines need to collect relevant data about the customer, often from a variety of sources, and airlines with a CRM and FFP/ loyalty program partnership already have a decent start. However it is also necessary to have single e-commerce platform that provides a 360-degree view of all digital interactions (including past transaction history and current online behaviour etc.) across the omni-channel (including desktop, mobile, tablet, on-board, contact centre etc.) for the entire customer lifetime, in order to make the most of the personalization opportunity.  

While there may be a complex array of data sets, modelling, predictive analytics, machine learning, 1000’s of servers crunching numbers night and day, and teams of data scientists hypothesizing new models 24/7 – the consumer needs to have a beautiful experience not inhibited by any of this. 

Recognize me: FFPs as a customer touch point remains a mere support function of the entire customer experience for the airline to get it right, the first time, every time, says South African Airways’ Suretha Cruse.  

Let’s face it; there are a large number of inter-dependencies across the airline and all the customer touch points are substantially cross-functional. If the customer satisfaction is not being met by the complete customer experience provided by the airline, the FFP members’ true loyalty towards the airline is questionable and their loyalty to the rewards of the FFP is an unintended consequence.

Whilst most airlines recognise the need and/or invest in their customer experiences to ensure personalisation by anticipating and striving to understand the unique convenience or recognition needs of customers; by large the airline industry is still lagging in their quest for a deeper level of personalisation.

Process and operationalization do not tend to be viewed as a major priority for marketers.  For a consistent CX, one has to clearly define processes and execute flawlessly. 

Delivering benefits such as priority boarding or baggage handling requires consistent process across wide networks.

A senior loyalty executive told me there is no shortage of proposals that promise results – most focus on technology-driven solutions in tandem with business- intelligent processes and yes, it is required as enablers. However, it is the delivery of results that is harder to achieve than the “what” and “how” statements as the critical success factor is often in fact the people aspect. It is an art to develop and implement differentiated and personalised customer experiences that are consistently delivered through people at all customer touch points vis-à-vis a customer experience that the market both expects and is willing to pay for. Adding emotional value, mostly through people, is what primarily develops relationships that guarantee customer loyalty.

 

How challenging is to make sure loyal customers get what they want? Hear from senior industry executives at the 10th Ancillary Merchandising Conference (to be held in Barcelona, 21- 22 April 2016)

For more info, click here

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Ai Editorial: Gearing up for personalisation? Don’t snub PSS yet

First Published, 7th April 2016

Ai Editorial:  Airlines acknowledge the need to re-engineer their internal processes to get closer to personalisation. But it doesn’t mean one needs to do away their PSS. Ai’s Ritesh Gupta learns more about the same

 

I recently interacted with a Systems Engineer, who has spent 30 years in our industry. He has the experience of flying with over 100 airlines, and has been to over 160 airports. Going by his expertise, it was pertinent to know to what extent a Mainframe Systems Architect gets recognized? Is it strong enough for a personalised experience? And also, how to deal with a legacy PSS regarding the same?

Retailing and airlines – no match yet  

The conversation initiated around the necessities of a modern retailing infrastructure that airlines need to deploy. 

“I sometimes wonder if all this talk about “retailing” in the airline industry is really relevant. Most passengers don’t even know what type of aircraft they are flying on. They couldn’t tell you if it was an A320 or a Boeing 737.  In some cases, they don’t even know what airline they are actually flying especially if they have booked/ had booked a marketing codeshare segment. They just want to get from A to B as cheaply as possible.

The airline sells the seat and gets the passenger from A to B with a (variable) amount of service. Finally they deliver the baggage,” he said.  

He added, “But, there is a case apart. That is the “real” frequent traveller who is loyal to a single airline.

That traveller can be in a minority of 5% of passengers who provide up to 80% of airline revenue. To serve that critical minority of passengers better, I see the airline strategy of moving those passengers onto the web channel where they can be offered personal discounts on flights, increased baggage allowance (if it is noticed from the datastore that these passengers regularly travel with lots of baggage), offers to sporting events and on other goods and services.”

Hotels are doing it

He said this already happens outside the airline industry.

“I am a Gold Member at Accor Hotels. The price I get offered on their website is often - not always - lower than anything I can find on hotels.com or booking.com. Accor knows my movements, my likes (top floor room) and my preferences - I always take breakfast in the hotel. And they serve me well.  When my wife’s dress was left in a hotel room recently, they took care of it and returned it to us. Would they have done that to a non-Gold Card holder? May be not.”

The way airlines can do the same

“Knowing the customer” is an oft quoted cliché, he said. “The airline industry must invest in taking all the rich, but raw data that is collected on the core PSS system, analysing it for their most frequent travellers and producing tailored offerings for those key passengers.”

Citing an example, he said, “Wouldn’t it be nice to greet a passenger whose previous flight was delayed or had problems opening the door with an offer when they next travel. 

“Sorry your last flight to Paris was held for 20 minutes waiting for a Stand Mr. Gupta, can we offer you a Duty Free Voucher for 30 USD today before your flight?”

It can be done, he asserted.

The driver is getting to know the top passengers much better than at present.

The data is there.

“Offload as much data as possible.  But keep the mainframe for its phenomenal message processing capability.

Use the data which is there on the mainframe, but do that analysis offline,” he said, referring to what all needs to be done to ensure that an airline ends up with prudent IT decision-making, and doesn't undermine the role of a PSS.

“The core PSS is not the place to analyse that data, but it can be the place to place the offers and incentives to the passenger face to face – perhaps better than anonymous e-mails after the flight which are invariably deleted as not many have the time to read all their mail these days.” Empowering airport customer service agents with valuable key customer information is key to that, he said in his parting message.

Keep PSS aside, don’t expect everything

A section of the industry clearly stipulates that the key lies in separating the core PSS capabilities, which are essential to running any airline, from technology that enables true brand and product differentiation.

As for making most of the data strategy, and coming up with actionable insights, an industry executive indicated that he would rather focus on real time PSS data reliable interfacing to the external contemporary system where the proper data aggregation could be maintained. He said the major problem lays in data aggregation as it comes from different sources such as human input, legacy systems, web based modern tools. We are not limited by technology as there are already systems available on the market which can process personalized communication with the individual passenger, using highly customized and sophisticated business rules, but again the problem lays in data quality. The only solution is to build the independent modularized system which will help to compete on the market, and this would pave way for personalisation, too.

 

Hear from senior industry executives about how airlines are gearing up to improve IT-related decision making and foster loyalty at the 10th Ancillary Merchandising Conference (to be held in Barcelona, 21- 22 April 2016)

For more info, click here

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Ai Editorial: Leveraging blockchain for fostering loyalty

 

First Published, 23rd March 2016

Ai Editorial: Travellers want their points right away, and they want more redemption options. How can blockchain technology play its part, Ai’s Ritesh Gupta finds out  

 

There are several challenges that continue to impede the lure of FFPs.

One of them is how quickly do I earn when I spend? Can it be real-time? For merchants, it is imperative to plan their liability management, i. e. how to reduce, allocate, share, track, or liquidate rewards liability.

Interestingly, tradable, blockchain-based loyalty tokens promise to combat such hurdles.

As a blockchain technology specialist, Ribbit.me, intends to lend a new dimension to loyalty.    

“People want their points right away, and they want more redemption options,” says Sean Dennis, Co-Founder and COO, Ribbit.me.

So what disappoints Dennis when it comes to loyalty programs? “…complications and inefficiencies associated with the loyalty programs. The lack of innovation and options as a client. It all feels rather bulky and outdated,” pointed out Dennis.

In one of his blog posts, Dennis pointed out that Millennials can be very loyal, they “just want points that are applicable to them and their needs. They want easier to earn and redeem and a broader range of redemption options.”

RApp or Rewards Application

For its part, the company has come up with its offering, the LoyaltyPlatform.

As Dennis explains, program operators are able to leverage blockchain and smart contract technology in order to:

- Either create or make far better, their redemption networks (reduction in friction for inter operator    redemption),
- Manage program liabilities, and
- Offer dynamic issuance and redemption options to their customers via SmartRewards

Referring to the concept of the Token Tree, Dennis explained: Operators of a network are able to create a Rewards Application (RApp) with set rules and parameters. Below this, every partner operator in the program is able to create a Sub Rewards Application (Sub RApp) that must follow the rules and parameters set by the RApp above. These rules may cascade from top to bottom, creating the uniformity of a coalition program, but with the benefit of being able to individually brand, issue and redeem every Sub RApp. “Imagine if the airline coalition groups decide to utilize this feature and individually brand the partner operators, whilst still being under the Coalition rewards program,” said Dennis.

The company has partnered with a number of the largest financial, advisory and banking technology providers to approach operators and provide them with a platform that meets their individual needs.

The feeling of “being valued”

The company’s platform makes it so easy to include redemption partners in a program, without the high cost of implementation.

“The underlying blockchain and smart contract technology allows for speedier issuance, giving the consumer higher perceived utility and a feeling of being valued,” asserted Dennis.

“As a customer, I often feel undervalued in loyalty programs. Examples include the `event-type’ reduction in the value of points that I have already earned, in order to limit the operator's liability,” he said. 

Through using the LoyaltyNetwork, operators are able to actually target levels of breakage and reduce redemption variance risk. Breakage can be embedded into the rewards point. The operators within the redemption network are also able to share the liability in a frictionless manor between the issuing and redeeming partners at an agreed upon rate.

Benefits

With this emerging technology, reward points are going to generated by an algorithm and issued in the form of a digital token on the blockchain.

So what sort of impact is going to be there on the profitability of an airline’s loyalty program?

From a B2B business perspective, Dennis says the company clearly provides a platform for these operators to function in a far more efficient environment with regards to their loyalty offering.

Operators may benefit from liability and network redemption management tools, better targeting of their customers through dynamic issuance, resulting in more sales and last but not least, lower loyalty program operation costs. This way one also ends up adding effective liability management tools including targeted breakage outcomes.

Also, there would be zero lag in reward redemption with blockchain technology. “Because all partners in a redemption network share a secure platform, the rewards can be transferred instantly between clients as needed. Think of the blockchain as the Internet of value,” shared Dennis.

Investment – if any?

As for what sort of preparation is required, Dennis says integration with the platform is relatively simple, and legacy system integration with operators (which is most likely with existing large operators) is easy and “we will work with large operators like airlines and hotels to customize as needed”.

“The smaller operators in the industry are likely to choose something more of a “plug and play” option when it comes to their Rewards Application,” said Dennis. “The larger operators will develop their own highly customizable Rewards Application (most of which they already have in terms of parameters or desired outcomes).”

Blockchain as a technology

Payment specialists point out that blockchain has a way to go before a critical infrastructure like one for payments should be built on it.

Dennis agreed on this, and said payments and settlement are areas that are being highly focused on for blockchain application. But for large operators, there is a way to go before adoption due to hurdles and regulations that need to be overcome. This is a major reason why the loyalty industry is the perfect application, he said. “The payments industry has undergone constant innovation, while the loyalty industry has remained fairly stagnant, and is built on a system that no longer satisfies the consumer, and is inefficient for the operators to run. Our technology stack using blockchain (Distributed Ledger) and Smart Contracts addresses this need,” he said.

 

Learn more about the latest developments in the arena of blockchain technology at the upcoming 10th Annual Airline & Travel Payments Summit, scheduled to place in Barcelona, Spain (26-27 April, 2016)

For more information, click here

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Ai Editorial: Handling each data source with dexterity

First Published, 1st March 2016

Ai Editorial: Having data feeds from multiple sources is paramount for airlines in their quest to understand what their customers will purchase next, writes Ai’s Ritesh Gupta

 

The complexity associated with tracking a user’s every digital activity is on the rise. Be it for a member of FFP, or someone who has booked with an airline or even a visitor to a desktop/ mobile site or mobile app, if a travel e-commerce brand isn’t blending fragments of customer data across various channels aptly then a competitor may act and garner the next booking.

So how many data points would an organization need to handle today?

Mark Ross-Smith, Chief Product Officer / Head of Loyalty, StayCorp, says there could be “in excess of 500 key data points” and an astute segmented program will have “over 1,000 unique, individual data points on each member”! Acknowledging the significance of data collection, he told me having data feeds from multiple sources is paramount for airlines in their quest to understand what their customers will purchase next. He added, “Data feeds come in all shapes and sizes, and the best sources originate from unlikely partners who have key metrics that might otherwise be unobtainable elsewhere.”

Overall, we’re seeing that the path to conversion in travel is not linear, and requires a specialised understanding of how to activate data at scale.  

Consolidating data sources

As for the difference between first and third party data, first party data comes from your own internal sources and is used by you. It can take the form of email addresses, offline or online purchase history, subscription and social data, loyalty data, interactions with your mobile app, etc. Third-party data, on the other hand, is someone else’s first-party data that you’re able to use for your marketing efforts through a direct relationship with the data source, indirect relationship with a data exchange, or that you pay for.

As an advertiser, there’s so much data available and people should use it all, but it needs to be used intelligently. For example, first-party data is great because it gives you consumers that already have an affinity for your brand. However, it’s limited and restricted, perhaps to only those who’ve visited your website; certainly you want and need to reach a larger audience. That’s where third-party data comes in: third-party data is great because you reach a huge audience, but they haven’t been to your website so they’re less likely to have an affinity for you. If you utilize only one of these data sets, you’ll always be missing key consumers. Rather, it’s the combination of first- and third-party data that can be very powerful if managed properly.

Right approach

At the end of the day, consolidating all data sources, learning as much as you can about your data assets/audiences, and deploying your data across all applicable channels is the absolute right approach. It’s not easy, nor it is accomplished overnight.

Also, data sources will include your hotel partners (especially independent hotels), telcos and niche social networking platforms but the flavor of the month is start-ups. Technology start-ups have some of the smartest folks driving innovation and disruption and through this they’re forced to find new revenue streams that break the traditional mould. In some cases -  the data retained by start-up companies can be worth more in the hands of an airline & FFP when rolled out over a larger member base. 

Unstructured data sets

Utilizing unstructured data sets can be a daunting task – but instead of burning through resources on data science teams trying to find the ‘one in a million’ breakthrough model – it can make sense to simply the objectives. By focusing on commercializing the data immediately with no fuss it will lead to greater revenue generation opportunities without the hassle of data scientists analytics and insights professionals. Treat each new data source individually and focus on formatting and structuring it so there are constant updates and that it remains accurate.  By then focusing on commercializing individual data points one at a time – FFPs can build out their marketing platform in baby steps.

Being in control

On a concluding note, organizations need to be in control of what data they need to gather. There is no point in accumulating inappropriate details about customers. Of course, accurate and reliable data is a vital component of working out correct customer profiles. So is data-quality technology. Also, one needs to do away with siloed departments and out-dated data. There is a need to create APIs to bring all your data into a central place. And pave way for a mechanism for data sources to “talk” to each other. In terms of sophistication, today there are search-based interfaces available to assess guest repository, and also offer real-time recognition say in a contact centre.

Still one can’t expect magic overnight. Talking of the final output, specialists do point out that combining probabilistic data with CRM and transactional (deterministic) data in way that you can use the data safely and effectively in different contexts isn’t easy yet. As things stand today, achieving a perfect single customer view may not be possible.

But at least by focusing on the right sources of data, one can lay base for a strong foundation. 

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Ai Editorial: The tide of co-brand contracts – airlines enjoying the wave

Ai Editorial: Airlines, especially ones in the U. S.,  have been thriving on improved economics of respective co-brand contracts. This trend is set to continue, states Ai’s Ritesh Gupta
First Published 8th February 2016

The multi-party model associated with a card transaction is a complex one. And a big change such as one in interchange fees for card-based payment transactions can simply disrupt an associated stakeholder’s economic model.

For instance, referring to EU’s new regulation on interchange fees (IFR) which came into effect in December last year, Visa Europe pointed out that the development has the “potential to alter the economics of card payments (through interchange caps), to foster competition (through access to the current account, and elimination of territorial licences) and to drive structural change (through the proposed separation of scheme and processing)”.

It is rightly being pointed out that such regulatory changes are among many disruptive forces now hitting European payments. So how does it alter the equation for those involved in setting up a co-brand credit card? And if we talk of airlines in this chain, are they sort of immune to such changes at this juncture?

Impact

Regulations on interchange fees in Europe, UK and Australia are being rolled out by regulatory bodies. 

With interchange rates north of 1% currently, the governing bodies in each stage are planning to cap the fee from 0.2% - 0.8% depending on the country and region of the transaction.  Changes are already underway in Europe and while these are partner of larger regulatory changes – there will be an almost immediate impact on frequent flyer programs.

For banks – lower interchange rates fundamentally means less revenue from each card transaction.  The hefty drop in fees obtained by the bank means they’re not able to pass on high earning rewards to consumers as an inducement for using the card.  As such, we’ll see card products across the region begin to offer lower frequent flyer points as banks realign the costs to their newer, lower revenue associated with every card transaction. The logic behind limiting interchange fees is to wipe out card surcharging, reduce business expenditure on merchant fees – which governments want to see passed on as cost savings to consumers. How this will play out is another story to wait for.

Income benefits for airlines

To the advantage of the aviation industry, airline co-brand credit card programs are considered to be an attractive proposition by banks. Experts point out that customers typically spend far more on the airline card than on a typical credit card.  Also, post consolidation in the U. S., there are less of the programs available to bid on, and the programs are much larger so this augments negotiating power of airlines. So carriers are strongly placed to garner monetary benefits.

Consider the case of JetBlue Airways. The team is gearing up for the upcoming launch of its new program relationship with Barclay card on the MasterCard network. This is scheduled for later in the first quarter of 2016. In late January, JetBlue indicated that it continues to expect annual incremental operating income benefits from the new agreement of $60 million. 

For Hawaiian Holdings, its value-added revenue per passenger continues to swell and in Q4 grew by $0.40 to $22.25 and by $2.29 to $22.01 for the full year. The sale of HawaiianMiles was one factor that contributed to this growth. Importantly, HawaiianMiles sales also set a record for the year powered by account growth and stronger than industry average trend on co-branded credit card.The group also mentioned that Q4 performance of HawaiianMiles sales were further buoyed by a limited time 50,000-mile bonus offer, driving an increase in new HawaiianMiles credit card account growth. 

Southwest Airlines also spoke about improved economics of the co-brand contracts few months ago.

It should be noted that American Express Company, in its Q3 earnings call in October last year, did acknowledge that the changes in its co-brand relationships reduced EPS by approximately 5% during the quarter. This estimate includes the impact of renewed co-brand relationships with Delta, Starwood, Cathay Pacific, British Airways and Iberia.

Revenue generation

Talking of the U.S., it is interesting to assess the way the price of airline miles to banks has shaped up. Also, it is worth knowing as and when co-brand deals are renegotiated, how they pan out as per the prevalent competitive levels. What would be the key for airlines as they structure their co-branded credit card deals going forward. Can airlines exert additional control over the frequent flyer or reward point earn/ burn rate at the issuer?  

As for banks, they do also make money from annual fees and interest on balances. In all likelihood, airlines are expected to devalue their programs, and would accept a lower price per point. But then what about flyers’ expectations?

If card issuers are forced to look at new avenues for revenue aside from interchange fees, one may find loyalty programs needing to become more innovative and forward thinking.  While large sign-on bonuses and ongoing transaction fees pay the way for high profits into co-brand cards currently; with likely regulatory changes affecting many markets – it opens up new opportunities to cross-pollinate loyalty products in a new way that never seen before.  The easiest way to achieve this is to follow the money, and place the highest recognition of value in that segment. 

A source shared: “For example, we might begin to see retailers pay acquiring banks to bring new customers, and the benefits passed on to the end users when they shop at these retailers.  This also represents a chance for frequent flyer programs to flex their creative muscle and use the might of their virtual currency in the real world where profit centers are not derived from interchange fees, but rather focused on leveraging their popularity and taking the time to ingrain their brand in a physical sense rather than being an  ‘airline program’.”

So, yes, FFPs can sell their offerings to new partners, and make the better of contracts. But if the market is flooded with offers by airlines, it will turn into a position where the FFP brand is everywhere and consumers will ‘switch off’ to the brand because it’s no longer exclusive, offers them no greater value over the next program, and ultimately cheapens the brand in the consumers’ mind.

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First Published 8th February 2016

Ai Editorial: Is Loyalty About Superlative Customer Experience?

Ai Editorial: If loyalty is about superlative customer experience, then data holds key to achieving it

A host of factors are changing the face of FFPs. Ai’s Ritesh Gupta finds out how airlines are trying to revitalize their loyalty programs and offer an exceptional customer experience (CX)

The concept of loyalty is evolving as airlines’ FFPs are drifting away from what they used to be. Several factors are driving this change today.

There is a growing awareness of the limitations of the legacy FFP models (mileage-based). There is pressure on the limited award seat inventory of airlines that was initially intended and often priced to fill empty seats. Overall, FFPs continue to face capacity, regulatory, accounting and liability pressures. Also, in today’s age of instant gratification, carriers are now allowing members to accumulate points on groceries, utilities, gasoline etc. and redeem those points for a free flight.

“There is so much pressure on “yield” that many airlines cannot really afford a FFP, with costly administration and perks. Ultimately the biggest loyalty seems to be price and a decent CX,” points out Ursula Silling, founder and CEO, XXL Solutions. “Differentiation is crucial here and often being missed. - Part of the reason is that FFPs in the organisation are often separate departments. If there was one view on CX including ancillaries, they could become a vehicle to improve the customer experience and generate additional revenues and customer satisfaction and differentiation beyond the pure miles business.” 

Change is taking place everywhere – from the U. S. to the U. K. to Africa to Philippines.

For instance, Cebu Pacific this year launched its GetGo lifestyle rewards program for frequent fliers, offering points on everyday spending. easyJet has introduced its Flight Club program, with passengers to be invited to join the loyalty scheme when they meet the qualifying criteria which are based around having booked and flown 20 or more flights and/or making a minimum spend with easyJet over a 12-month period. Among the others, the SAA Voyager programme changed from a mileage-based FFP to a fully fledged revenue-based FFP this year.

As a specialist in this arena, Silling highlighted several trends and developments pertaining to FFPs:

  • The traditional loyalty to a brand is diminishing; customers have much more choice and transparency, so ultimately customer satisfaction is a crucial element of true loyalty. This is why many companies focus on CX first.
  • Most consumers own at least three or four airline loyalty cards. Are loyalty programs failing to stand out? Innovation is often missing - many programs are just “me to” programs.
  • Traditional loyalty programs often do not allow good data mining and personalisation (data mining possibilities are often poor or opportunities missed). And if they do those opportunities are not used, customers are not addressed when changing behaviour. For example, downgrade from Executive Club silver to bronze - the customer just receives a letter and the new card, no question about why she does not fly that much anymore in order to try and keep the customer. Such “ill-informed” changes annoy customers and make them then really change their behaviour and avoid the airline. This will change in the future.
  • There is still a gaming element which gives a reason for points and miles programs to continue to exist, but only if done well and if customers are personally addressed.
  • Customer lifetime value is finally getting into the mindset, earning of points is finally linked to revenue as well - even Lufthansa adjusted this in the meantime; before, a customer might have paid much more for e.g. a domestic trip in Germany than a flight to New York, but was travelling in economy class and not recognised at all. Airline loyalty programs try to take account of this by gradually linking miles to revenue - and not just to distance (yet many of them only did this step very recently).
  • There is a clear trend to coalition programs when looking at the overall landscape of loyalty, and to paid programs adding value and enhancing the customer experience (example Easy Jet Plus, Amazon Prime).
  • Airports have also realised the value of direct customer engagement and loyalty, whilst in the past they had only focused on their B2B customers. Some of them have started to create loyalty simply by having the right information on their website (for example, about arrivals and departures real time, about parking and comparing cost of parking versus taxi etc.). Or as a simple form of engagement to offer value added services to buy (e.g. delivery at home such as Heathrow) or fast track or lounge to buy. Others have already gone to a loyalty program, to get contact details of their customers. Examples include Heathrow rewards (customers can use Wi-Fi at the airport longer if they are members, a very easy way to get subscribers) and Lyon airport.

Areas of improvement

Redemption: FFPs today in most cases are very poor in terms of redemption, says Silling. “Airlines focus on flight redemption as the cheapest way for them. Yet they are careful in terms of availability as part of revenue management, to not lose revenue opportunities and dilute business. And taxes are so high now that customers often face the absurd situation that they have to pay almost the same amount in terms of taxes when they buy the flight with miles/ points versus when they buy directly the cheapest fare.”

Silling adds only a few airlines have added value in order to improve the redemption experience. For example Lufthansa are the strongest one in terms of non flight redemption with their Miles & More catalogue, offering anything from electronic goods to furniture, like a real mail order store. British Airways have added the opportunity to use miles to pay part of the flight cost, as part of the buying process. This has significantly improved redemption and also the perception of redemption value for customers.

Customer experience: In terms of CX, as Silling points out, a number of FFPs offer high value when being a top tier member - from pick up service at home, special lounge (example Virgin Atlantic and Etihad, with services such as massage, meal service at the table etc.), and other services to avoid any crowds and improve the airport experience. At many airports some of these become irrelevant: as the retail/ food and beverage experience is improving the quality of staying in a restaurant or cafe can often be better than being in a crowded lounge with poor or mediocre quality. Also airlines try to give additional information to crew, sometimes using iPad technology, with background about specific customers and FFP members, simply allowing to address them by name or to address any specific issues or opportunities. 

Citing a couple of examples, Silling referred to Air New Zealand and Air Baltic. Air NZ has some interesting examples, including bank cards, for their customers, creating engagement with customers and becoming part of their loyalty approach. The other really innovative one is Air Baltic. You can even buy flowers or a meal to surprise someone else (your mother, friend etc.).  

Relying on technology:  Modern technology helps to avoid some of the pitfalls. For example, airlines suffer quite often from inconsistencies in on board service. Air New Zealand integrated an on demand function for the on board service. Similar to a restaurant the customer can order via the IFE. Similarly, an automated check in service as introduced by Lufthansa and Swiss helps to avoid potential pitfalls at check in. Air New Zealand and Lufthansa introduced automated bag drop off at some of their key airports in order to support this further. Human interaction comes in where it is relevant. And here airlines should then just use well trained people - trained in terms of hospitality and customer service, learning also from retailers such as John Lewis, not just the processes and regulations. 

Capitalizing on social networking sites: One example that is worth mentioning is Eindhoven Airport. As part of their strategy for better CX management, they have developed the Facebook VIP program. The program offers customers to be in with a chance of a unique VIP experience including a specially designated parking space, personal guidance through the terminal, Facebook VIP check-in desk, free breakfast, lunch or dinner and fast track at security. All passengers need to do it fill in flight and contact details on the specially created Facebook app. The campaign has massively increased the airport’s Facebook following, marking it as one of the pages with the highest engagement rates in the Netherlands.

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How to deal with disruption as the new normal, especially in the arena of loyalty, is going to be discussed at the Hamburg Aviation Conference 2016, scheduled to take place in Hamburg (Feb 10-11, 2016).

Guest Editorial: Gamification of Loyalty - improving customer engagement

Guest Editorial by Aaron Carr, CEO, Friendefi


With loyalty program membership levels hitting new worldwide records and U.S. households only active in 12 of the 29 programs they belong to1, its no wonder that member engagement is an increasing priority for loyalty programs.

Enter gamification, the practice of using game mechanics to make otherwise regular tasks and activities more fun to do. Loyalty marketers are increasingly viewing gamification as a complementary approach that can help strengthen their own customer engagement efforts. As cited last year in The Wise Marketer, companies are increasingly incorporating gamification through their digital channels in order to encourage customers to interact with them and to elicit important information from them2. This has great importance for customer engagement, The Wise Marketer argues, because loyalty program members can be more readily engaged in contests and polls to capture demographic, preference, and purchase intention data.

But, the opportunities to boost loyalty program member engagement don’t end with better data capture. In an increasingly digital world, gamification also offers a framework for motivating members to learn about your program, interact with partner offers, and to share (or even compete) with their friends.  American Airlines’ AAdvantage Passport Challenge offered loyalty members the opportunity to earn stamps for their digital passport as well as miles for completing various AAdvantage program and partner games and trivia from their computer or mobile phone, netting the airline a significant increase in purchasing at partners during the promotion as well as a 500% ROI3. Customers reported spending 15-20 minutes playing the various games and trivia, which tested their knowledge of American’s AAdvantage program and partner offers.

Air Canada has also adopted gamification to boost flight behaviour amongst its most frequent flyers with their ‘Earn Your Wings’ promotion each Fall4. The promotion pits flyers against one-another on a leaderboard in an effort to see who can travel the furthest during the promotional timeframe. Air Canada has evolved this promotion over the past 3 years and now only targets their top flyers who demonstrate a healthy appetite for competition. Participants are motivated to check their standings regularly, in particular after recently taken flights.

Social sharing and advocacy is another important feature within most gamification frameworks. Many ‘gamified’ promotions encourage participants to share brand messages and to invite their friends to join. This can be even more powerful when loyalty currencies are on offer. Aeroplan piloted social referral last year with their Connections campaign (in partnership with Air Canada) offering existing members miles for getting their friends to enroll in the program. The campaign provided participants with an online dashboard showing how many friends accepted their invitations as well as their progress towards their rewards goals.

Gamification is still a young practice, especially amongst loyalty marketers. But with multi-channel engagement an increasing priority amongst programs, it will undoubtedly play an increasingly important role in the years ahead. To find out more about gamification, you can check out Friendefi's website or This email address is being protected from spambots. You need JavaScript enabled to view it., its CEO.

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Ai Editorial: Airline Co-Brands - Who is Winning?



Gaining an upper hand as a stakeholder in the arena of airline co-branded credit cards is always an interesting saga.

In this context, it is fascinating to assess the extent to which airlines tend to rely on credit card issuers for “buying of miles”. Is this dependency going down? What sort of control can airlines exert over the frequent flyer or rewards earn/ burn rate at the issuer?

Also, it is important to assess how the regulatory environment on interchange fees for card-based payment transactions, says in a region like Europe, is going to impact the ties between stakeholders of an airline co-branded credit card.

These are some of the vital issues as things stand today.

Ai’s Ritesh Gupta interacted with RFi Consulting’s MD Lance Blockley regarding how the scenario is evolving,  how rewards earn and/ or burn rates on consumer co-brand credit cards are likely to shape up, what happened in Australia when The Reserve Bank of Australia (RBA) intervened and lot more. Excerpts:

Ai: As an airline co-branded credit card holder, if you were to assess the major utility/ attraction of using such cards, what would it be?

Holders of airline co-brand credit cards have them for the airline loyalty points that they can earn. In some countries these cards have no annual fee, and therefore whatever frequent flyer points you earn on the spend is all “upside”.  However, in those countries where there is an annual fee on these credit cards, our analyses have shown that there is always a minority of the cardholder portfolio who don’t spend enough on the card to earn back the annual fee in frequent flyer points  -  these cardholders would be better off not taking out a rewards card.



Ai: Co-brand deals are generally complicated relationships between multiple stakeholders. Is there any major development that you would like to highlight?

There is always tension between the payment acceptance (ticket selling) side of the airline, which wants to pay the lowest Merchant Service Fee and Interchange rate on the transaction; whereas the bank issuing the co-brand credit card wants to receive the highest possible Interchange rate, as many issuers around the world use this revenue stream to fund the frequent flyer points that they are buying from the airline as part of the co-brand programme.

Some of the co-brand programmes are set up not only to purchase frequent flyer points from the airline, but also to contain some form of profit share in the credit card portfolio.  This usually becomes contentious as neither party feels that they are being adequately rewarded from the business.

A further area of contention is the marketing and new cardholder acquisition of the co-brand portfolio, usually both parties (the issuing bank and the airline) feel that the other could be doing more and better leveraging their assets (e. g. airline magazines, business lounges, etc) to get more cardholders.  Also, depending on the profile of new card applicants, the airline can sometimes become upset by the rejection rate on new applicants due to the issuer’s credit assessments.

Ai: Talking of Europe, what do you make of the regulation on interchange fees for card-based payment transactions – interchange fees will be capped at 0.2% for debit cards and 0.3% for credit cards?

Because commercial cards have been “cut out” of the legislation and usually get high use by frequent business flyers, there is likely to be a focus on expanding co-brand commercial credit card programmes  -  where the higher interchange rates will support a strong frequent flyer points earning offer.

The rewards earn and/ or burn rates on consumer co-brand credit cards are likely to decline (as they did in Australia in 2003-4, when interchange rates fell from 0.95% to 0.55% due to the Central Bank’s intervention), as the interchange revenue stream to the card issuer will decline and most use this to fund the purchase of frequent flyer points from the airlines.  Hence the airline frequent flyer programme revenues from co-brand consumer cards may fall, although this could be offset by an increase in the amount of card transactions.

Ai: Considering that airlines manage their co-branded credit card differently for different countries, what sort of impact do you foresee on fee-free credit cards, cashback payouts etc. as a result of interchange caps? What should airline watch out for?

In Australia, when the Reserve Bank of Australia (RBA) interventions occurred in 2003, just about all credit cards saw an increase in annual (and other) fees and a number of issuers brought in an additional fee for rewards programme participation. 

These higher fees did not put off cardholders who were really high spending on their cards and relished earning the airline frequent flyer points, but they did slow down participation at the lower spend end of the market , which probably should not have a rewards card anyway.

The earn and/ or burn rates on co-brand credit cards are likely to be changed by the issuer, in a downward direction.  Subject to contractual arrangements, the airline may or may not have any say on these levels, and therefore should keep a close eye on what is changing.

In addition, the issuing banks often view airline frequent flyer points as the most expensive rewards/ loyalty option that their cardholders can choose.  Hence they often try to steer cardholders into the bank’s own proprietary rewards programme, where the bank has full control over the cost of redemptions i.e. setting the number of points needed to redeem for a gift card or a return ticket to city X - many banks form linkages with travel agents and just buy airline tickets on the open (often cheap) market.

Ai: Even after the RBA regulated interchange down to a weighted average of 0.5% on MasterCard/ Visa in Australia, the co-brand card market and the loyalty points associated with many of them still continued to flourish. What does this indicate as far as the market for airline co-branded credit card is concerned?

It indicates that, if a cardholder thinks that they are getting something for nothing, changing the “exchange rate” (i.e. the earn and/or burn rate on frequent flyer points) on the points does not change the premise that “I’m getting something for nothing” – even if the rate of earning the “something” has diminished.  Plus, in Australia at least, more and more of a household’s expenditure is going on to payment cards (displacing cash and cheques), so to some extent the reduction in points earn rate can be offset by the cardholder increasing their spend on the card  -  hopefully without getting into any credit difficulties. 

Obviously inflation and economic growth also help grow overall card spend to grow in dollar terms.

Ai: What according to you would be the key areas for airlines as they structure their co-branded credit card deals going forward?

If I was an airline, I would want –

·       Some form of control over the frequent flyer or reward point earn /burn rate at the issuer

·       Some form of control over the fees being levied on cardholders

·       Access to the cardholder transactional data, for example so that I can see when my co-brand cardholder spends money buying a ticket on a competing airline

·       Maintain the pricing on my frequent flyer points to the card issuers, and take care having different prices to different issuers - as it is a very incestuous business

·       Maintain the pull of frequent flyer points for the consumer (making them a “must have” for a bank’s credit card portfolio), and fight a rear-guard action against the bank’s in-house proprietary rewards programmes.

Outside of the USA, the profit margins on credit card operations are likely to decline, so you might want to avoid profit sharing arrangements, but rather maximise the revenue achievable from selling frequent flyer points.

Plus I would not rely on the frequent flyer point revenue from credit card issuers growing as fast in the future as it has been in the past.

Ai: How do you foresee airlines gaining desired price for mileage sales, and selling more miles? What would you make of concern pertaining to money available to fund mileage payments going down and these impacting airlines in a negative way?

There are plenty of other financial services products, outside of credit cards, on which financial institution partners could offer frequent flyer points as an inducement to their customers/ prospects to act in a certain way; for example, frequent flyer points when you renew your mortgage, term deposit or other instrument.

Similarly there are plenty of businesses outside of financial services that might want to offer frequent flyer points as an inducement to their customers/prospects to act in a certain way; for example, in Australia, BP gives Virgin Velocity points on purchases of petrol, etc from its outlets; just as hotels have given frequent flyer points in the past.

But you can’t get away from the fact that, via high interchange rates (which come through in the Merchant Service Fee), merchants who accept credit cards have been funding, at least in part, the purchase of frequent flyer loyalty points from the airlines’ loyalty programmes.  The level at which this has occurred in the past is certain to decline.

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Ai Edtiorial: Dynamic Pricing and Reward Seat Availability

Understanding the game of dynamic pricing and reward seat availability

One factor that seems to be annoying a lot of customers these days is the availability of the lowest cost award tickets. Ai’s Ritesh Gupta explores why airlines are going ahead with dynamic pricing

All the talk about frequent flyer programs proving to be a value asset for any airline is incomplete if the loyal customer is frustrated or dissatisfied. But is this really an area of concern for carriers?

In fact, it is being highlighted that what works for a passenger isn’t adequate for airlines in financial terms. 

So what is it that’s forcing airlines to change their approach toward FFPs?

Cameron Trant, president at Trant Consulting says airlines first and foremost are concerned with losing rather than gaining in the FFP game. He explains: “History has shown that airlines that have tried to hold out on having a program, such as Southwest, Swiss or Singapore all discovered they were losing market share within the high yielding business segment and eventually initiated a loyalty program of their own.  I think that only after coming to the realization that a FFP is a critical part of doing business do airlines then look to try and monetize the program itself, primarily through partnerships that purchase mileage from the airline.”

Award ticket pricing

So what’s annoying flyers today? One factor that seems to be annoying a lot of customers these days is the availability of the lowest cost award tickets. 

Typically airlines have very sophisticated inventory management solutions and often they only allocate the lowest awards to seats they feel would otherwise go unsold. As Trant points out, however as load factors have increased from the low 70th percentile to the low 80th percentile over the last decade, the number of seats going unsold has been drastically reduced – especially on flights around holidays, or any peak travel times for leisure customers. 

“Airlines have to walk a delicate balance between risking long term revenue potential by alienating customers that perceive they can never redeem their miles, and maximizing their short term revenue potential on any given flight,” says Trant.

In terms of how airlines are going about reward seat availability, a survey by released by IdeaWorksCompany in May this year indicated that increasingly more carriers are governed by “accounting regulations that allow airlines to post revenue to their income statements only after a member redeems miles or points”. Overall, airlines “are continuing to be more generous with reward seats”. The average for all airlines for 2010 was 66.1%, which increased to 74% this year.

Still there already has been quite an uproar about revenue-based award tickets.

As highlighted by IdeaWorksCompany, a major development last year was Delta’s decision to go for revenue based mileage accrual this year.  This ranges from five points per dollar spent on base fares for members without status, and up to 11 points for Diamond level members. 

This meant that the new approach would result in a “windfall of miles for members paying higher fares”, and at the same time, it curtails the overall mileage accrual for members without status booking saver-type fares. 

So a regular member buying a $316 roundtrip Atlanta – San Francisco ticket accrues 1,580 miles in 2015; that same trip delivered 4,278 miles last year!      

The big question over here is the way airlines modify the value of miles.

It is being highlighted that a majority of awards are anyway not going to be relevant to those who are associated with relatively lower earning rates. This essentially means that it would take them a lot more time to earn the requisite mileage for that particular seat.

Dynamic pricing

Trant says, “Airlines have historically used very complex systems for making pricing and inventory decisions for revenue tickets, however their award ticket pricing has been relatively static – meaning it is the same cost for a customer who wants to fly on a off-peak day vs. someone who wants to fly on a peak travel time as long as the inventory was available.”

He adds, “With dynamic pricing, the airlines hope to apply the same sophistication to properly price award tickets.  If you are a consumer that is willing to fly the redeye flight or travel on Tuesdays you may actually benefit, if however you are only a weekend warrior you may find yourself paying significantly more miles than you have been accustomed to.”

Commenting on the non-availability of mileage award charts (such as Delta stopping publishing of charts), Trant says, “If you were to equate frequent flyer miles/ points to a currency, the airline itself has extremely broad powers to set the value of the currency.”

According to him, what the airlines are doing through dynamic pricing is an attempt to optimize the cost of award tickets in the same manner that they do with revenue tickets. 

In its simplest form, if a particular flight has a high demand for award travel, the airline would increase the required miles to redeem on the flight until the demand met the available supply, while simultaneously burning the maximum miles possible, says Trant. Although the actual variables that an airline may factor into the final pricing may vary greatly (flight demand, elite status, past purchase history, propensity to purchase add-ons etc), the end goal is to optimize the revenue gained and/or mileage burned on every flight.

Writing on the wall

It is clear that how much a passenger spends is now having a big impact on the future of FFPs. 

With the growth of low cost and ultra-low cost carriers, legacy carriers have found themselves having to offer deeply discounted fares during times of low demand in order to achieve their target load factors.  These low fares, while good for stimulating demand, are also prime targets for a practice called mileage runs, where a customer takes a flight with no other intention other than earning the maximum number of miles for spending the least amount of money in order to obtain elite status, explains Trant. He adds: Another less nefarious example, but one that can happen under a mileage based program is the case of where one customer who flies from North America to Asia and can earn the top tier in as little as 4 or 5 roundtrips, while a customer that commutes domestically every week 1K miles each way, but takes off 4 weeks for vacation and holidays, comes just short of the threshold necessary. 

“A revenue based program would hope to correct both of these situations by removing the incentive to take mileage runs, giving an opportunity for the Asian flier to still achieve elite status provided he or she is buying full fare or business fare tickets, and reward the almost weekly flier who would certainly make the threshold due to the sheer volume of their purchases,” says Trant.

He also asserts that switching to a revenue based system is not a panacea however.

“By tying points to a specific spend, it becomes an easy equation to determine the value of those points.  Consumers can then easily make all sorts of calculations as to whether the value received is worth the value spent.  In addition, FFP partners know that same equation, so it will be much harder to negotiate premiums for the perceived value of points that the partner is purchasing from the airline when they are publicly pegged to a specific value.”

As for consolidation in the U. S. industry impacting FFPs  and redemption, the jury is still out as to the complete impact this will have on FFPs. 

“In some cases the changes are almost immediate – for instance I was able to shop an award itinerary last week that had a connection in Charlotte in one direction and one in Chicago in the other (thanks to the AA-US merger), but many other impacts could take years to develop,” shared Trant. For instance, airline co-brand credit card programs are highly sought after by banks due to the fact the customers typically spend far more on the airline card than on a typical credit card.  Now through consolidation there are less of the programs available to bid on, and the programs are much larger so this puts extra negotiating power into the hands of the airline. As Trant says, only time will tell if this results in better product offerings for the customer, or if the airlines will focus solely on getting better financials for themselves.

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