Issue 2: November 2005 - January 2006

by: Ravindra Bhagwanani, General Manager, GLOBAL FLIGHT Management

Generally, passenger technology solutions at airlines pursue at least one of three different objectives:

• to reduce costs
• to ease and accelerate processes
• to realize seamless travel between partners

The last two objectives are thereby more critical to frequent flyers than to any other

passengers.

As a result of these different objectives, corresponding applications can be typically classified into cost savings applications and service enhancement applications.

Typical cost savings applications are self check-in, electronic tickets, online bookings etc. Since the use of these applications results in direct cost savings for airlines, they should be made available and promoted to all passengers, including less frequent ones.

Service enhancement applications, however, risk costing money, not only as upfront investment, but also on an ongoing basis. They should therefore not be offered to all passengers, but only to those generating most revenue. These are members of the airline’s Frequent Flyer Program (FFP), who are, as an industry average, responsible for 70 to 80% of an airline’s revenue although they may represent 20 to 30% of all customers only. Limiting such applications to this target group should be done in a way to create additional loyalty towards and hence revenue for the airline. Admittedly, this is easier said than done, but nonetheless not impossible.

As a matter of fact, FFP teams are constantly looking to enrich their programs through benefits beyond the pure accumulation and redemption of miles. Moreover, there is the additional challenge for the FFP team to segment these benefits further within the program since most of them operate with three or four different membership tiers. So the more benefits available, the easier it is to form corresponding packages for different FFP member groups.

Some technology-based service enhancements, which would be a good fit in such a context and are already partially used by some airlines, include an online seat selection, SMS flight information, online check-in or free in-flight internet access. But they may also extend to further future applications - even if they cost money. From a holistic perspective beyond the pure IT dimensions, they can be cheaper than many other things airlines try to keep their customers loyal. Take the example of free in-flight internet: If you limit such a benefit to elite FFP members and assume that they take ten long-haul flights a year where internet service is available, you face a maximum revenue loss of 299.50 US$ with the current pricing structure for this service. But if such a passenger just takes one additional Business Class long-haul flight with you rather than with a competitor because of this service in return, you can easily make 4,000 US$ in incremental revenue!

photo provided by OnAir

This brings us to the point where there is still room for improvement: on the level of the internal coordination between different departments. When developing any technology applications, but in particular those belonging to the category of service enhancement applications, integrate the FFP team to your strategy and considerations. There needs to be a move away from today’s technology-oriented approach of doing what is technically feasible to what makes commercial sense for the key target group of frequent flyers, while applying some creativity in this context as well.

Today, many applications do not yet exist because they may seem too simple, i.e. their realisation too little of a technical challenge, to the IT department, but could be of great value to frequent flyers and have hence a corresponding positive loyalty effect. Sending an e-mail with weather or ground transportation information or the latest top local news for the destination one day prior to departure could be such an enhancement. Such an input can only be based on the deep understanding of the needs of frequent flyers- information available from the FFP department. This cooperation model requires that the FFP department understands on its turn that there is something beyond the FFP itself, i.e. that the FFP is a basis to further-reaching Customer Relationship Management (CRM) applications. Such a contemplation of the topic still needs some evolution at many airlines, too.

When approaching the issue from such a customer perspective, it also needs to be considered to what extent alliance partners should be integrated to such service benefits. It seems to be a basic requirement - but which is yet far from being a global market standard - that at least all cost savings applications should be fully available to FFP members of alliance partners: When booking a United flight on the United website, it should be possible to log in as a Lufthansa FFP member, so that all personal and payment data are automatically retrieved from the Lufthansa database. But if this is not done, it is the same hassle for the Lufthansa member to book a United, an American or a Southwest flight. Only the ability to earn miles would still speak in favour of United, but too little is done on the technology level to support or even strengthen this basic priority of such a customer. Increasing the cross-selling loyalty within alliances is hence certainly possible by the smart use of technology as well.

With the overall interest of the airline to increase revenues (and hopefully profits as a result) in mind, there are many opportunities for technology and the FFP to work hand in hand. FFPs need differentiators to increase the loyalty effect, but there are limits to what they can do on their own through simply playing with the few tools they have in their hands with the programs themselves. As a matter of fact, FFPs on their own can only move within a certain, rather narrow, corridor to create more or less loyalty. But the position of this corridor is determined by the overall product of the airline, including by the technology applications put at the disposal of its frequent flyers.

Ravindra Bhagwanani, General Manager, GLOBAL FLIGHT management

& regular contributor to Airline Business about loyalty-related issues

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