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24 JULY 2014

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Monday, 24 January 2011 14:22
Southwest please customers with programme revamp
But critics argue it is just ‘more of the same’

Nothing can stand still, not even the loyalty programme of one of the most aspired to operators in the business.

Southwest Airlines, which is given as a case study in a massive number of books on customer retention, is  revamping its loyalty program to eliminate black-out dates on which you're not allowed to fly and boost miles from international flights on other airlines. Southwest aims in this way to win new customers and deepen ties to existing business travelers, who generally pay higher prices. The changes take effect March 1.

It is necessary to point out however, that Southwest is doing no more than following a few early adopters who have already made a similar move while raising the bar of what is normal practice for the rest.

Blackout dates are the bane of all frequent travelers, especially those with children, because they invariably include all school holidays and festive occasions.

There are other changes. The new loyalty plan will use points based on the ticket cost rather than miles flown to calculate rewards, and allow passengers to redeem them for international flights for the first time, resolving what executives said was a key weakness of the existing program.

The move is among a raft of measures by Southwest to adapt to changing industry conditions. These include its planned takeover of AirTran Holdings Inc., a new reservations system and the purchase of larger planes.

Gary Kelly, Southwest's chairman and chief executive, said revamping its loyalty program was the single largest opportunity Southwest had to boost ancillary revenue, a key goal for airlines still struggling to push up passenger fares in the wake of rising oil prices. It has no plans to follow rivals who have sold all or part of their frequent-flier unit.

He said at a media briefing that the new Rapid Rewards plan would over time generate "several hundred million dollars a year" in extra revenue by attracting new passengers, encouraging existing customers to fly more and expanding the business of selling miles to credit-card partner, JP Morgan Chase Co., and what it sees as an existing band of retail partners.

The project has cost around $100 million to develop, but. Kelly said "the return on investment is pretty dramatic."

An interesting point about frequent flyer programmes is that they are  a revenue generator rather than a drain on resources for airlines which in recent years have been selling both miles and points to banks and other partners which use them for their own loyalty schemes.
In addition, loyalty programmes are quite rightly seen as a key marketing tool as carriers try to move from selling commoditized seats to a bundle of travel products including lounge access and priority boarding that command higher prices.

The problem that Southwest encounted, explained chairman Gry Kelly, is that its existing scheme was viewed as a negative by premium travelers. For Southwest to grow into a major nationwide carrier, it had to change this perception.

The ability to use points for international flights on other carriers will close a gap with rivals able to leverage their membership of global airline alliances to lure passengers and corporate accounts.

Southwest is using St. Louis-based Maritz Travel as an intermediary for booking the international flights through its website. Southwest has just started its first international code share but says it has no plans to link up with any other international airlines.

More of the same, say critics

While international traveling customers will be pleased with the changes, critics are saying that for the first time Southwest, which has built its reputation on being different, is conforming to the loyalty programme standards of the rest of the industry and is therefore becoming ‘same as’.

It is being said that the current program can now be compared to US competitors JetBlue and Virgin America although both of this schemes are in fact far simpler than Southwest’s Rapid Rewards which is an irony because that used to be one of its major marketing messages.

But loyalty schemes have to adapt to compete, and if a competitor is taking away business with  a good idea, then it makes sense to follow suit. Hopefully soon, Southwest will regain its crown as a leader, and think up something original for its reward scheme. If it doesn’t, you can be sure
someone else will.

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