Points sales may be killing the golden goose; how should programmes change to stay relevant
As travel begins its first shaky steps back to business as usual, the question around what needs to change is appearing everywhere. Customer loyalty is high on the agenda for many.
Forbes put the issue succinctly: “COVID-19 could be the dawn of a new era for customers in airline frequent flyer programs. For over two decades, the largest airlines have managed their loyalty programs with a closer eye on cash than on rewarding customers. Now, with social distancing, the allure of points has waned for travellers, just when winning their allegiance is more important than ever.”
So what needs to change, and what do customers want, if they don’t want miles and other travel perks?
United Airlines and American Airlines have both announced plans this week to mortgage their frequent flyer programs for over $5 billion each, providing critical liquidity. But the value of the travel loyalty programmes will only remain this high if customers value them.
For airlines, frequent flyer programs are a no-brainer and serve a dual purpose. On the one hand, the programs attract and retain high value customers. Even though schedule and price dominate most customer considerations, membership in a frequent flyer program can tip the scales, especially for business travelers. On the other hand, frequent flyer programs are a revenue center that generates cash when airlines sell points to credit card companies, who in turn use them to reward cardholders.
For customers who have just gone through the pandemic and are beginning to review their need, or indeed want, to be in the sky for a huge proportion of their lives, the attraction of yet another flight may be beginning to wane. Which means the airlines will have to be more creative, and offer more choice of reward.
Changes are already being made. Introduced during the pandemic are rewards that can be both earned and redeemed at home; there is an increase in deals with credit card companies; more airlines are joining up with market places, such as Currency Alliance. These offer a choice of reward via participating partners.
Still to come is the impact on airlines from governments which see the pandemic as a golden opportunity to force through environmental measures and controls. So in the future, airlines may benefit from flying with fuel economy and reduced pollution. Passengers may even be reward – by whom is unclear – for flying less.
There is a lot at stake.
In the years 2017 and 2018, the largest US airlines booked $23.5 billion revenue from the sale of frequent flyer miles, exceeding the airlines’ total combined profit by a huge 18%, suggesting that without the programs, the airlines would have actually lost money. For American Airlines, frequent flyer revenue was more than double the profit in both years.
The fact that India’s Intermiles – the reincarnation of JetPrivilege, survived the demise of its airline parent, speaks loudly of the importance of frequent flyer programmes.
Make no mistake, frequent flyer programmes are all about the high spending “best” customers, but therein lies the current problem. To be a top tier frequent flyer takes a great many miles. These elite (or sad depending on your point of view) individuals require an easy access to their points and miles redemption. Because the airlines have sold off so many points to credit card companies, there will be more customers chasing seats and other perks. Anyone with Avios points knows only too well how frustrating it is to have potential to swap points for seats, but absolutely no chance of doing so, owing to the small number released by British Airways.
So what will we see next? Hopefully some originality, creativity and fresh thinking. The concept of frequent flyer rewards is a great one, but airlines risk throwing the baby away with the bathwater if they dilute their value too greatly. And of course there are the added concerns of Covid-19 restrictions on passenger numbers, customer reluctance to travel, and government intervention to further the protection of the environment. There are interesting times ahead for the travel industry and customer loyalty is destined to play an important part.