Airline loyalty is officially up in the air. And it’s about time we talked about it. Because in the world of jetsetters, frequent flyer loyalty (and the industry overall) has experienced its share of trials and tribulations over the past few years. There is a systemic devaluation of frequent flyer programs (FFPs), which is causing many aviation veterans to reminisce over the good old days — not exactly the kind of cultural response a forward-thinking industry should strive for. And a slew of security breaches have piled up to create an atmosphere of doubt and vulnerability when it comes to sharing personal information with airlines; and, with data being such a key driver of contemporary program success, earning back customer trust is a salient challenge. So without further ado, here are our top concerns for frequent flyer programs in 2020.
Turbulence in the Skies: The State of Airline Loyalty
A cursory glimpse at this landscape is a bit like looking at the ground while cruising at 35,000 feet. Broad patterns may look convincing, but the surface is actually composed of a complex microcosm of interwoven attributes. Consider this: airline satisfaction scores have actually climbed to record highs, with customer experiences and form-fitted touchpoints playing a big part in shaping these positive numbers. Clearly, the world of airline loyalty and FFPs is a multifarious topic. And, on the heels of attending last week’s Loyalty and Awards event in Vancouver, BC, we thought it would be prudent to dissect some of the key trends and the implications they pose for loyalty practitioners.
The Battle Between Profit and People
Perhaps the most pressing consideration in the world of frequent flyer programs is the continuing attitude that FFPs are, at their core, designed to maximize the bottom line, even at the expense of actually pleasing flyers. The ambition is perhaps understandable, as current models forecast rising costs that will squeeze airline profits dramatically. In June, the International Air Transport Association (IATA) announced that operational costs were expected to grow by 7.4%, outpacing a 6.5% rise in revenues. With a predicted tenth consecutive year in the black, airlines are being forced to look at every available avenue to stretch profits and satisfy investment stakeholders. And according to Rick Rasmussen, Credit Card Product Strategy Leader at BECU, airlines are “[likely] really worried about maintaining a competitive value proposition in the face of cost pressures and internal pressure from non-believers to reduce benefits.” The problem is that airlines are usurping the heart and soul of loyalty — providing comprehensive satisfaction and value to ignite customer passions and retain ongoing business — to accomplish these goals. And at the end of the day, this strategy may simply not be sustainable.
When J.D. Power released their 2019 Airline Loyalty Program Satisfaction Study, the big three airlines in the U.S. (American, Delta, and United) all performed the worst in terms of Airline Loyalty Satisfaction Scores. And 45% of loyalty members state that their satisfaction with airlines and programs is significantly diminished due to increasing program complexity, excessive red tape standing in the way of meaningful points redemption, and an obtuse understanding of program mechanics. This was one of the themes that emerged from the Loyalty and Awards event, that investing in customer experience was of pinnacle importance while customers were demanding increased simplicity in and easier understanding of FFP programs.
“This is the third year in a row that we’ve seen airline loyalty program customer satisfaction hampered by a widespread lack of understanding of how to extract the most value from the programs,” responds Michael Taylor, who charges J.D. Power’s travel intelligence group. “Many airlines are evaluating the success of their loyalty programs based on dollars spent by travelers rather than on miles flown. That’s a significant shift away from rewarding frequent travelers and toward rewarding high spenders.”
Many customers are also taking notice of the countless ways these loyalty programs are being set up against them. Even the best programs are susceptible to inflation — as commodity prices rise, so do the required number of points necessary to redeem items of value. Coupled with the inherently high thresholds seen nowadays for point redemption, stockpiling points may become an exercise in futility, at least from the member’s point of view.
An Exercise in Externalities
The popularity of FFPs and the value they can offer is inevitably tied to the popularity of air travel all together. In the global economy where we all participate, the air travel industry has experienced a number of variables contributing to demand fluctuations. Tracking how these variables influence the number of flights taken and the tangential brand perceptions that coincide are crucial to assessing and planning FFP strategies.
Perhaps the most topical situation affecting FFPs right now is the impact of the coronavirus and its relevance to global health and travel itineraries. Thanks to wide-ranging flight cancellations due to the virus outbreak, global airline revenues are set to fall by $4bn to $5bn in the first quarter of 2020, according to a forecast from the U.N.’s International Civil Aviation Organization (ICAO). And in a recent statement, the same agency claimed that this year’s coronavirus outbreak will have a greater negative detriment to the aviation industry than the 2003 SARS epidemic. In addition to stretching the already razor-thin margins of airlines, further inciting the motivation to slash loyalty reward valuations, these kinds of fear-inducing news items have the ability to tarnish brand status in the minds of customers… even if the prevailing attitudes are not quite in line with the real dangers.
But seasonal incidents like the coronavirus, while they may come and go, are not the only factor in global health that has impact over the airline industry. Issues such as environmental sustainability may be very real behavior modifiers when it comes to future demand for air travel. Several presenters at Loyalty and Awards addressed how the industry could make changes to operate with a higher level of environmental sustainability in mind. The motivations for these changes would address consumer demands, provide answers to the current discussions on “flight shaming”, and make a real contribution to the health of our planet.
While the industry has yet to see much in the way of drop-off demand due to environmental concerns, the story may be very different in 10 or 15 years. In October 2016, 191 nations agreed with a UN accord which aims to cut global aviation carbon emissions to 2020 levels by 2035. Another ambitious target of that agreement is for the aviation industry to achieve a 50 percent carbon emission reduction by 2050 compared to 2005 levels. And while new technology is working towards helping to reduce the global carbon footprint of air travel, the most practical measure may be to reduce the number of flights taken which may ultimately be achieved with further ticket price hikes to ameliorate customer demand.
Security breaches and data leaks continue to erode the trust of customers, especially in today’s climate where personalized data sharing is a core part of engaging with FFPs. And it’s not simply due to a lack of effort on the part of airlines and providers to secure this data; externalities such as increases in hacking sophistication, all the way through to government sanctioned espionage is exerting a force on customer attitudes towards these programs and the types of information they feel comfortable sharing.
“I think that IT Security of a FFP is a big worry. It’s an open secret that some breaches of loyalty programs have been done by state actors for espionage reasons. It’s hard for a company to defend itself against the unlimited resources of a nation state. But if they are breached, it’s a PR disaster,” posits Christopher Staab, Founder & CEO of Airline Information. These concepts are backed up by the statistics: over the past several years, willingness to share data has declined, according to IATA, and there was a notable 5% drop in data sharing comfort level ratings between 2017 and 2018.
Final Thoughts: Acting On The Frequent Flyer Trends
The ultimate success of FFPs will rely on a finessed balancing act, with a calculated approach to weighing the pros and cons of breaking off from the herd and offering customers differentiated programs.
The same report which revealed customer wariness over data sharing also yielded some key insights on parallel demands:
- Respondents said that they preferred to be notified of flight status (82%) and the status of their bags (49%) as well as the wait time at security/border control (46%).
- As many as a quarter of all respondents said they crave offers related to their destination and 19% said they would want airlines to make them offers for services that they could purchase during their trip.
- An increasing number of passengers also said that they prefer to receive notifications via the airline app.
All of these features cannot be made available without the appropriate data targeting solution, so loyalty vendors must carefully consider how to extract this data, secure it, and utilize it to provide a seamless and valuable customer experience.
As airlines move away from rewarding “frequent flyers” to “heavy spenders”, they must understand the multi-variate world of points accrual and customer divestment. Balancing the right offers with the right points valuations while still respecting operating costs and profit margins is a challenging game; but at the end of the day, the ultimate goal for loyalty departments is to excite brand passions and translate program participation into more flights taken. This cannot happen without frictionless program interactions and offers that connect with and deliver value to customers.