Can airline loyalty schemes really generate income?

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By: Wise Marketer Staff |

Posted on July 30, 2009

Can airline loyalty schemes really generate income?

As airlines increasingly face new business and market challenges, there is a growing temptation for them to bolster their financial statements by selling off portions of their operations, according to a white paper from Carlson Marketing.

The paper, entitled 'Spinning Off Frequent Flyer programmes in Turbulent Times', reports that frequent flyer programmes tend to be among the first assets examined in these exercises.

According to Evert de Boer, senior director of the global airline practice at Carlson Marketing, there are six good reasons for selling off an airline's frequent flyer programme:

  1. Raise capital;
  2. Unlock value;
  3. Improve margins;
  4. Accelerate revenue growth;
  5. Achieve economies of scale;
  6. Improve CRM (customer relationship management) and data analytics capabilities.

However, he cites seven down-sides to selling off the loyalty programme:

  1. Programme delivery (considering how intertwined the programme is in the airline operations);
  2. The new owners may have a more short-term view;
  3. The unpredictability of future events;
  4. The capital gain from the sell-off is a one-off;
  5. Possible imbalances of power between the frequent flyer programme and the airline;
  6. The impact of global alliances;
  7. Current liabilities.

The current economic downturn adds another set of problems to be evaluated, and their impact debated, based on the individual airline's situation. For example:

  • Less capital available to buy the programme;
  • Less travel and lower consumer spending;
  • Higher incidence of credit card defaults and lower credit ratings;
  • Reduction in network size;
  • More miles being awarded, but fewer miles being redeemed;
  • Increased opportunity for arbitrage;
  • Less appetite for adjustments to the balance sheet;
  • Potential partners become more wary.

As the economy improves around the world, serious consideration of spinning off frequent flyer programmes is certain to once again become a hot topic of conversation among airline executives. Indeed, De Boer identifies the most likely carriers as being "those with large legacies with a dominant programme in a large and homogenous home market". His less likely candidates include "airlines that dominate a small home market and serve a high percentage of transfer traffic through their respective hubs".

The complete white paper has been made available for free download from Carlson Marketing's web site - click here (PDF document; no registration needed).

More Info: 

http://www.carlsonmarketing.com