FFPs: A Panacea for airport loyalty?
Frequent flyer programmes have changed the competitive landscape of the airline industry, as passengers looking to choose an airline to accumulate miles tend to prefer a dominant carrier for their points and awards, according to a white paper by ITC InfoTech in India.
For consumer-centric organisations, loyalty of their customers is of paramount importance. While loyalty programmes have been in vogue for a long time, it is the airline industry that has made the most of such programmes and contributed to their growth and popularity. Known as frequent flyer programmes or FFPs, loyalty programmes in the industry have depicted their ability to alter competitive landscape among airlines. The increasing marginal benefits built into FFPs give passengers the incentive to attempt to restrict their flying with a single carrier, rather than choose them on a by-destination basis. It has been found that while choosing an airline to accumulate miles, passengers prefer a dominant carrier to earn their points and redeem awards.
Back in 2007, Chris Reiter wrote in his article in Reuters that "Airlines have awarded more than 19 trillion frequent flyer miles over the past 25 years - roughly equivalent to circling the globe 760 million times - and more than 14 trillion of those miles are unredeemed".
The Airline Industry has moved at a fast pace, in less than a century. It has shaped itself from a humble beginner to a full-fledged & competitive industry with estimated revenue of 545 billion in 2010. The prominent catalyst of this growth is technological advancement in aircrafts and development of airports. The industry has ushered-in drastic changes in the world by redefining the very concept of distance.
A survey conducted by Sabre Airline Solutions of 90 airlines across the globe revealed that while fuel cost fluctuations and revenue management are among the top challenges for carriers, it is passenger loyalty and retention efforts that were viewed by an overwhelming majority of survey respondents (86%) as having the most impact on their business. And 50% said that the key to passenger loyalty is improving the kind of travel experience that the airline provides. FFPs have embraced technology that has helped them become more sophisticated and automated.
The popularity of FFPs may be inferred from the fact that almost all the major airlines have an entrenched loyalty programme. In fact, of 192 airlines examined, 75% have a frequent flyer programme, and 18% have a discount programme of some variety.
The two loyalty programme models which are prevalent in the airline industry are Proprietary and Coalition. Out of 144 airlines that have implemented a FFP, 39 airlines share 12 programmes. There are 95 coalition programmes and 15 proprietary programmes. The above figure shows the propensity of airlines to collaborate with various airline and non-airline partners, so as to provide a wider spectrum of opportunities for their members to earn and burn miles, meaning that 86% are coalition programmes.
Also, fleet size is an important factor for implementing an FFP which can be easily inferred from the above figure. Airlines tend to increase its fleet size mainly to cater to an increasing passenger base. FFP helps in rationalising marketing & communication costs to a large passenger base and increases the efficacy of promotions.
The success of the airline industry is dependent on the relationship between the airline, the airport and the passenger. With FFPs having proven their mettle with millions of members and billions of accrued miles, airlines become an attractive partner in an airport loyalty programme. The fulfilment of flying being dependent on the airport infrastructure, there is a complementary relationship between an airline and an airport. Every loyalty programme is dependent upon the number of members and miles exchange-including accruals and redemptions. The success of such programmes is also dependent on the number of loyalty partners that expand the horizon of possibilities for a member.
The full white paper, entitled 'Frequent Flyer programmes: The Panacea for Airport Loyalty?', has been made available for free download from ICT's 'Airport Technology' website - click here (free registration required).