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July 12, 2018
Loyalty: The new form of currency for airlines
By: Jonathan Sullivan

Loyalty has come a long way for airlines. The first frequent flyer program, created by Texas International Airlines in 1979, tracked mileage to reward flyers. That model has since been slow to evolve. Frequent flyer or loyalty programs historically rewarded flyers by giving them more opportunities to fly, or special treatment at the airport. Points were a form of currency for flyers to spend back with the airline. Consumer expectations are rising: It is no longer enough to have simple pay to play schemes with rules-based recognition. Airlines are slowly recognizing the new reality.

Travelers expect hyper-relevancy. They want airlines to keep up to date on their preferences, desires and account balances, and act accordingly in real time and at scale. The industry’s overall Net Promoter Score®—a benchmark used to gauge customer loyalty and brand sentiment—is 29, whereas hotels have an NPS score of 44. Recent Accenture research shows that nine of the top 10 performers in hyper-relevancy for travel are online booking platforms that don't deliver the end service. In this era of “living loyalty,” airlines are gradually evolving to new approaches that drive continued and long-lasting engagement with millions of members worldwide.

Within airline marketing and loyalty departments across the world, various initiatives to deliver elements of hyper-relevancy are progressing with varying degrees of success. Within loyalty, one important element of hyper-relevance is that all programs absolutely must address keeping points balances up to date in real time, which until recently has been impractical across the span of all loyalty program partners.

From catalog to currency

All advanced airline loyalty programs involve a broad coalition of partners—the airline being the anchor client. Program members build loyalty with all the brands in the program, enjoying benefits from a variety of partners. For instance, LATAM Airlines links to 300 retailers—from toy stores to dress shops—through its LATAM Pass program.

The way program members cash in on benefits has changed as loyalty programs evolve. Initial models allowed members to use points to buy distressed inventory on their own airline. They later extended this distressed inventory model to goods, such as speakers, watches and perfume through catalogues by contracting with companies that managed product overstock situations. This meant for a weak value proposition: the selection wasn’t great; products were outdated; fulfillment times are slow. Customers expect Amazon and instead had the equivalent of Sears, circa 1888.

Today, airlines can now track their loyalty currency transactions in real time across all partners and members. Blockchain technology makes it all possible. Currency earned among coalition partners can be updated immediately in a member’s account, rather than through the slow reconciliation processes of yesteryear. For example, the Cathay Pacific Group worked with Accenture to apply smart blockchain technology to its Asia Miles rewards program. Blockchain gives Asia Miles partners a single data source when managing account activity, allowing partners and members a near real-time ability to manage rewards.

Programs can expand to allow customers to enjoy the benefits of speed, choice and greater purchasing power. They can earn and spend more points, with faster positive recognition, leading to positive perceptions about brands, and overall customer happiness.

Bringing hyper-relevancy to loyalty currency management

The business of airlines is so competitive that brands are the now the first line of defense against competition. Loyalty programs must buttress parent brand equity in the hearts and minds of customers.

  1. Assess loyalty maturity. How well does your organization understand the purpose and value of its loyalty program within the broader long-term view? Is the program truly more than a recognition engine and a channel to push marginal inventory to repeat customers? Does your organization truly know its customers, especially program members, their desires, communicate with them appropriately; design and deliver service accordingly; and improve service with this knowledge? Is it time to stay the course, tweak or completely overhaul your loyalty program?

  2. Adjust the operating model. What part of the operating model is keeping the loyalty program from moving quickly towards meaningful hyper-relevance? What needs to be changed in the ways of working and underlying technology to deliver a human centric hyper-relevance at scale? Is the value-based business case for change prepared, accepted and funded?

  3. Execute for success. Are your team members and broader organization adequately prepared for changes in the program? Organizational structure, processes and technology must seamlessly come together to fulfil the design changes. Change management is hard to "overdo."

Take advantage of this opportunity to build a loyalty program that creates real value for customers and airlines alike.

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