Since their launch, airline loyalty programs have become valuable revenue drivers, brand builders, marketing tools and assets.
They play a critical role in airline profitability, and competitiveness. As consumer trends change, airline loyalty programs must evolve to keep consumers engaged, especially as carriers move to revenue-based loyalty rewards.
This shift in program valuation (while justified in the business case) can negatively impact how loyalty programs are perceived, especially among status customers.
J.D. Power released its latest Airline Loyalty Program Satisfaction Study this month, revealing four key factors behind member satisfaction: the ease of earning and redeeming; program benefits; account management; and airline to member communication.
The study, based on responses from 3,387 rewards program members gathered in September, hints at how airlines might crack the code on loyalty.
tnooz takes a look at key factors driving consumer loyalty today and ways in which airlines might make their programs a more meaningful way to earn and retain return business.
A key finding is that rewards should not be limited to travel related activities.
J.D. Power finds that overall satisfaction increases by 77 points when members can earn rewards at restaurants. This is higher than the 69 points increase in satisfaction resulting from car rentals rewards, and significantly higher than the 2 points boost in satisfaction from earning airline miles.
The most appealing aspect of membership to consumers is a “lowest price guarantee”. That yields a 109 point increase in customer satisfaction. Waiving of same-day change fees, based on status, improves overall satisfaction by 104 points.
Overall, status member are more satisfied with programs. Their average overall satisfaction score is 814 points out of 1000. That is not surprising, as they receive the most direct benefits and perks.
What is notable is that J.D. Power finds that a majority of these passengers (59%) are active promoters of the brand. In their case, the airline not only benefits from repeat business by has earned important endorsement in a market increasingly driven by consumer comments on social media channels and review sites.
Ensuring that programs function smoothly is also critical. Customers who encounter no problems with their loyalty programs have an average satisfaction score that is 99 points higher than those who have experienced issues.
Rewards can also be an effective form of compensation when things go wrong. Passengers offered rewards or miles when problems occur with their loyalty program have a 48 points higher satisfaction score than those who don’t.
Airline loyalty programs can be complicated to track and difficult to redeem—perhaps intentionally so—but J.D. Power finds that making the rules clearer can have a 52 point positive effect on satisfaction.
Making loyalty count
Personalization, based on loyalty status, also pays off. When an airline offers service tailored to a member's stated preferences, the satisfaction score rises by 48 points. However, J.D. Power finds that only 26% of members believe their preferred airline delivers on personalization.
In its 2015 Travel loyalty: Discount discontents executive report, IBM identified a unique challenge for airline loyalty programs. While 87% were “satisfied or very satisfied" with their rental car program and 86% felt the same way about their hotel loyalty program, only 73% felt the same way about their airline program.
That said, IBM also found that being satisfied with the loyalty program does not immediately translate to repeat bookings.
“For instance, travelers may select the same hotel repeatedly, regardless of whether the loyalty program delivers a sizable net discount. Even more disconcertingly, the differences between travel loyalty programs may not be significant enough for travelers to perceive.
“Airline programs, which typically offer the deepest discounts and enjoy the highest rates of consumer participation, are also the least satisfying for consumers when compared to hotel, credit card, rental car, rail and travel aggregator programs. In this way, airline loyalty programs that fit this trend are likely to be seen as discount schemes, not mechanisms that build customer loyalty.”
According to Points’ 2016 State of Mobile Wallet Loyalty and Engagement report, 92% of consumers belong to between one and 20 different loyalty programs, with the majority (75%) belonging to ten or fewer programs.
- 68% of consumers have a rewards-collecting credit card, according to Points.
- 52% of those are financial services cards, such as Chase Sapphire Preferred and Premier Rewards Gold Card from American Express.
- 35% have airline-branded credit cards. 33% have travel rewards credit cards, such as Barclaycard Arrival, World MasterCard, or Capital One Venture Rewards Credit Card.
- 29% have hotel branded credit cards, such as IHG Rewards Visa, or American Express/Starwood Preferred Guest.
With all of those memberships to their name, helping consumers manage the program more easily may help build habits that foster recurring business.
- 48.9% of consumers surveyed said they would like to see more relevant deals or offers via their mobile wallets, making these a potentially powerful marketing channel.
- 94% of consumers would use a mobile wallet more frequently if they could earn and/or redeem loyalty points and miles with every transaction.
- 58% would use their mobile device to display loyalty cards to collect points or miles.
- 89% of consumers want to earn points or miles while making everyday purchases using their mobile wallets.
- 85% of consumers would want to redeem points or miles, instead of money, to make everyday purchases using their mobile wallets.
- 91% of consumers want to monitor loyalty account balances on mobile wallets.
Making account management easier on mobile might also mean making exchange programs with partners easier.
Points finds that 94% of consumers would like to exchange miles or points between different programs using an airline wallet and 60% would like to access all active loyalty programs through a single app.
Connecting loyalty programs with mobile wallets can also help deliver some of the rewards types consumers want more of, according to J.D. Power, rewards that aren’t directly tied to travel activities, and make the process more engaging, keeping the airline brand front-of-mind.
Points finds:
- 76.4% are more engaged with loyalty brands when they have more opportunities to earn and redeem points.
- 85.1% wanted to engage with their loyalty programs at the places where they shop most often.
- 54% would like to earn loyalty rewards from grocery store purchases, 19% from gas stations 12% from restaurants and bars and 7% from clothing stores.
Redemption also offers a unique opportunity for airlines to forge new rewards partnerships that go beyond the common credit cards, hotels and car rentals partnerships. For example, 38% of consumers would like to redeem their loyalty points at grocery stores, which is higher than the 20% who want to redeem their points for travel services like flights or hotel rooms.
Qantas is an example of a loyalty program already capitalizing on everyday activities and using the loyalty program as a lifestyle brand builder.
As Ideaworks states in its 2017 CarTrawler Yearbook of Ancillary Revenue report, Qantas scores an average of $21+ in revenue from its loyalty program per passenger carried. That’s significantly higher than the net profit of $7.69 per passenger that airlines earn from their core business, according to IATA.
As Ideaworks writes:
“Qantas Group realizes more than $95 per member based upon 2016 program membership of 11.4 million. The Group backs this result with an amazing statistic: ’35 percent of credit card spend in Australia is on Qantas co-branded credit cards.’ It’s an almost otherworldly achievement to have so much of a nation’s commerce pass through an airline marketing program.”
Could blockchain future-proof loyalty?
The Harvard Business Review argued earlier this year that loyalty is ready for disruption, and suggested that blockchain might make programs easier to manage across multiple partners.
“Travel loyalty programs tend to be complex and multi-currency, making them different from retailers, which typically run simple discount programs, or from banks, which offer cash back or a single currency that can be spent easily across a range of merchants.
"In some cases, travel loyalty program points differ by journey component (flight, car rental, hotel, dining), leading to fragmented point collections.
"While estimates vary widely, we estimate that the typical ‘breakage' rate (meaning the share of points not redeemed) is about 10%–20%. Plus, it can be difficult for the average person to accumulate enough points to earn a meaningful reward."
The Review suggests:
“For consumers juggling an array of loyalty programs, blockchain could provide instant redemption and exchange for multiple loyalty point currencies on a single platform. With only one “wallet” for points, consumers would not have to hunt for each program’s options, limitations, and redemption rules."
Because loyalty programs contribute considerably to airline profitability, finding new ways to keep those programs valuable and relevant to customers should be a top priority.