Subject most frequent-flyer programmes to close scrutiny and you’ll find that the vast majority of members are not flying that often and don't have any real engagement with the scheme or the airline. While it may be tempting to shrug off this group in favour of concentrating on the high-spending business customers regularly flying in the premium cabins, you may be missing out on some welcome extra revenue.
However, creating worthwhile and profitable engagement with your infrequent flyers demands more than offering a few crumbs from the elite membership table. Rather, it requires a clear-sighted business strategy that fosters involvement through a combination of recognition and achievable rewards. It cannot be done in a vacuum – getting the right engagement with partners is critical to success – but recent innovations in the airline loyalty sector suggest that recognition and redemption are becoming much more interesting.
First, the potential prize. Evert de Boer, general manager of global business development travel at loyalty management giant Aimia, has crunched the publicly reported numbers for four successful frequent-flyer schemes – Aeromexico, Air Canada, Qantas and TAM – and reckons the average profit per active member is $53. Contrast this with IATA’s calculation that airlines made profits of just $2.56 per passenger in 2012. Already, a healthy loyalty scheme is starting to look like a worthwhile investment.
De Boer says the programmes he analysed average nearly 10 million members. Depending on who you talk to in the industry, estimates about the percentage of scheme members who are unengaged can vary from 50-85%. Working on the assumption that 70% are unengaged and among this group, and so 30% have the potential to be actively engaged, de Boer estimates that you could be looking at a total incremental profit contribution of $108 million. “Airlines are not very profitable. If you look at how profitable a member is to the programme and convert a good chunk out of that business, it could really impact that bottom line,” he notes.
So far, so good for the legacy carriers. But what about low-cost carriers and the mid-sized airlines? Gabi Kool, chief executive at Coalition Rewards, which runs the BalticMiles scheme, suggests that the balance between entry-level members and the top tiers might be even greater for these airlines, with 99% of members at entry level. “Mid-sized airlines and low-cost carriers have not tapped into the full potential of loyalty programmes, as their starting point to build a strong loyalty offering is often quite complicated,” he says. These complications include a limited ability to fund points/miles because of lower margins on tickets, limited ability to offer meaningful travel benefits because the costs are hard to justify and a limited ability to offer points accrual across a global network, which curtails the size of reward a member can earn.
So how do you identify those members with the potential to make a difference to the bottom line? The unengaged majority will include occasional flyers jostling cheek by jowl with more frequent flyers who may be pretty indifferent to the programme, flying with you when it suits them.
However, there are two sets of people that are particularly interesting. Iain Webster, senior loyalty consultant for ICLP and its sister company Collison Latitude, explains: “You have medium-frequency flyers giving you as much loyalty as they can, but actually feeling hard-done-by. They fly six, seven, eight times a year and they are treated the same as people who fly once a year. I call these people ‘But I Should Be’s’. They are the ones that if you could identify them and nurture them are a very interesting group.”
The other group are at the other end of the air miles spectrum. “They are very heavy flyers who are loyal to your competitor,” says Webster. “They are typically gold card members with someone else and they fly with you once or twice a year.”
Stephen Wong, chief executive officer at Asia Miles, observes: “In general, infrequent flying members still have high potential. It is possible that these members are still premature in their life cycle, or it is possible they are accumulating miles with another frequent-flyer programme. Ultimately this segment of passengers still can generate high profit and revenue for the company.”
Identifying those members ripe for a closer relationship with the airline can be as simple as sending an email out to the membership base and looking more closely at those who reply. “You will probably get a 5-10% response, and you will probably get responses from those who are engaged or who want to be engaged further,” says Webster. The other tactic is to assess your best customers, understand their key attributes and look for the same characteristics among the less frequent flyers.
“One airline I know that has done this discovered the best predictor of someone who will be a gold-card client in the future,” says Webster. “The most reliable predictor was the first flight that client took with them. It was not that they travelled long-haul, it was that they travelled business class on a European flight. Another predictor is the person who consistently books an aisle seat forward in the aircraft. Common sense tells you that’s someone who doesn’t want to look out the window and wants to get off the plane quickly, so they are probably a business traveller.”
Before you establish better interaction with less frequent flyers, first you need some clear rules of engagement. “The frequent flyer manager’s main business is to sell frequent flyer points to partners, their main objective is not necessarily engaging customers,” says Ravindra Bhagwanani, managing director of FFP consultancy Global Flight. He points out that with airline departments tending to operate in silos, engaging with customers “might sit somewhere or might sit nowhere if there are no clear guidelines from the top management on who will handle these things”.
Setting some strategic objectives is a top priority. Kool explains: “The most important decision for the airline board is to decide if it wants to be in the loyalty marketing business and thereby make it a strategic intention to invest in building such a company, or [if] it sees its loyalty ambitions purely as a retention tool for existing customers.”
Coalition Rewards is owned by Air Baltic, but spun out from the carrier in 2009. “The main reasons for this spin-out were to ensure that this very large customer segment of infrequent flyers could be offered an exciting value proposition and in the process also to build an additional valuable business for the airline,” says Kool.
To ensure a viable business, Coalition Rewards has engaged with a broad range of partners, which is where the benefits start to kick in for all concerned, including BalticMiles members. “In the process, the customer database increases in size and thereby offers the airline and also the other partners in the programme a great acquisition tool for new customers via targeted offers and data insights; and a much stronger value proposition for infrequent flyers who otherwise might only fly one to two times per year and would struggle to reach any meaningful rewards. By offering them a coalition programme-type offering, it will be much easier to keep them highly engaged in the programme and keep the airline and other partners top of mind when they are ready for their next purchase.”
But it is also worth underlining that simply signing up partners for the sake of it will not be a viable strategy. Buying miles can be an expensive marketing tool, so partners will be keen to understand their return on this investment. “You need to have the right programme and the right structure and engage with partners in the right way,” says de Boer, adding: “You have to invest time in partners. It is far better to have a limited partner roster – but you invest a lot of time and effort to make it work for both partners – rather than having a long tail of partners.”
Providing the ability to redeem is critical if you want to engage with your infrequent flyers. “If airlines are serious about these kinds of customer groups, they will look at the basic concept applying in the FFP and make changes: for example, instant gratification, so you can claim something straight away after one or two flights, because the most positive experience for members is the ability to redeem,” says Bhagwanani.
“The redemption side will become more interesting in the months to come, with new offers of redemption that will push the market in the right direction. In terms of customer engagement, the new challenge will be finding the right value equation.”
A good indication of what that direction will be can be gained from recent moves in the market. Webster points to Emirates running competitions from time to time to win business-class flights. To enter the draw, contestants spend some of their Skywards points. It’s a small investment for both scheme members and the airline for a reward that punches above its weight.
BalticMiles is exploring new ways to engage with customers via gaming. Last autumn it became the first loyalty programme in Europe to offer an opportunity to get loyalty points for playing free online games when it partnered with loyalty gaming provider GameMiles, which operates the gaming platform PointsPlay.com. Members receive BalticMiles points for signing up and each month have the chance to win jackpots of up to 50,000 BalticMiles Points, free flights and other prizes.
Asia Miles has enriched its iRedeem platform. “To cater to members with a modest number of miles, we offer some very exciting items, such as department store and restaurant vouchers, CD and DVD sets, concert tickets, wine, USBs, SD cards and so much more,” says Wong. “A recent innovative redemption campaign that we launched was done in conjunction with a local Hong Kong social enterprise. For a very small amount of 2,500 Asia Miles, members could redeem a warm sweater for a grassroots local family. The campaign was a huge success. It ran for just over three short weeks and an overwhelming two million miles were donated, which equated to almost 900 sweaters. Members that donated covered the whole spectrum of those with numerous miles to burn to those who just had a very modest number of miles to use up.”
Etihad also encourages engagement from base-level members or infrequent flyers in its Etihad Guest scheme by making redemptions flexible, appealing and affordable. Members need only one mile to start redeeming as all rewards are offered on a dynamic miles plus cash basis. Alongside the 7,000-plus products in its Guest Rewards Shop, Etihad allows members to convert their miles into cash using the PointsPay online tool, to spend at over 30 million outlets worldwide.
“Our members only require a few miles before they can start converting their miles into cash to spend at over 30 million outlets worldwide. This allows them to gain immediate value, and encourages them to continue earning and redeeming,” says Barry Green, vice-president of CRM and loyalty.
“Etihad Guest regularly engages with infrequent flyers and encourages them to fly more and/or become frequent buyers by promoting offers that enable them to earn more miles through our partners, and not just with the airline,” he says. “More importantly, as members experience the wide choice of earning and redemption opportunities available, so we find that their loyalty and ties to the programme [are] enhanced – with many of them becoming loyal frequent flyers over time.”
Redemption becomes even more interesting when high-spending, but infrequent flyers earn recognition for their loyalty. Aimia’s Aeroplan has launched Distinction, a three-tiered recognition programme which rewards top accumulating members, based on total Aeroplan miles earned across all its coalition partners. These rewards are geared for people who like travel, with preferential redemption rates on flight rewards, plus bonus miles offers via travel partners.
“We saw that some of these members are very valuable to the programme but they were not getting enough recognition from the airline because they didn’t travel enough,” says de Boer. It is still early days for the scheme, but both partners and members’ feedback has been positive. “I think people appreciate the fact of being recognised... Partners are seeing their business being impacted and they are more willing to invest in the programme.”
Does this scheme have the potential to change Aeroplan’s relationship with its members? Absolutely, says de Boer. “That’s our ideal and the objective.”
Source: Airline Business
