Loyalty Truth

The snarky question often posed by loyalty marketing skeptics goes like this:

If the airlines had a loyalty mulligan, would they launch their frequent flyer programs again?

Everyone knows that the programs are expensive to operate and that the airlines have been progressively bleeding value from them to maintain desired financial performance. Lowered mileage values, redemption fees, and scarce reward seat availability provide evidence that the programs are under strain. Lost on consumers, but certainly not business people,  is the fact that frequent flyer programs (FFP) generate massive profits for the airlines and in several cases have been spun off to create stand-alone businesses valued at higher levels than the airline itself.

The debate rages on and a recent study by Deloitte gave fuel to arguments posed by skeptics, citing the finding “66% of business travelers were open to switching to another airline loyalty program even if they’d earned the elite status that gives them access to extra perks.” Another “groundbreaking” finding from the Deloitte work stated “72% of business travelers who fly at least 50,000 miles a year participated in at least two airline loyalty programs.”

Step back for a moment and absorb the idea that discounts and coupons are meant for the masses, while loyalty marketing programs are meant to target resources to customers who are willing to change behavior in the brand’s favor. While discounts and coupons are good tools to attract general attention and drive spikes in foot traffic and sales, they also set the table to identify customers with potential for higher than average value. It is these customers which are hoped to be active in a loyalty program offering, and those that play the game should be rewarded with marketing resources weighted in their favor.

It is highly likely that frequent business travelers belong to not just two programs, but probably as many as they have had opportunity to join over their business career. I’m pretty sure my count is above 12 and that my profile is similar to others I know who travel as part of their job.

Bottom line: observations of multiple memberships does not correlate to the future prospects for frequent flyer programs.

It is also a reality of business travel that your loyalty to an airline is influenced by the dominant airline in your principal point of origin and the ebb and flow of destinations where you schedule travel. For example, if you live in South Florida and travel frequently to Latin America, you are probably biased toward American Airlines. Live in the same area, but travel domestically and you might be pursuing elite status on one of several airlines.

Another influencer for airline loyalty is that, as your routing changes, elite status with one airline is threatened just as the opportunity to gain status with another airline appears on the horizon. Unless you travel so much that you need to carry pictures of your family just to recall what they look like, it is nearly impossible to maintain meaningful elite status with more than one airline.

Bottom line: High frequency travelers being open to switch to another airline attests to the rational nature of man, but does not point to any particular weakness in frequent flyer programs.

Another impact on elite status achievement less popular to discuss in open settings is that your elite status may be impacted by your business model. Work in a highly entrepreneurial operation where every dollar matters and your business travel may be constantly spread across the airline universe, making elite status tough to achieve with any airline. Work for a large public corporation and you have the ability to consolidate travel, often overlooking fare differences to keep earning toward valuable elite status. I’m not judging here, just observing on the reality of our capitalistic society.

If you believe that not all customers are created equally, that groups of customers have distinctly contrasting behavior and value to the business, and that it makes sense to allocate marketing dollars to your most valuable customers, then frequent flyer programs will continue to be effective. Each of the “influencers” cited above could be expressed as a cell in your customer segmentation.

1. The occasional traveler whose choices are dictated by their dominant local airline? You’ve got them by default. Why spend more money on them when the upside is nominal?
2. The entrepreneur who spreads travel across multiple airlines? Keep them on the radar and try to understand when you have opportunity to gain more share.
3. The corporate traveler who has more flexibility in fare while being driven by schedule and elite status? Focus on them to gain share of this valuable group.

In some past work done under another banner, we found that one of the key reasons that loyalty programs fail was by casting too wide a net and trying to please everyone in the brand’s customer universe. The airline industry trend to align elite membership benefits with the cumulative revenues received from customers ensures that FFP’s will not fall prey to the temptation to please everyone. 

Bottom line: Not all customers should be treated equally and it makes financial sense to align rewards to customer value.

The debate about the future health of airline frequent flyer programs should cause us to focus on the customer loyalty value chain. Companies should have a plan to reach customers at different levels of engagement and with different lifetime value estimates.

Maybe the airlines are just now realizing that the original model was never meant to please the masses. The move to align elite flyer benefits will enrage some, but will protect and consolidate share among others representing the highest value to the airline.