The Role of Loyalty Programs for Airlines Post-COVID Recovery
Traveled by plane lately? If you’re like the majority of U.S. residents, the answer, sadly, is no. Although travel numbers are up since March, data from the Transportation Security Administration reports that overall volume is much lower than last year. Translation? People are staying home, or traveling by other means, in the U.S. as well as in most parts of the world. And though travel is up in many parts of the world compared to previous months, numbers from October reflect that volume is down 47% compared to last year, according to the International Air Transport Association (IATA).
And there are still countries from which travel is still restricted, like between the EU and the U.S., for example. Grand Cayman, which closed its borders completely in March, only recently made flights outside the islands possible, though routes are still limited.
But there is a bright side for the airline industry in a rather unexpected place — loyalty programs. The Financial Times estimates the value of Delta’s loyalty program at $26 billion, American Airlines at $24 billion, and United at $20 billion. Compare those numbers to those of the airlines’ valuations themselves: Delta is worth $19 billion, American $6 billion, and United $10 billion. Yes, you are reading that correctly. Loyalty programs hold a greater value than the airlines’ business itself. But a loyalty program can’t exist alone.
How loyalty programs are lifting up airlines
To date, these loyalty programs have been a key element in helping airlines survive. The valuations of the programs can help airlines with business valuations, pledging loyalty programs as collateral against multi-billion government loans. The loyalty programs of large airlines can be worth tens of billions of dollars as these programs are low fixed cost, highly profitable companies. They have more in common with tech firms than airlines. There will be a limit to how much of this can be done — there remains the question of what the value of a program is without the underlying airline. And airlines have been able to sell miles to their loyalty members at discounted prices, generating cash from loyal customers even while they are not flying.
Southwest has given customers the ability to transfer their travel funds (for canceled trips) into miles. A way to keep customers happy (since these funds typically expire) and increase engagement and conserve cash. Some new tech firms have even introduced the capability to trade a cash refund for other offers, like miles, helping airlines conserve cash.
Loyalty programs offer a direct connection to consumers. If you’re a member of any travel-related loyalty program, you’ve probably received emails about your status being retained until next year. This low-cost move makes consumers feel better about future travel and helps to keep high-value members engaged even while they are not traveling. And you’ve also probably received emails about the cleanliness of hotel rooms and airplanes. Who would have thought that air circulation and filters would be such an engaging talking point in 2020?!
How airline loyalty programs are changing
So what else could be done in this space?
Traditionally, airline loyalty platforms are inflexible. They allow for point/mile accumulation and redemption, and a bonus here and there. But that’s about it. What I foresee in the next year or so is the tailoring and customization of air travel in a way that we’ve not seen before. Travelers have varying expectations on what their travel experience looks like, and it’s up to airlines to provide service that meets traveler needs. Travel is not one-size-fits-all.
For airlines that only track transactional data, they might be missing out on the digital signals that could point to upsell and cross-sell opportunities. For example, is a traveler researching house rentals 12 hours away? How could an airline persuade a person to purchase a ticket instead of filling up their gas tank? Can airlines strengthen their partnerships with companies like Vrbo and AirBnB?
And for airlines that heavily reward business travelers, how can airlines target those travelers to visit a location vs. a series of Zoom meetings? Is it possible? Can partnerships with employers and third-party travel agencies be worthwhile?
Unfortunately, I don’t have a crystal ball to look into the future! But what I have seen in my career working in the industry is that flexibility and relevancy are key. As things change rapidly and unpredictably, it’s necessary to have systems in place that can meet the needs of your members. It’s important to understand each customer, their motivations, and act on that understanding. Ideally, a marketing suite is in place already to enable your brand to communicate to your customers at scale, from end to end. And you’re able to communicate relevant messages to each contact at the right time via their preferred channel.
Some quick wins for brands in the space:
Collect permissioned zero-party data to get a fuller picture of each customer, their preferences, and motivators
Analyze all customer data (not just transactional data) to generate offers that are most likely to drive additional purchases and engender emotional loyalty
Deliver relevant offers and other content to each customer over the entire customer journey, always remembering the importance of context
Track all responses, analyze and keep improving
Each of these steps positions your organization to take advantage of the post-pandemic travel recovery. Each one is a step towards true end-to-end customer management and offers an increase in customer engagement and profitability.
This article was first published by Cheetah Digital. Permission to use has been granted by the publisher.