Loyalty programs are huge businesses for airlines. The American Airlines program, for example, is worth an estimated $30 to $35 billion. At those kinds of valuations, airlines cannot let their schemes atrophy. They need to keep them relevant.
When airlines created loyalty programs almost 40 years ago, they had a simple goal — to keep customers from defecting to the competition. But during the past two decades, frequent flyer schemes have morphed into stand-alone businesses that generate big profits.
Airlines have juiced revenue by turning miles into currencies customers can use for free hotel rooms and flights, consumer electronics, or even wine club memberships.
Banks buy most of the points, paying as much as two cents for each one, and give them to their biggest spenders. Other consumer-facing companies also buy them, hoping to jumpstart business by dangling bonus miles to customers.
It works because wanderlust is a powerful marketing tool, with travelers dreaming of cashing in for a free flight to Hawaii or Tahiti. But now during a global pandemic, few people are traveling, leaving airlines with a quandary: How to keep customers interested when they are mostly staying near home.
It is important to keep revenue flowing because these programs are so valuable. American’s AAdvantage scheme is valued between $30 and $35 billion, according to Joseph DeNardi, an analyst at Stifel.
Many airline executives have spoken about using programs as collateral for loans to maintain liquidity, including from the U.S. Treasury Department.
To keep consumers interested, some airlines have been creative, adding promotions for people who may not be thinking about flying.
Air Canada now allows consumers to earn elite flyer status without leaving home, while American Airlines lets passengers earn status for life if they spend enough on a co-branded credit card.
Many ideas will spur incremental revenue but given the scope of this crisis — revenue at many global network airlines fell 90 percent in April — it is not enough to close the gap. But these ideas should help retain an interest in airlines and their programs, said Mark Nasr, the vice president leading Air Canada’s loyalty program.
“Engagement in the program today means relevance,” he said. “Relevance means keeping relationships alive. And for the period where we come out of this, we have a platform on which to have a conversation with members that are built upon what we did during the most difficult of times.”
After it became clear that there would be no quick fixes to this crisis, Air Canada decided to get creative, brainstorming ideas that would appeal not only to core flying customers but also to others who liked points.
It came up with a program called ‘travel at home,’ in which members can earn future travel perks by spending on Air Canada’s co-branded credit cards, purchasing miles from the airline, buying items on the airline’s shopping portal, converting hotel and credit card points to airline miles, and donating miles to charity, including Doctors Without Borders and the Red Cross.
If members show enough activity, Air Canada will give them elite frequent flyer status for next year — typically something it reserves for customers who fly often.
“This may be the most aggressive promotion for broad-based activity in a travel loyalty program we’ve seen so far,” Gary Leff, a blogger specializing in frequent flyer programs, said after the airline announced it.
Air Canada probably will make money from the promotion since credit card issuers and other third parties may need to buy more miles to cover the promotion. But Nasr said Air Canada could never make enough money to offset losses from Covid-19.
“A shopping bonus or some incremental spend on a credit card is good for Air Canada — there’s no doubt — but that’s not our primary goal right now,” he said. “That is a means to an end. And that end is engagement. And that end is identical with the brand and keeping that relationship alive during a time where people aren’t on planes and people aren’t traveling at all.”
American is making a similar calculation. In April, it temporarily revamped how it calculates how customers can earn lifetime frequent flyer status. American’s customers typically earn Gold flyer status for life — what they would normally get by flying 25,000 miles per year — by flying one million miles in the program. Now, however, they do not need to fly at all, provided they spend enough.
American has brought back a popular policy from pre-2011, allowing customers to earn lifetime status through credit card spending. Every
dollar they spend on the card counts as one mile toward the one million. (Most travelers probably will reach one million through a combination of spending and flying.)
Bridget Blaise-Shamai, American’s vice president of customer loyalty and insights, said she knew loyalists would want it back. But it was less clear the promotion would make sense for American until it ran the numbers.
“As we issue currency, and as we set forth a set of benefits and the customer earns them, those are costs to us,” she said. “So it was a no-brainer in terms of expectation on reception by the customer but we wanted to make sure it was balanced and thought out in a way that would appeal to the customer and make things work here at American as well.”
American also stands to earn significant revenue because its credit card issues likely will have to buy more miles, said Mark Ross-Smith, former head of loyalty at Malaysia Airlines.
“It incentivizes spend which helps the bank which helps
cashflow right now for American,” he said. “Other airlines could copy — and perhaps get the issuer or the card scheme to chip in some cash to incentivize spend.”
American is also reminding customers to shop through its online portal, where they can earn miles by buying clothing, electronics, flowers, wine, and nearly anything else. This is not a new program but may not be top-of-mind for non-points junkies. Now, others are getting interested, Blaise-Shamai said.
“You’re seeing a lot of wine and you’re seeing home essentials,” Blaise-Shamai said. “You’re seeing flowers. You’re seeing things that are nice gifts that are going to loved ones.”
While rising compared to April, demand remains depressed for airline tickets, but Blaise-Shamai said companies nonetheless want access to American’s customers. Still, despite the airline’s cash crunch, not every company that approaches American is getting an opportunity, she said.
“There is a lot of interest by outside parties to partner with American Airlines,” she said. “But it has to meet the standards of excitement and relevance.” – Blaise-Shamai
Even during the worst of the North America pandemic in March and April, most airlines suspected customers wanted to remain engaged in loyalty programs. Travelers had become highly engaged over the past decade, and
many wanted to keep dreaming about where they would go next, even when stuck at home.
Through it, all, web searches for future travel at Air Canada remained high, even if most were not booking. Customers may have wanted to “create a release, a little break from today’s reality,” Nasr said.
At American, executives saw similar data. Email open rates and click-throughs for loyalty offers have been at least as strong, if not better, than before the crisis, Blaise-Shamai said.
But Nasr and Blaise-Shamai said they know thousands of people in North American dying each day, making it important to strike the right tone. The airline cannot turn off people who do not want to think about travel.
“We remain very much attuned to the difficulties that people are going through right now,” Nasr said. “It’s kind of interesting, and somewhat surprisingly that in a time of pandemic and economic collapse and most importantly health issues, that people still talk about frequent flyer status and points.”
At American, Blaise-Blaise-Shamai said she wanted to avoid being “tone deaf” with customers. But she also said active loyalty members tend to self-select, and they may want to travel (or at least dream of travel) when others do not.
Most campaigns must be different than they were before the pandemic, said Nik Laming, former head of loyalty at Cebu Pacific, a low-cost carrier in the Philippines. Empathy is important, he said, as is relevance.
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