Lifestyle Loyalty: Rethinking Airline Reward Programs

lifestyle loyalty

Image: istockphoto, filadendron

APEX Insight: With miles no longer being the only marker of airline loyalty, old frequent flyer programs are being rehashed so travelers – frequent or not – can score points, even as they go about their everyday lives on the ground.

Frequent flyer programs have come a long way in the past 40 years. What was once a marketing device based on a simple value proposition (fly, earn points, get free flights) has morphed into a complex, revenue-generating network of partnerships, tiers and rules. According to an article in the Los Angeles Times, some analysts estimate that as much as half of all airline profits come from frequent flyer programs. Delta’s SkyMiles is thought to be the top earner at an estimated $21 million, according to a report released last year by management consulting firm On Point Loyalty.

But all is not rosy on the loyalty front, at least where certain travelers are concerned. Some former enthusiasts have become disillusioned by recent changes to how points are earned on flights, which has largely shifted from distance-based models toward ones that favor revenue. Snagged a great deal on a flight last Cyber Monday? You’ll earn fewer miles than your seatmate who paid more for the flight the following day, or the person two rows down in a higher fare class. Affordable flight reward availability is also on the decline, and redeeming points for other goods like magazine subscriptions or earning points at a partner hotel isn’t necessarily as instantaneous as click and buy.

Airline loyalty points have always been currency, but they don’t always feel like real money, especially for those who don’t or can’t redeem them. Opportunities to earn points through co-branded credit cards have existed for many years, but carriers today are looking beyond this model to give loyalty members the opportunity to earn and redeem points through several avenues. From Delta’s millennial overture and Norwegian Air’s CashPoints proposition to Singapore Airlines’ recently announced digital wallet and Qantas’ diverse offerings, airlines seem to be moving toward lifestyle loyalty schemes that encompass more than just travel.

Limited Spend

Millennials love to travel, but they don’t love to spend money getting from Point A to Point B. According to Skift’s “Portrait of the Millennial Traveler 2016,” members of this cohort prefer to spend their cash on experiences once they arrive at their destination. So, how do legacy airlines compete for this desirable segment if they can’t win on price? In the past, loyalty cards may have been the answer, providing enough perks to keep these carriers in the running. But that’s not likely to be the case in today’s revenue-based reality.

Sarah Silbert, points and miles editor at The Points Guy, a website dedicated to helping readers maximize their loyalty reward travel experiences, explains: “If you buy a discounted economy fare today, you might only be earning 25 percent of the miles you flew, whereas if you booked a more expensive fare, you would earn 100 percent.” There are of course other ways to earn miles, such as through co-branded credit cards, but those often carry a hefty annual fee. That’s why last September, Delta and American Express introduced a no-fee card that offers two miles per dollar spent at US restaurants and on Delta purchases, and one mile per dollar spent everywhere else. “It’s a small step, but it kind of acknowledges how millennials are spending their money,” Silbert says.

“If you buy a discounted economy fare today, you might only be earning 25 percent of the miles you flew, whereas if you booked a more expensive fare, you would earn 100 percent.” — Sarah Silbert, The Points Guy

The leisure market doesn’t seem made for loyalty schemes. If you only travel occasionally, how could you possibly earn enough points to redeem them for something as desirable as a free flight? Award redemption is a significant pain point for consumers, Silbert adds. There are blackout dates, taxes have to be paid in cash, and the saver rewards, or more economical flights, are scarce.

Low-cost carrier Norwegian Air’s approach is to remove a lot of the restrictions that deter less frequent travelers from redeeming their points. Norwegian’s CashPoints can be used to pay for any seat on any flight throughout the year, including taxes, or even just part of your fare. That’s because their value proposition is fairly simple: every 10 points earned is equal to roughly one British pound ($1.35). And after every six flight segments (including stopovers), a new reward of your choosing, like free seat reservations or bag check, is unlocked. The only caveat? It can take up to 14 days for users’ accounts to be credited, meaning CashPoints generated from a flight cannot be used to pay for a hotel or car rental immediately after. Many airlines’ loyalty programs are victims to this lag, but that might soon be in the past.

Streamlined Transactions

In February, Singapore Airlines (SIA) announced it would launch the world’s first blockchain-based airline loyalty digital wallet for its KrisFlyer members. Best known in relation to cryptocurrencies like bitcoin, blockchain is a decentralized digital ledger that records transfers and transactions within a network in real time. When the KrisFlyer digital wallet is rolled out in the coming months, “It will allow the extensive KrisFlyer membership base to instantaneously use digital KrisFlyer miles to pay for everyday lifestyle goods and services at participating retail merchants,” an SIA spokesperson says. “The first-of-its-kind lifestyle digital wallet app will use an SIA-owned private blockchain involving only merchants and partners.”

“KrisFlyer members will be able to pay for everyday lifestyle goods and services at participating retail merchants.” — Singapore Airlines

Back in 2016, Deloitte published a report advocating blockchain as the ideal solution for the “ailing” loyalty space, particularly when it comes to travel. Points could be more easily and immediately used with partners, such as at a hotel, or even traded among individuals (in an example, one person trades in excess airline points for another person’s hotel rewards), thus encouraging redemption and taking unused points off the balance sheet. Startup loyyal is banking on loyalty heading in this direction, developing a rewards platform built on blockchain that companies can use instead of creating one themselves. It’s already being put to the test by Emirates as a proof of concept.

Beyond Travel

In 2017, Qantas Loyalty brought in more money than the airline’s international ticket sales. The reward currency is such a powerhouse down under that Graham Witcomb, senior analyst at InvestSMART, an Australian investment firm, even called it the country’s de facto second currency. When you examine the intricacies of the program and how many subscribers it has (12 million, or about one in every two Australian households), you start to understand why.

Indeed, the benefit of being able to use your card in real time at brick-and-mortar locations – something often discussed by blockchain backers – is already happening in Oz, where you can pay for almost anything with your Qantas points, from a casual dinner out (with wine!) and a movie to your groceries. You can also earn points in unexpected ways, such as on your home loan every time you pay down your mortgage.

Qantas Loyalty’s CEO, Olivia Wirth, explains: “There are more than 200 partners in the coalition program, which gives members the opportunity to earn points or use them – and with some partners, they can do both. This means they’re engaged in the program and benefiting from it every day.”

“Data is at the core of the program and provides us with insights that demonstrate what our members want.” — Olivia Wirth, Qantas Loyalty

Digital technology is the backbone of many of Qantas Loyalty’s initiatives, Wirth says, adding, “Not only are we using it to offer members a more seamless travel experience through their mobile devices, but it’s influencing the partnerships we’re offering. For example, we’ve embedded the Uber experience in the Qantas app so customers going to and from the airport can book their ride through the same app they’re using to check in online. And they earn points on their Uber booking at the same time.”

In 2013, the carrier introduced Qantas Cash, a reloadable card that earns points with every purchase. It can be used in Australia or abroad and loaded with up to 11 different currencies all from your smartphone. In 2016, it next introduced Qantas Assure, where members can accumulate points on their health and travel insurance, as well as by logging
in their everyday physical activity through the Assure smartphone app. Yes, that’s right, insurance members get travel reward points for walking their dog or cycling to work.

“Data is at the core of the program and provides us with insights that demonstrate what our members want,” Wirth says. And data is why airlines need to figure out how to keep loyalty members on board and active. As consumers increasingly lead their lives with the help of their mobile devices, carriers will not only be able to create targeted travel messaging, but will be able to use that information, along with other technology, to create their own profitable marketplaces that members will actually want to use.

“Lifestyle Loyalty” was originally published in the 8.3 June/July issue of APEX Experience magazine.

This article originally appeared here via Google News