First Published, 1st March 2016
Ai Editorial: Having data feeds from multiple sources is paramount for airlines in their quest to understand what their customers will purchase next, writes Ai’s Ritesh Gupta
The complexity associated with tracking a user’s every digital activity is on the rise. Be it for a member of FFP, or someone who has booked with an airline or even a visitor to a desktop/ mobile site or mobile app, if a travel e-commerce brand isn’t blending fragments of customer data across various channels aptly then a competitor may act and garner the next booking.
So how many data points would an organization need to handle today?
Mark Ross-Smith, Chief Product Officer / Head of Loyalty, StayCorp, says there could be “in excess of 500 key data points” and an astute segmented program will have “over 1,000 unique, individual data points on each member”! Acknowledging the significance of data collection, he told me having data feeds from multiple sources is paramount for airlines in their quest to understand what their customers will purchase next. He added, “Data feeds come in all shapes and sizes, and the best sources originate from unlikely partners who have key metrics that might otherwise be unobtainable elsewhere.”
Overall, we’re seeing that the path to conversion in travel is not linear, and requires a specialised understanding of how to activate data at scale.
Consolidating data sources
As for the difference between first and third party data, first party data comes from your own internal sources and is used by you. It can take the form of email addresses, offline or online purchase history, subscription and social data, loyalty data, interactions with your mobile app, etc. Third-party data, on the other hand, is someone else’s first-party data that you’re able to use for your marketing efforts through a direct relationship with the data source, indirect relationship with a data exchange, or that you pay for.
As an advertiser, there’s so much data available and people should use it all, but it needs to be used intelligently. For example, first-party data is great because it gives you consumers that already have an affinity for your brand. However, it’s limited and restricted, perhaps to only those who’ve visited your website; certainly you want and need to reach a larger audience. That’s where third-party data comes in: third-party data is great because you reach a huge audience, but they haven’t been to your website so they’re less likely to have an affinity for you. If you utilize only one of these data sets, you’ll always be missing key consumers. Rather, it’s the combination of first- and third-party data that can be very powerful if managed properly.
At the end of the day, consolidating all data sources, learning as much as you can about your data assets/audiences, and deploying your data across all applicable channels is the absolute right approach. It’s not easy, nor it is accomplished overnight.
Also, data sources will include your hotel partners (especially independent hotels), telcos and niche social networking platforms but the flavor of the month is start-ups. Technology start-ups have some of the smartest folks driving innovation and disruption and through this they’re forced to find new revenue streams that break the traditional mould. In some cases - the data retained by start-up companies can be worth more in the hands of an airline & FFP when rolled out over a larger member base.
Unstructured data sets
Utilizing unstructured data sets can be a daunting task – but instead of burning through resources on data science teams trying to find the ‘one in a million’ breakthrough model – it can make sense to simply the objectives. By focusing on commercializing the data immediately with no fuss it will lead to greater revenue generation opportunities without the hassle of data scientists analytics and insights professionals. Treat each new data source individually and focus on formatting and structuring it so there are constant updates and that it remains accurate. By then focusing on commercializing individual data points one at a time – FFPs can build out their marketing platform in baby steps.
Being in control
On a concluding note, organizations need to be in control of what data they need to gather. There is no point in accumulating inappropriate details about customers. Of course, accurate and reliable data is a vital component of working out correct customer profiles. So is data-quality technology. Also, one needs to do away with siloed departments and out-dated data. There is a need to create APIs to bring all your data into a central place. And pave way for a mechanism for data sources to “talk” to each other. In terms of sophistication, today there are search-based interfaces available to assess guest repository, and also offer real-time recognition say in a contact centre.
Still one can’t expect magic overnight. Talking of the final output, specialists do point out that combining probabilistic data with CRM and transactional (deterministic) data in way that you can use the data safely and effectively in different contexts isn’t easy yet. As things stand today, achieving a perfect single customer view may not be possible.
But at least by focusing on the right sources of data, one can lay base for a strong foundation.
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Ai Editorial: Airlines, especially ones in the U. S., have been thriving on improved economics of respective co-brand contracts. This trend is set to continue, states Ai’s Ritesh Gupta
First Published 8th February 2016
The multi-party model associated with a card transaction is a complex one. And a big change such as one in interchange fees for card-based payment transactions can simply disrupt an associated stakeholder’s economic model.
For instance, referring to EU’s new regulation on interchange fees (IFR) which came into effect in December last year, Visa Europe pointed out that the development has the “potential to alter the economics of card payments (through interchange caps), to foster competition (through access to the current account, and elimination of territorial licences) and to drive structural change (through the proposed separation of scheme and processing)”.
It is rightly being pointed out that such regulatory changes are among many disruptive forces now hitting European payments. So how does it alter the equation for those involved in setting up a co-brand credit card? And if we talk of airlines in this chain, are they sort of immune to such changes at this juncture?
Regulations on interchange fees in Europe, UK and Australia are being rolled out by regulatory bodies.
With interchange rates north of 1% currently, the governing bodies in each stage are planning to cap the fee from 0.2% - 0.8% depending on the country and region of the transaction. Changes are already underway in Europe and while these are partner of larger regulatory changes – there will be an almost immediate impact on frequent flyer programs.
For banks – lower interchange rates fundamentally means less revenue from each card transaction. The hefty drop in fees obtained by the bank means they’re not able to pass on high earning rewards to consumers as an inducement for using the card. As such, we’ll see card products across the region begin to offer lower frequent flyer points as banks realign the costs to their newer, lower revenue associated with every card transaction. The logic behind limiting interchange fees is to wipe out card surcharging, reduce business expenditure on merchant fees – which governments want to see passed on as cost savings to consumers. How this will play out is another story to wait for.
Income benefits for airlines
To the advantage of the aviation industry, airline co-brand credit card programs are considered to be an attractive proposition by banks. Experts point out that customers typically spend far more on the airline card than on a typical credit card. Also, post consolidation in the U. S., there are less of the programs available to bid on, and the programs are much larger so this augments negotiating power of airlines. So carriers are strongly placed to garner monetary benefits.
Consider the case of JetBlue Airways. The team is gearing up for the upcoming launch of its new program relationship with Barclay card on the MasterCard network. This is scheduled for later in the first quarter of 2016. In late January, JetBlue indicated that it continues to expect annual incremental operating income benefits from the new agreement of $60 million.
For Hawaiian Holdings, its value-added revenue per passenger continues to swell and in Q4 grew by $0.40 to $22.25 and by $2.29 to $22.01 for the full year. The sale of HawaiianMiles was one factor that contributed to this growth. Importantly, HawaiianMiles sales also set a record for the year powered by account growth and stronger than industry average trend on co-branded credit card.The group also mentioned that Q4 performance of HawaiianMiles sales were further buoyed by a limited time 50,000-mile bonus offer, driving an increase in new HawaiianMiles credit card account growth.
Southwest Airlines also spoke about improved economics of the co-brand contracts few months ago.
It should be noted that American Express Company, in its Q3 earnings call in October last year, did acknowledge that the changes in its co-brand relationships reduced EPS by approximately 5% during the quarter. This estimate includes the impact of renewed co-brand relationships with Delta, Starwood, Cathay Pacific, British Airways and Iberia.
Talking of the U.S., it is interesting to assess the way the price of airline miles to banks has shaped up. Also, it is worth knowing as and when co-brand deals are renegotiated, how they pan out as per the prevalent competitive levels. What would be the key for airlines as they structure their co-branded credit card deals going forward. Can airlines exert additional control over the frequent flyer or reward point earn/ burn rate at the issuer?
As for banks, they do also make money from annual fees and interest on balances. In all likelihood, airlines are expected to devalue their programs, and would accept a lower price per point. But then what about flyers’ expectations?
If card issuers are forced to look at new avenues for revenue aside from interchange fees, one may find loyalty programs needing to become more innovative and forward thinking. While large sign-on bonuses and ongoing transaction fees pay the way for high profits into co-brand cards currently; with likely regulatory changes affecting many markets – it opens up new opportunities to cross-pollinate loyalty products in a new way that never seen before. The easiest way to achieve this is to follow the money, and place the highest recognition of value in that segment.
A source shared: “For example, we might begin to see retailers pay acquiring banks to bring new customers, and the benefits passed on to the end users when they shop at these retailers. This also represents a chance for frequent flyer programs to flex their creative muscle and use the might of their virtual currency in the real world where profit centers are not derived from interchange fees, but rather focused on leveraging their popularity and taking the time to ingrain their brand in a physical sense rather than being an ‘airline program’.”
So, yes, FFPs can sell their offerings to new partners, and make the better of contracts. But if the market is flooded with offers by airlines, it will turn into a position where the FFP brand is everywhere and consumers will ‘switch off’ to the brand because it’s no longer exclusive, offers them no greater value over the next program, and ultimately cheapens the brand in the consumers’ mind.
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First Published 8th February 2016
Ai Editorial: If loyalty is about superlative customer experience, then data holds key to achieving it
A host of factors are changing the face of FFPs. Ai’s Ritesh Gupta finds out how airlines are trying to revitalize their loyalty programs and offer an exceptional customer experience (CX)
The concept of loyalty is evolving as airlines’ FFPs are drifting away from what they used to be. Several factors are driving this change today.
There is a growing awareness of the limitations of the legacy FFP models (mileage-based). There is pressure on the limited award seat inventory of airlines that was initially intended and often priced to fill empty seats. Overall, FFPs continue to face capacity, regulatory, accounting and liability pressures. Also, in today’s age of instant gratification, carriers are now allowing members to accumulate points on groceries, utilities, gasoline etc. and redeem those points for a free flight.
“There is so much pressure on “yield” that many airlines cannot really afford a FFP, with costly administration and perks. Ultimately the biggest loyalty seems to be price and a decent CX,” points out Ursula Silling, founder and CEO, XXL Solutions. “Differentiation is crucial here and often being missed. - Part of the reason is that FFPs in the organisation are often separate departments. If there was one view on CX including ancillaries, they could become a vehicle to improve the customer experience and generate additional revenues and customer satisfaction and differentiation beyond the pure miles business.”
Change is taking place everywhere – from the U. S. to the U. K. to Africa to Philippines.
For instance, Cebu Pacific this year launched its GetGo lifestyle rewards program for frequent fliers, offering points on everyday spending. easyJet has introduced its Flight Club program, with passengers to be invited to join the loyalty scheme when they meet the qualifying criteria which are based around having booked and flown 20 or more flights and/or making a minimum spend with easyJet over a 12-month period. Among the others, the SAA Voyager programme changed from a mileage-based FFP to a fully fledged revenue-based FFP this year.
As a specialist in this arena, Silling highlighted several trends and developments pertaining to FFPs:
Areas of improvement
Redemption: FFPs today in most cases are very poor in terms of redemption, says Silling. “Airlines focus on flight redemption as the cheapest way for them. Yet they are careful in terms of availability as part of revenue management, to not lose revenue opportunities and dilute business. And taxes are so high now that customers often face the absurd situation that they have to pay almost the same amount in terms of taxes when they buy the flight with miles/ points versus when they buy directly the cheapest fare.”
Silling adds only a few airlines have added value in order to improve the redemption experience. For example Lufthansa are the strongest one in terms of non flight redemption with their Miles & More catalogue, offering anything from electronic goods to furniture, like a real mail order store. British Airways have added the opportunity to use miles to pay part of the flight cost, as part of the buying process. This has significantly improved redemption and also the perception of redemption value for customers.
Customer experience: In terms of CX, as Silling points out, a number of FFPs offer high value when being a top tier member - from pick up service at home, special lounge (example Virgin Atlantic and Etihad, with services such as massage, meal service at the table etc.), and other services to avoid any crowds and improve the airport experience. At many airports some of these become irrelevant: as the retail/ food and beverage experience is improving the quality of staying in a restaurant or cafe can often be better than being in a crowded lounge with poor or mediocre quality. Also airlines try to give additional information to crew, sometimes using iPad technology, with background about specific customers and FFP members, simply allowing to address them by name or to address any specific issues or opportunities.
Citing a couple of examples, Silling referred to Air New Zealand and Air Baltic. Air NZ has some interesting examples, including bank cards, for their customers, creating engagement with customers and becoming part of their loyalty approach. The other really innovative one is Air Baltic. You can even buy flowers or a meal to surprise someone else (your mother, friend etc.).
Relying on technology: Modern technology helps to avoid some of the pitfalls. For example, airlines suffer quite often from inconsistencies in on board service. Air New Zealand integrated an on demand function for the on board service. Similar to a restaurant the customer can order via the IFE. Similarly, an automated check in service as introduced by Lufthansa and Swiss helps to avoid potential pitfalls at check in. Air New Zealand and Lufthansa introduced automated bag drop off at some of their key airports in order to support this further. Human interaction comes in where it is relevant. And here airlines should then just use well trained people - trained in terms of hospitality and customer service, learning also from retailers such as John Lewis, not just the processes and regulations.
Capitalizing on social networking sites: One example that is worth mentioning is Eindhoven Airport. As part of their strategy for better CX management, they have developed the Facebook VIP program. The program offers customers to be in with a chance of a unique VIP experience including a specially designated parking space, personal guidance through the terminal, Facebook VIP check-in desk, free breakfast, lunch or dinner and fast track at security. All passengers need to do it fill in flight and contact details on the specially created Facebook app. The campaign has massively increased the airport’s Facebook following, marking it as one of the pages with the highest engagement rates in the Netherlands.
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How to deal with disruption as the new normal, especially in the arena of loyalty, is going to be discussed at the Hamburg Aviation Conference 2016, scheduled to take place in Hamburg (Feb 10-11, 2016).
Guest Editorial by Aaron Carr, CEO, Friendefi
With loyalty program membership levels hitting new worldwide records and U.S. households only active in 12 of the 29 programs they belong to1, its no wonder that member engagement is an increasing priority for loyalty programs.
Enter gamification, the practice of using game mechanics to make otherwise regular tasks and activities more fun to do. Loyalty marketers are increasingly viewing gamification as a complementary approach that can help strengthen their own customer engagement efforts. As cited last year in The Wise Marketer, companies are increasingly incorporating gamification through their digital channels in order to encourage customers to interact with them and to elicit important information from them2. This has great importance for customer engagement, The Wise Marketer argues, because loyalty program members can be more readily engaged in contests and polls to capture demographic, preference, and purchase intention data.
But, the opportunities to boost loyalty program member engagement don’t end with better data capture. In an increasingly digital world, gamification also offers a framework for motivating members to learn about your program, interact with partner offers, and to share (or even compete) with their friends. American Airlines’ AAdvantage Passport Challenge offered loyalty members the opportunity to earn stamps for their digital passport as well as miles for completing various AAdvantage program and partner games and trivia from their computer or mobile phone, netting the airline a significant increase in purchasing at partners during the promotion as well as a 500% ROI3. Customers reported spending 15-20 minutes playing the various games and trivia, which tested their knowledge of American’s AAdvantage program and partner offers.
Air Canada has also adopted gamification to boost flight behaviour amongst its most frequent flyers with their ‘Earn Your Wings’ promotion each Fall4. The promotion pits flyers against one-another on a leaderboard in an effort to see who can travel the furthest during the promotional timeframe. Air Canada has evolved this promotion over the past 3 years and now only targets their top flyers who demonstrate a healthy appetite for competition. Participants are motivated to check their standings regularly, in particular after recently taken flights.
Social sharing and advocacy is another important feature within most gamification frameworks. Many ‘gamified’ promotions encourage participants to share brand messages and to invite their friends to join. This can be even more powerful when loyalty currencies are on offer. Aeroplan piloted social referral last year with their Connections campaign (in partnership with Air Canada) offering existing members miles for getting their friends to enroll in the program. The campaign provided participants with an online dashboard showing how many friends accepted their invitations as well as their progress towards their rewards goals.
Gamification is still a young practice, especially amongst loyalty marketers. But with multi-channel engagement an increasing priority amongst programs, it will undoubtedly play an increasingly important role in the years ahead. To find out more about gamification, you can check out Friendefi's website or contact via email Aaron Carr, its CEO.
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Gaining an upper hand as a stakeholder in the arena of airline co-branded credit cards is always an interesting saga.
In this context, it is fascinating to assess the extent to which airlines tend to rely on credit card issuers for “buying of miles”. Is this dependency going down? What sort of control can airlines exert over the frequent flyer or rewards earn/ burn rate at the issuer?
Also, it is important to assess how the regulatory environment on interchange fees for card-based payment transactions, says in a region like Europe, is going to impact the ties between stakeholders of an airline co-branded credit card.
These are some of the vital issues as things stand today.
Ai’s Ritesh Gupta interacted with RFi Consulting’s MD Lance Blockley regarding how the scenario is evolving, how rewards earn and/ or burn rates on consumer co-brand credit cards are likely to shape up, what happened in Australia when The Reserve Bank of Australia (RBA) intervened and lot more. Excerpts:
Ai: As an airline co-branded credit card holder, if you were to assess the major utility/ attraction of using such cards, what would it be?
Holders of airline co-brand credit cards have them for the airline loyalty points that they can earn. In some countries these cards have no annual fee, and therefore whatever frequent flyer points you earn on the spend is all “upside”. However, in those countries where there is an annual fee on these credit cards, our analyses have shown that there is always a minority of the cardholder portfolio who don’t spend enough on the card to earn back the annual fee in frequent flyer points - these cardholders would be better off not taking out a rewards card.
Ai: Co-brand deals are generally complicated relationships between multiple stakeholders. Is there any major development that you would like to highlight?
There is always tension between the payment acceptance (ticket selling) side of the airline, which wants to pay the lowest Merchant Service Fee and Interchange rate on the transaction; whereas the bank issuing the co-brand credit card wants to receive the highest possible Interchange rate, as many issuers around the world use this revenue stream to fund the frequent flyer points that they are buying from the airline as part of the co-brand programme.
Some of the co-brand programmes are set up not only to purchase frequent flyer points from the airline, but also to contain some form of profit share in the credit card portfolio. This usually becomes contentious as neither party feels that they are being adequately rewarded from the business.
A further area of contention is the marketing and new cardholder acquisition of the co-brand portfolio, usually both parties (the issuing bank and the airline) feel that the other could be doing more and better leveraging their assets (e. g. airline magazines, business lounges, etc) to get more cardholders. Also, depending on the profile of new card applicants, the airline can sometimes become upset by the rejection rate on new applicants due to the issuer’s credit assessments.
Ai: Talking of Europe, what do you make of the regulation on interchange fees for card-based payment transactions – interchange fees will be capped at 0.2% for debit cards and 0.3% for credit cards?
Because commercial cards have been “cut out” of the legislation and usually get high use by frequent business flyers, there is likely to be a focus on expanding co-brand commercial credit card programmes - where the higher interchange rates will support a strong frequent flyer points earning offer.
The rewards earn and/ or burn rates on consumer co-brand credit cards are likely to decline (as they did in Australia in 2003-4, when interchange rates fell from 0.95% to 0.55% due to the Central Bank’s intervention), as the interchange revenue stream to the card issuer will decline and most use this to fund the purchase of frequent flyer points from the airlines. Hence the airline frequent flyer programme revenues from co-brand consumer cards may fall, although this could be offset by an increase in the amount of card transactions.
Ai: Considering that airlines manage their co-branded credit card differently for different countries, what sort of impact do you foresee on fee-free credit cards, cashback payouts etc. as a result of interchange caps? What should airline watch out for?
In Australia, when the Reserve Bank of Australia (RBA) interventions occurred in 2003, just about all credit cards saw an increase in annual (and other) fees and a number of issuers brought in an additional fee for rewards programme participation.
These higher fees did not put off cardholders who were really high spending on their cards and relished earning the airline frequent flyer points, but they did slow down participation at the lower spend end of the market , which probably should not have a rewards card anyway.
The earn and/ or burn rates on co-brand credit cards are likely to be changed by the issuer, in a downward direction. Subject to contractual arrangements, the airline may or may not have any say on these levels, and therefore should keep a close eye on what is changing.
In addition, the issuing banks often view airline frequent flyer points as the most expensive rewards/ loyalty option that their cardholders can choose. Hence they often try to steer cardholders into the bank’s own proprietary rewards programme, where the bank has full control over the cost of redemptions i.e. setting the number of points needed to redeem for a gift card or a return ticket to city X - many banks form linkages with travel agents and just buy airline tickets on the open (often cheap) market.
Ai: Even after the RBA regulated interchange down to a weighted average of 0.5% on MasterCard/ Visa in Australia, the co-brand card market and the loyalty points associated with many of them still continued to flourish. What does this indicate as far as the market for airline co-branded credit card is concerned?
It indicates that, if a cardholder thinks that they are getting something for nothing, changing the “exchange rate” (i.e. the earn and/or burn rate on frequent flyer points) on the points does not change the premise that “I’m getting something for nothing” – even if the rate of earning the “something” has diminished. Plus, in Australia at least, more and more of a household’s expenditure is going on to payment cards (displacing cash and cheques), so to some extent the reduction in points earn rate can be offset by the cardholder increasing their spend on the card - hopefully without getting into any credit difficulties.
Obviously inflation and economic growth also help grow overall card spend to grow in dollar terms.
Ai: What according to you would be the key areas for airlines as they structure their co-branded credit card deals going forward?
If I was an airline, I would want –
· Some form of control over the frequent flyer or reward point earn /burn rate at the issuer
· Some form of control over the fees being levied on cardholders
· Access to the cardholder transactional data, for example so that I can see when my co-brand cardholder spends money buying a ticket on a competing airline
· Maintain the pricing on my frequent flyer points to the card issuers, and take care having different prices to different issuers - as it is a very incestuous business
· Maintain the pull of frequent flyer points for the consumer (making them a “must have” for a bank’s credit card portfolio), and fight a rear-guard action against the bank’s in-house proprietary rewards programmes.
Outside of the USA, the profit margins on credit card operations are likely to decline, so you might want to avoid profit sharing arrangements, but rather maximise the revenue achievable from selling frequent flyer points.
Plus I would not rely on the frequent flyer point revenue from credit card issuers growing as fast in the future as it has been in the past.
Ai: How do you foresee airlines gaining desired price for mileage sales, and selling more miles? What would you make of concern pertaining to money available to fund mileage payments going down and these impacting airlines in a negative way?
There are plenty of other financial services products, outside of credit cards, on which financial institution partners could offer frequent flyer points as an inducement to their customers/ prospects to act in a certain way; for example, frequent flyer points when you renew your mortgage, term deposit or other instrument.
Similarly there are plenty of businesses outside of financial services that might want to offer frequent flyer points as an inducement to their customers/prospects to act in a certain way; for example, in Australia, BP gives Virgin Velocity points on purchases of petrol, etc from its outlets; just as hotels have given frequent flyer points in the past.
But you can’t get away from the fact that, via high interchange rates (which come through in the Merchant Service Fee), merchants who accept credit cards have been funding, at least in part, the purchase of frequent flyer loyalty points from the airlines’ loyalty programmes. The level at which this has occurred in the past is certain to decline.
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Understanding the game of dynamic pricing and reward seat availability
One factor that seems to be annoying a lot of customers these days is the availability of the lowest cost award tickets. Ai’s Ritesh Gupta explores why airlines are going ahead with dynamic pricing
All the talk about frequent flyer programs proving to be a value asset for any airline is incomplete if the loyal customer is frustrated or dissatisfied. But is this really an area of concern for carriers?
In fact, it is being highlighted that what works for a passenger isn’t adequate for airlines in financial terms.
So what is it that’s forcing airlines to change their approach toward FFPs?
Cameron Trant, president at Trant Consulting says airlines first and foremost are concerned with losing rather than gaining in the FFP game. He explains: “History has shown that airlines that have tried to hold out on having a program, such as Southwest, Swiss or Singapore all discovered they were losing market share within the high yielding business segment and eventually initiated a loyalty program of their own. I think that only after coming to the realization that a FFP is a critical part of doing business do airlines then look to try and monetize the program itself, primarily through partnerships that purchase mileage from the airline.”
Award ticket pricing
So what’s annoying flyers today? One factor that seems to be annoying a lot of customers these days is the availability of the lowest cost award tickets.
Typically airlines have very sophisticated inventory management solutions and often they only allocate the lowest awards to seats they feel would otherwise go unsold. As Trant points out, however as load factors have increased from the low 70th percentile to the low 80th percentile over the last decade, the number of seats going unsold has been drastically reduced – especially on flights around holidays, or any peak travel times for leisure customers.
“Airlines have to walk a delicate balance between risking long term revenue potential by alienating customers that perceive they can never redeem their miles, and maximizing their short term revenue potential on any given flight,” says Trant.
In terms of how airlines are going about reward seat availability, a survey by released by IdeaWorksCompany in May this year indicated that increasingly more carriers are governed by “accounting regulations that allow airlines to post revenue to their income statements only after a member redeems miles or points”. Overall, airlines “are continuing to be more generous with reward seats”. The average for all airlines for 2010 was 66.1%, which increased to 74% this year.
Still there already has been quite an uproar about revenue-based award tickets.
As highlighted by IdeaWorksCompany, a major development last year was Delta’s decision to go for revenue based mileage accrual this year. This ranges from five points per dollar spent on base fares for members without status, and up to 11 points for Diamond level members.
This meant that the new approach would result in a “windfall of miles for members paying higher fares”, and at the same time, it curtails the overall mileage accrual for members without status booking saver-type fares.
So a regular member buying a $316 roundtrip Atlanta – San Francisco ticket accrues 1,580 miles in 2015; that same trip delivered 4,278 miles last year!
The big question over here is the way airlines modify the value of miles.
It is being highlighted that a majority of awards are anyway not going to be relevant to those who are associated with relatively lower earning rates. This essentially means that it would take them a lot more time to earn the requisite mileage for that particular seat.
Trant says, “Airlines have historically used very complex systems for making pricing and inventory decisions for revenue tickets, however their award ticket pricing has been relatively static – meaning it is the same cost for a customer who wants to fly on a off-peak day vs. someone who wants to fly on a peak travel time as long as the inventory was available.”
He adds, “With dynamic pricing, the airlines hope to apply the same sophistication to properly price award tickets. If you are a consumer that is willing to fly the redeye flight or travel on Tuesdays you may actually benefit, if however you are only a weekend warrior you may find yourself paying significantly more miles than you have been accustomed to.”
Commenting on the non-availability of mileage award charts (such as Delta stopping publishing of charts), Trant says, “If you were to equate frequent flyer miles/ points to a currency, the airline itself has extremely broad powers to set the value of the currency.”
According to him, what the airlines are doing through dynamic pricing is an attempt to optimize the cost of award tickets in the same manner that they do with revenue tickets.
In its simplest form, if a particular flight has a high demand for award travel, the airline would increase the required miles to redeem on the flight until the demand met the available supply, while simultaneously burning the maximum miles possible, says Trant. Although the actual variables that an airline may factor into the final pricing may vary greatly (flight demand, elite status, past purchase history, propensity to purchase add-ons etc), the end goal is to optimize the revenue gained and/or mileage burned on every flight.
Writing on the wall
It is clear that how much a passenger spends is now having a big impact on the future of FFPs.
With the growth of low cost and ultra-low cost carriers, legacy carriers have found themselves having to offer deeply discounted fares during times of low demand in order to achieve their target load factors. These low fares, while good for stimulating demand, are also prime targets for a practice called mileage runs, where a customer takes a flight with no other intention other than earning the maximum number of miles for spending the least amount of money in order to obtain elite status, explains Trant. He adds: Another less nefarious example, but one that can happen under a mileage based program is the case of where one customer who flies from North America to Asia and can earn the top tier in as little as 4 or 5 roundtrips, while a customer that commutes domestically every week 1K miles each way, but takes off 4 weeks for vacation and holidays, comes just short of the threshold necessary.
“A revenue based program would hope to correct both of these situations by removing the incentive to take mileage runs, giving an opportunity for the Asian flier to still achieve elite status provided he or she is buying full fare or business fare tickets, and reward the almost weekly flier who would certainly make the threshold due to the sheer volume of their purchases,” says Trant.
He also asserts that switching to a revenue based system is not a panacea however.
“By tying points to a specific spend, it becomes an easy equation to determine the value of those points. Consumers can then easily make all sorts of calculations as to whether the value received is worth the value spent. In addition, FFP partners know that same equation, so it will be much harder to negotiate premiums for the perceived value of points that the partner is purchasing from the airline when they are publicly pegged to a specific value.”
As for consolidation in the U. S. industry impacting FFPs and redemption, the jury is still out as to the complete impact this will have on FFPs.
“In some cases the changes are almost immediate – for instance I was able to shop an award itinerary last week that had a connection in Charlotte in one direction and one in Chicago in the other (thanks to the AA-US merger), but many other impacts could take years to develop,” shared Trant. For instance, airline co-brand credit card programs are highly sought after by banks due to the fact the customers typically spend far more on the airline card than on a typical credit card. Now through consolidation there are less of the programs available to bid on, and the programs are much larger so this puts extra negotiating power into the hands of the airline. As Trant says, only time will tell if this results in better product offerings for the customer, or if the airlines will focus solely on getting better financials for themselves.
Embracing a full-fledged revenue-based FFP - assessing how SAA did it
Suretha Cruse, South African Airways (SAA) Executive: Customer Loyalty talks to Ai’s Ritesh Gupta about how the airline moved from a mileage-based FFP to a full-fledged revenue-based FFP.
What would it take to come up with a relevant and engaging loyalty proposition? This is one question airlines across the globe are trying to answer as they continue to remodel their respective frequent flyer programmes (FFPs).
FFPs continue to face capacity, regulatory, accounting and liability pressures, notwithstanding the fact that we compete for “share of mind” in an over-crowded loyalty environment whilst weathering the storm of a highly competitive and technology-smart era, says Suretha Cruse, South African Airways Executive: Customer Loyalty.
Cruse there is a growing awareness of the limitations of the legacy FFP models [mileage-based] due to an increase in the line-up of partners for greater customer participation which continue to put more pressure on the limited award seat inventory of airlines that was initially intended and often priced to fill empty seats.
“It is therefore no surprise that the widening of the target audience to include low and medium frequency travellers, primarily to generate more third party revenues for the FFP, undoubtedly provoked the evolution of FFPs from mileage-based to revenue-based models to fully leverage the interests of members, partners and shareholders. Monetizing the value of a mile /point with appropriate mobility for personalised customer convenience is a core challenge for any FFP from a customer loyalty perspective,” explains Cruse.
From a customer perspective, the SAA Voyager programme changed from a mileage-based FFP to a full-fledged revenue-based FFP effective February this year. Cruse says, “The move was singularly aimed at becoming more generous and by instilling transparency and fairness in the accumulation of Miles (1 Mile for every ZAR 1.60 spend) for the primary brand [SAA] with our most valuable customers; hence ensuring more efficiency in terms of customer retention.”
It furthermore enabled SAA Voyager to attach a transparent economic value to the mile for SAA exclusive support (accruals and redemptions) with its 5% return commitment; 5% of ZAR 1.60 = 8 ZAR cents. In other words, ZAR 10,000 spend on an SAA-operated flight will give a member ZAR 500 (6,250 miles) to spend on a future SAA-operated flight and the same amount of miles will count towards tier status within SAA Voyager.
SAA Voyager has furthermore implemented a dual approach for flight redemptions:
Cruse also shared that from a commercial perspective; the SAA Voyager programme changes were aimed to unlock asset (customer and financial) value by changing to a full-fledged revenue-based FFP.
“This intervention was furthermore a step-change towards commercialisation of the division and formed part of the first stage of reform to improve the efficiency, alongside the implementation of required administrative changes to the operation and management of the programme as a division of the airline [SAA],” shared Cruse. “The commercialisation of SAA Voyager enabled us to capture opportunities for greater efficiency and optimum service delivery, in addition to ensuring a clear business definition for future commercial sustainability, to the benefit of all stakeholders.”
So what are the major challenges that airlines need to face while embracing revenue-based FFP?
Reflecting upon the experience, Cruse says there are a few hurdles, but with a diligent approach, solutions will come at the speed of light to mitigate reputational risk.
“Moving from an “instant gratification” model (accruing of miles/ points based on distance travelled with %-based accrual calculation rules engine) to a “delayed gratification” model (accruing of miles/ points based on uplifted pro-rated sectors flown) is a significant mind-set change for mileage junkies,” she says.
There are other areas, too, where one needs to focus.
For instance, the role of the revenue accounting system while switching over to revenue-based FFP shouldn’t be underestimated at any cost.
Cruse says it’s a critical success factor for this journey.
The role of revenue accounting’s processes and their feeding systems are measured as a critical stakeholder in this transition to achieve the desired outcome. “The migration of our revenue accounting system to a new system (a major migration for any airline) was scheduled for implementation five months prior to the FFP re-launch. However, due to unforeseen challenges on their side, their migration took place after we re-launched our FFP model. We in the end offered a “delayed gratification” of between 15 to sometime 60 days in lieu of a maximum of 4 days,” shared Cruse.
What to expect
The industry is referring to revenue-based FFP as a major development.
This trend will continue and eventually evolve to a full-fledged FFP model, asserts Cruse. “The most frequently asked question is if customers are benefiting from a revenue-based FFP model. The mere fact that the short answer is “yes and no”, should put into perspective the disparity of the legacy model [mileage-based] over time,” says Cruse. “High yield customers will praise you for rewarding them equitably, whereas low yield customers will feel deprived – sometimes through no fault of their own, but rather due to competitive pricing amongst airlines on selected long haul routes. “Taking away” from loyal customers, even if relatively minor, can ignite a firestorm of opinions on social media platforms.”
The premise of rewarding your best customers based on monetary value spend, has worked well for other industries’ loyalty programmes (financial, hospitality, retail, etc.) and members alike and therefore FFPs should be no different.Suretha
Suretha will be speaking on this topic at Mega Event in San Diego which is taking place on the 4/5th of November. More information at www.MegaEvent15.com
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Combining all valuable data sources into one customer hub – how to make it work?
What’s impeding the effort of airlines to fully capitalize on the prowess of personalization? Ai assesses the same, featuring recommendations from Boxever and OpenJaw
Advancements in data analytics and how the same paves way for understanding the intent of the customer is one area that is being followed closely.
As Datalex’s CEO Aidan Brogan puts it, the effort is in combining all valuable data sources into one customer hub and ensuring that the commerce system can turn an insight into an offer.
It is also vital to ensure that passengers are duly recognized across every digital touch point. In this context, it becomes imperative to have a single view of the customer. But then there are still hurdles in attaining the same.
Ai’s Ritesh Gupta spoke to senior industry executives about some of the crucial areas related to personalisation and analytics:
Boxever’s CEO Dave O’Flanagan explains there are several key points to being data-driven:
1) Understand why you’re doing it. There’s no point in building a large repository of data unless you’re clear on the RoI and can clearly demonstrate the business value to your organisation, which can be direct revenue, says O’Flanagan.
2) Start small. Deploy the solution in your digital channels first, focusing on minimizing integration while and maximising impact. “We find that web, email and mobile are great places to start then expand to call centre, operations, in-flight and beyond. This allows you to build the business case to deploy the solution across your organization,” says O’Flanagan.
3) Hire the best talent. O’Flanagan says data is useless without people to help you understand it and translate the insights into personalized customer experiences.
4) Align your organization. Omni-channel can mean omni-department for your organization and key functions will need to work together to make it a reality. “We’ve found that the organisational challenges in achieving true omni-channel are every bit as difficult as the technical ones,” says O’Flanagan.
O’Flanagan says, “In our experience the toughest part of creating a single view of the customer is that it requires many departments to work together for a common purpose.”
He says coordinating this against other priorities, aligning on common goals, allocating resources, defining ownership of the new SCV (single customer view) - these are all new efforts for many of these departments, who have traditionally worked within their own silo. “Orienting around the customer really means transforming how the company thinks about its data, resources, and operations. Part of Boxever’s approach to addressing this challenge is helping companies understand the organisational as well as the technical challenges to doing this,” says O’Flanagan.
Mark Lenahan, VP of Product Strategy at OpenJaw says the biggest barrier to a single customer view is the persistence of technology and corporate silos, per customer touch point, as opposed to the creation of a single platform for retailing.
According to him, a single platform is one where the airline can leverage its buying power to present any product in any channel. “For example, contracting a hotel takes effort (direct connect or channel manager integration takes a different kind of effort), but why repeat it for every airline brand and again for the holidays company and again for the loyalty program?” questions Lenahan. He further probes and says: from the customer’s point of view, why are they seeing entirely different hotel products on the airline.com website than they see on the airlineholidays.com website, or the airlineffp.com website, and again on board the plane? Why are they seeing different offers in-line, before they ticket, than post sale, after they ticket, pre-departure and on-board?
“I'm not saying every product must be visible in every channel. What I do believe is that the decision of what products to offer where should be a business decision, not a technical one,” he says.
At this point, not only do very few airlines have a true multi-channel single-platform approach to travel retailing, they also don’t have corporate structure to support retailing. There isn’t a single person who can own the business case for a product across all channels - direct/ indirect, web/ mobile, holidays, loyalty, on-board, at destination etc., added Lenahan.
Technology is making progress when it comes to identifying a customer in the multi-device environment.
“My view on this is that the suitability of probabilistic methods depends on what you are going to subsequently do with that assumption of identity,” says Lenahan. He says if you are using aggregate data to discover patterns in consumer behavior, probabilistic is probably fine within error bars that your data scientists and analysts will understand. “Likewise if you are targeting advertising, you only need a good percentage of hits, and even the misses are quite likely to be similar people,” he says. “Although it is based on cookies, I like Amazon’s multiple levels of authentication. They welcome you back with an assumption, but you still need to deterministically “log in” to view account details or complete an order.”
Lenahan says he also thinks customers have a right to some transparency here. If a consumer has a reasonable expectation of anonymity and they are not in fact anonymous, the airline risks some reputation damage “if they abuse that and get caught,” warned Lenahan. “There should be a way for any consumer to see the standard, anonymous market price for example. I think common sense will prevail, and no matter how clever you think you are as a retailer, you can't outsmart a market (in the long run) and you shouldn't try. Ultimately, retailers work for the customer not against them and they mustn’t forget that,” he said.
O’Flanagan says right now the strike rates for generic matching based on cookies, IP and other environmental factors are pretty unimpressive but if you can look at booking information, search behavior and other travel-specific factors the match rate increase significantly and this is where travel-specific solutions have the edge.
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The onus is on airlines to make the most of customer data and information they have, and integrate it with every aspect of their FFPs. We find out more in our chat with Deborah Merrens, head of marketing, Global Blue
From A Traveller’s Lens
A disjointed experience or even letting loyal customers question the prowess of airlines in recognizing them are some of the bigger issues that FFPs are facing today. The game has moved on from just worrying about redemption or chasing a particular status.
Loyalty programs need to come across as our able ally. Just the way we expect simplification and automation in the most of tasks we are doing today, one would expect airlines to churn out “surprise and delight” experiences driven by their data infrastructure. So say as you access your next flight schedule on your preferred mobile app, a link pops up that ends up offering you a deal for a hotel room that you had searched for 24 hours ago! Yes, today’s travellers love surprises, don’t like to go through mundane routine associated with a trip etc.
Airlines need to spot ways how to do so and if it can be monetized then it can lend a new dimension to the concept of loyalty.
Here we hear from Merrens about how according to her loyalty is evolving. Excerpts:
Ai: If you were to assess loyalty as air passenger, what makes you happy?
Increasingly it’s about personalising the experience for me rather than collecting more miles or chasing status. (So be it for) making it easy to check in, get the seat I want, board when I want, or get the baggage allowance I want/ need - take the stress and hassle and I’ll be happy.
Ai: So how is it shaping up?
This is probably already happening in premium cabins, but the traveller expects the same when he is down at the back. This suggests - custom benefits, custom propositions and custom interpretation of the rules are going to be important and true drivers of loyalty.
Ai: Can you share your loyalty/ reward program disappointments? What’s your biggest pain-point till date?
There are two areas of disappointment:
Ai: What would you count on as the biggest development as well as the challenge in loyalty today?
The first one would be the shift from miles to revenue / quasi-revenue based – and it’s going to shake the whole industry and potentially cast a lot of “Y” travellers down to the purely price based world.
Also, it need to be noticed that ancillary benefits / sales are overlapping with loyalty benefits and the airline trying to sell you something you previously ‘earned’ for free, potentially negates long term loyalty in favour of short term benefit / service bidding. he net result of this is that the “Economy” space ends up looking like a low cost carrier.
Ai: How is data helping in understanding the motivations travellers may have to enrol in a loyalty program?
At the moment not many people are doing this well - usually using data for offer targeting and little predictive or real time use of data. Where this needs to go is to move to custom pricing where you will get flight and benefit package pricing based on an intimate understanding of your behaviour, needs and capacity to buy. This sort of custom proposition could be the new loyalty. No one is really there yet.
In addition to pricing, custom benefit serving and delivery would be something that they can do for the member to keep them happy.
Where the smart data and ancillary sales do come together is where the FFP becomes a big affiliate platform making targeted sales offers (and a margin) from a myriad of different journey vendors (cars, parking, stores, duty free etc.) eager to sell the traveller something. In this context, trust, respect for privacy and preference are critical. If the FFP is going to offer you less but sell to you more, you had better have a pretty strong relationship to stop people heading for the door.
Ai: What role do you think data analytics is playing in the arena of loyalty – for instance in improving upon merchandising redemption and the overall experience of flyers?
Most programs are talking the talk on analytics but not delivering. On the non-air redemption side the big question is can the advanced analytics become like Amazon for targeting content and offers.
Ai: What should be the major priority of airlines today especially when airlines are not only expected to recognise a loyal flyer, but achieve top-notch personalization? So it would be offering what a loyal customer is looking for during his or her journey.
Ai: What do you make of mistakes that airlines can commit when it comes to redeeming miles for merchandise? For instance, critics often talk about relatively lower cents per mile for non-travel products offered?
It’s not lower really, it’s just that flights were always priced too cheaply, so that the insiders who could play the system got all the seats, but everyone else got a raw deal. The internally charged cost of flights needs to rise to reflect a more commercial value. This may feel like a bad deal for members and it might even spell the end of some weak FFPs. The smart ones will find more ways to put more miles in peoples accounts and increase the overall value of the member. With higher value members delivering more revenue, the FFP can find a way to subsidize that seat. Eventually it goes the way of Amex.
Deborah Merrens, head of marketing, Global Blue, spoke at the FFP Loyalty Conference, a part of the 2nd Annual Mega Event Asia-Pacific in Singpoare on the 1st and 2nd of September. Similar issues will be covered at the global Mega Event in San Diego this 4th and 5th of November.
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Our chat with Nik Laming, General Manager – Loyalty Division at Philippines’ leading carrier Cebu Pacific Air, who spoke at the FFP Loyalty Conference, a part of 2nd Annual Mega Event Asia-Pacific (held in Singapore, 31st Aug 2015 – 2nd September 2015).
From a Traveller's Lens
From A Traveller’s Lens
Airlines today are not only expected to recognize a loyal flyer, but achieve top-notch personalization, too.
If one has to deliver a consistent and yet tailored experience to members then it is imperative to clearly define processes and execute flawlessly, asserts Laming. Laming says there are many moving parts in the airline business and the loyalty program is a tool that helps to identify customers and customise offerings to their needs but only if the organisation can operationalize the good intentions.
For its part, Cebu Pacific launched its GetGo lifestyle rewards program for frequent fliers (over 1.4m) in March this year. It allows members to accumulate points on everyday spending (on groceries, utilities, gasoline, etc.) and redeem those points for a free flight. Laming spoke in detail about what needs to be done to ensure a loyal passenger gets his or her due in an interview with Ai Correspondent Ritesh Gupta.
Ai: If you were to assess loyalty as an air passenger, what makes you happy?
As a loyalty member I am happy when the core benefits are done well – don’t give me non-air rewards and frilly extra’s to paper over the cracks of a fundamentally flawed program. Make sure I can get redemption flights when I want them albeit at variable rates. Tier qualification is poorly done sometimes – for example only business or first contributing to top status is too restrictive and just isn’t viable in this day and age.
Ai: What would you count on as the biggest development as well as the challenge in loyalty marketing today?
(It would be) The member revolution powered by smartphones and social media. People are more connected, more vocal and more demanding than ever before. A small issue coupled with a canny member can result in wide spread social media unrest if not managed carefully. And the speed of change and reduction in reaction times required to manage this new world are a big challenge.
Ai: The onus is on marketers to serve the customers in the best possible manner by being data-driven. What does it means to you, and how actually do you think one can excel in an omni-channel environment?
Getting the basics right is vital. There is effectively an agreement between the program and a member whereby data is exchanged for rewards. Using the data with respect and to improve customer experience is the key. We currently operate across multiple channels including web, mobile, call center, Facebook, Twitter and Instagram – monitoring all the channels and having the tools in place to enable a single view of customer communication and respond is critical.
Identifying customers across proliferating social platforms, devices and channels is difficult and becoming more difficult every year. Having the right technology in place to knit together the different streams of data is a good start but there are often gaps. These gaps mean that customers do get frustrated as they are not addressed as one individual. It is an area of focus for every organization to solve in the near future.
Ai: Can you cite examples where you feel you have excelled in offering what customers expect from loyalty?
GetGo is a very new program so the best is yet to come. However we have built in some best-in-class features to deliver above and beyond expectations from launch. These include any seat redemption, points pooling, dynamic top up and an expanding range of earning opportunities.
Ai: Where do you think airline loyalty programs generally are going wrong – from both technology and operations perspective?
There are inherent issues with airline loyalty programs with broken commercial models, complex technology and omnichannel customer service. Most programs from legacy carriers suffer from a lack of award seat availability due to the underlying business model and conflict with revenue management.
At Cebu Pacific, we did not originally anticipate the need to view Instagram as an inbound customer service channel. But we had to adapt our process to accommodate it after we received a complaint as a comment under a photo we had posted.
Ai: What role data analytics is playing in the arena of loyalty – for instance in improving upon merchandising redemption and the overall experience of flyers?
Data analytics underpins the ability to deliver a tailored experience and appropriate offers in the most efficient way. Applied correctly the insights derived from analytics are the most powerful aspect of loyalty marketing. Simple profiling and targeting remain very effective.
The ability to deliver real time and highly targeting messages has finally enabled marketers to answer the conundrum of right customer, right place, right time with the right offer. Predictive modeling adds another dimension to aid targeting and improve marketing efficiency. Differentiated service and offers are only made possible with data analysis. So the role of data analytics is simply huge.
Ai: What would you term as major priority today especially when airlines are not only expected to recognize a loyal flyer, but also achieve top-notch personalization?
Process and operationalization do not tend to be viewed as a major priority for marketers. However if you are going to deliver a consistent and yet tailored experience to members you have to be able to both clearly define processes and execute flawlessly.
Delivering benefits such as priority boarding or baggage handling requires consistent process across wide networks. As campaigns become more complex and multi-dimensional the need to manage them efficiently relies on process. Points programs are essentially mini banks but managed by marketers. Without well defined processes to award and redeem points and secure data programs are frustrating for members best case and worse they are open to fraud and abuse.
Ai: What’s on your agenda for Cebu Pacific Air in the next year or so?
A major focus on the basics. Make the program attractive and efficient to attract members and keep the current ones engaged and excited. We are adding new partners and ensuring we serve current ones well. We have a roadmap of exciting developments in the coming 12 months but these need to be built on a solid foundation.
(The airline has a 55-strong fleet, and it carried 16.9m passengers in 2014, 17.5% more than flown in 2013. Ancillary revenue grew 29% to P8.7 billion last year. It posted a core net income of P 3.3 billion, up 77% compared to the previous year, on the back of notable improvement in both revenues and operating expenses).