Our chat with Mark Mullinix, MD, Loyalty Advantage and conference chair of 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
Airline loyalty programs are evolving. There is plenty at stake, and carrier can’t afford to slip. For instance, revenue-based earning approach has a huge number of complexities in implementation for legacy carriers. Also, airlines still struggle with consistency in service delivery and with recovery from irregular operations, says Mullinix.
Mullinix believes airlines need to ensure the overall travel experience is sublime, and a traveller should feel “I have received something that I value in exchange for my loyalty”. Excerpts from an interview with Ai’s Ritesh Gupta:
Ai: If you were to assess loyalty as an air passenger, what makes you happy?
There are really two different ways to assess loyalty here—one is the loyalty to the travel experience provided by the airline, and the other is the loyalty to the rewards received. Airlines are trying to use their loyalty programs as differentiators, but if the basic service promise of the airline isn’t being met, the majority of travellers will have no true loyalty to the airline—only loyalty to the rewards.
For me, the most important factor in loyalty to an airline’s travel experience is that it delivers what it promises. I fly low-cost carriers and full service carriers, and in each case I come away happy, as long as I received what I paid for. It’s when the airlines don’t manage to deliver what they promise that a traveller’s loyalty to an airline gets questioned, and my decision to remain a customer of the airline may be more due to the loyalty rewards rather than due to my intrinsic happiness with the airline. In Net Promoter Score terms, I become a detractor while remaining active and flying regularly.
On the rewards front, what makes me happiest is the perception of value—feeling that I’ve received something that I value in exchange for my loyalty. This value driver will be different for each passenger, which is the challenge for loyalty program managers trying to build a one-size-fits-all program.
Airlines still struggle with consistency in service delivery and with recovery from irregular operations. It’s not easy, but these are definitely the areas that can make the most difference in a customer’s experience.
Ai: What would you count on as the biggest development as well as the challenge in loyalty today?
The biggest trend we’ve seen in the past few years, and certainly the most hotly debated, has been the shift towards explicitly revenue-based programs where the number of points earned is a direct function of the number of dollars spent.
After Delta announced their shift, United followed quickly, and the industry consensus seems to be that American will do the same as soon as they finish the final merger details.
While it’s made big news, using revenue as a basis for mileage earning is hardly new. Airlines around the world have been differentiating mileage earning by fare class (as a proxy for yield) for a long time, but few had removed the “miles flown” entirely from the earning equation as Delta and United have.
This revenue-based earning approach has a huge number of complexities in implementation for legacy carriers: foreign currency effects, interline/ alliance codeshare tickets, and the multipliers for elite tier status are just three that have already become clear. More importantly, the publicity around these program changes has sparked a debate among frequent flyers as to whether loyalty is even worthwhile any more.
I would challenge airlines to think carefully about what they are trying to achieve with their loyalty programs, and to redevelop not based on the latest me-too trend, but in a way that will drive towards those objectives. I think there is an opportunity for smart airlines to capitalize on the growing disillusionment from consumers with a “back to basics” program while still preserving the balance sheet.
Ai: Can you cite examples where you feel airlines have excelled in offering what you expect from loyalty?
This is a very personal question as each customer will expect something different for their loyalty. I think Cathay Pacific have done an excellent job of providing that “little extra” for their loyal customers, through on-board recognition, a yield management strategy that allows for relatively generous operational upgrades, and decent availability of awards in a traditional miles-based program.
In the major alliances, oneworld has excelled in creating loyalty to the alliance in general through unified policies. One of my favorites is that on a codeshare flight, the earning rules of the marketing carrier apply, rather than the operating carrier. This makes it much easier for the consumer to know what they will earn, as compared to Star Alliance where the fare class of the operating carrier dictates the mileage earned.
On the other end of the spectrum, Southwest have done an excellent job of communicating a simple value proposition and fulfilling that promise. Each booking shows the number of points that can be earned, or the number of points required to redeem, as an integral part of the booking process, ensuring that the loyalty program is top of mind even though the actual points value may not be transparent to the average consumer.
Ai: Where do you think airline loyalty programs generally are going wrong – from both technology and operations perspective?
I don’t see programs as going wrong from a technology or operations perspective. Generally, the loyalty program management technologies are among the most up-to-date systems the airline employs, given the long history of mainframe-based technology and legacy systems in other areas of operations!
Where the programs are suffering is in their overall strategy.
The reliance on external partners and the creation of a miles ecosystem where the majority of miles are no longer earned through flight behaviour have pushed the airlines into a difficult strategic position—consumers still want to redeem miles for flights, but there are no seats and far too many miles.
The revenue from partners has become so massive that the airline’s loyalty program becomes more a facilitator of partner transactions than a true driver of loyalty to the airline.
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 much of loyalty is really about customer experience. I think this is a huge opportunity area for airlines.
Hotels have learned these lessons very well and now when you check in, many of them have a completely personalised experience available to you. I believe the opportunity is there for the airlines to do similar—moving beyond “window or aisle” to “he prefers window on long-haul but aisle on short-haul, and we know he usually takes a soda with no ice, so let’s confirm that when doing beverage service rather than asking him as if we’d never seen him before.”
This relies on both technology and staff, with staff being the more difficult part of the equation. And of course the most important question still remains — would this level of service really drive increased loyalty and profitability?
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?
What critics are missing in their analysis of low-value rewards is that there’s a market for those rewards. Consumers aren’t always motivated by the highest cash value equivalent for a reward—if they were, everybody would be saving for first class long-haul travel.
Convenience, the feeling of instant gratification, burning points prior to their expiration, or the ability to “monetise” points into a gift card are all valued by the consumer in their overall decision, and in many cases these very rational criteria lead to seemingly irrational decisions regarding redemption of points.