{"id":428379,"date":"2016-09-23T23:39:10","date_gmt":"2016-09-24T06:39:10","guid":{"rendered":"http:\/\/customerthink.com\/?p=428379"},"modified":"2016-09-23T23:40:07","modified_gmt":"2016-09-24T06:40:07","slug":"does-your-airline-even-want-you-to-fly-them","status":"publish","type":"post","link":"https:\/\/customerthink.com\/does-your-airline-even-want-you-to-fly-them\/","title":{"rendered":"Does Your Airline Even Want You To Fly Them?"},"content":{"rendered":"<p>Many highly-coveted airline perks such as free bags, priority boarding, and club lounge access, can now be obtained by carrying an airline\u2019s co-branded credit card. In fact\u200a\u2014\u200asome airline credit cards allow you to earn elite VIP status simply by spending on the card.<\/p>\n<p>The trend of extending these valued benefits to co-brand cardholders, together with recent program changes at the world\u2019s largest frequent flyer programs (FFPs), have left many frequent bum-in-seat business travelers wondering if the airlines still care about them earning benefits the hard way.<\/p>\n<p>I asked <strong>Mike Hecht<\/strong>, Delta\u2019s General Manager of Co-Brand Strategy about this at the Mega Loyalty Conference in San Diego.<\/p>\n<p><em>He revealed that Delta don\u2019t mind whether their customers are loyal by way of credit card spend, or from actual bum-in-seat flying\u200a\u2014\u200aeither way they\u2019re being loyal and should be rewarded with status.<br \/>\n<\/em><\/p>\n<p>In comparison\u200a\u2014\u200aJetBlue\u2019s Manager of TrueBlue Partnerships, <strong>Whitnee Hawthorne<\/strong>, said that they would prefer customers to be loyal by both flying, and by engaging with co-brand products.<\/p>\n<p>To those who thought that frequent flyer programs were all about encouraging airline loyalty\u200a\u2014\u200agiving an airline a greater share of your business, flying more often and spending more\u200a\u2014\u200athe idea that use of a mile-earning credit card is more important, may be perplexing.<\/p>\n<p><strong>For those that are confused\u200a\u2014\u200alet\u2019s take a quick look at how frequent flyer programs make\u00a0money\u2026<\/strong><\/p>\n<p><iframe loading=\"lazy\" width=\"696\" height=\"392\" src=\"https:\/\/www.youtube.com\/embed\/-i50YVaD-tk?feature=oembed\" frameborder=\"0\" gesture=\"media\" allow=\"encrypted-media\" allowfullscreen><\/iframe><\/p>\n<p>It\u2019s easy to see why airlines would rather you earn your miles from partners such as credit cards, hotels and rental car companies.<\/p>\n<p><strong>The miles-selling business is BIG business for the airlines.<\/strong><\/p>\n<p>American Airlines sold 182.7 billion miles to banks and other partners in 2015, generating an estimated $2.25 billion.<\/p>\n<p>Analysis by Catchit Loyalty reveals that American\u2019s Partner Marketing revenue has increased 83% since 2007, and a whopping 160% since 2001.<\/p>\n<figure id=\"attachment_428391\" aria-describedby=\"caption-attachment-428391\" style=\"width: 300px\" class=\"wp-caption alignnone\"><img decoding=\"async\" loading=\"lazy\" src=\"http:\/\/customerthink.com\/wp-content\/uploads\/AA_Partner_Marketing_Revenue-300x181.png\" alt=\"Source: Catchit Loyalty - American Airlines sold 182.7 billion miles in 2015\u200a\u2014\u200aworth an estimated $2.25\u00a0billion\" width=\"300\" height=\"181\" class=\"size-medium wp-image-428391\" srcset=\"https:\/\/customerthink.com\/wp-content\/uploads\/AA_Partner_Marketing_Revenue-300x181.png 300w, https:\/\/customerthink.com\/wp-content\/uploads\/AA_Partner_Marketing_Revenue-768x464.png 768w, https:\/\/customerthink.com\/wp-content\/uploads\/AA_Partner_Marketing_Revenue-1024x618.png 1024w, https:\/\/customerthink.com\/wp-content\/uploads\/AA_Partner_Marketing_Revenue.png 1279w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-428391\" class=\"wp-caption-text\">Source: Catchit Loyalty &#8211; American Airlines sold 182.7 billion miles in 2015\u200a\u2014\u200aworth an estimated $2.25\u00a0billion<\/figcaption><\/figure>\n<blockquote><p>According to American Airlines\u200a\u2014\u200a\u201cThis high yielding revenue comprises a respectable portion of American\u2019s passenger revenue\u201d.\n<\/p><\/blockquote>\n<p><strong>Airlines are trying to give away LESS miles for flying, but sell MORE miles to banks and partners\u2026<\/strong><\/p>\n<p>Around 60% of all miles issued to American AAdvantage members are sold to third parties such as banks and hotels.<\/p>\n<p>American\u2019s recent changes to its program, which will see an estimated 20 billion fewer miles being awarded to members for flying, will result in potential savings to the airline of around $28.4 million according to Catchit Loyalty\u2019s analysis.<\/p>\n<blockquote><p>The catch\u200a\u2014\u200ais that the most profitable co-brand partnership is only useful if customers perceive value in the airline mileage currency.<\/p><\/blockquote>\n<figure id=\"attachment_428393\" aria-describedby=\"caption-attachment-428393\" style=\"width: 300px\" class=\"wp-caption alignnone\"><img decoding=\"async\" loading=\"lazy\" src=\"http:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_Affinity-300x115.png\" alt=\"Source: American Airlines Investor Presentation - American Airlines highlights the importance of the AAdvantage business\u00a0model\" width=\"300\" height=\"115\" class=\"size-medium wp-image-428393\" srcset=\"https:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_Affinity-300x115.png 300w, https:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_Affinity-768x295.png 768w, https:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_Affinity.png 1022w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-428393\" class=\"wp-caption-text\">Source: American Airlines Investor Presentation &#8211; American Airlines highlights the importance of the AAdvantage business\u00a0model<\/figcaption><\/figure>\n<p>By enacting such <a href=\"https:\/\/www.linkedin.com\/pulse\/american-aadvantage-changes-winners-losers-more-david-feldman-gaicd\" target=\"_blank\">drastic reductions in mileage earning <\/a>for many customer segments\u200a\u2014\u200athere is a sizeable risk that customers will no longer desire to collect the airline\u2019s currency and will instead focus on other reward options such as cash-back cards or bank rewards programs.<\/p>\n<p>If customer apathy toward the program results in the growth in mileage sales slowing by a mere 1.26%\u200a\u2014\u200athe entire savings from recent program changes will be wiped out.<\/p>\n<p>As highlighted in <a href=\"https:\/\/www.linkedin.com\/pulse\/how-success-frequent-flyer-programs-driving-away-david-feldman-gaicd\" target=\"_blank\">\u201cThe Worldwide Currency Worth Billions but Technically Doesn\u2019t Exist\u201d<\/a>\u200a\u2014\u200a<strong>If airlines ignore the aspirational attraction of the loyalty program through continual enhancements and devaluations, then the points currency itself becomes worthless if customers no longer desire it.<\/strong><\/p>\n<p>Managing Partner of Airline Weekly <strong>Seth Kaplan <\/strong>explains that <em>\u201cAirlines, although they don\u2019t need to be as generous as they once were\u2026 can\u2019t have you think the program\u2019s worthless. Because if you cut up that credit card, or if you stop caring about accumulating miles in other ways, that\u2019s billions of dollars of revenue that\u2019s at risk.\u201d<br \/>\n<\/em><\/p>\n<blockquote><p>\u201cThe risk of erosion of customer loyalty, therefore, is real for airlines\u2026 If customers put a lower value on a certain reward currency, they have little incentive to use the associated credit card to earn that currency\u2026Customers can change behavior quickly, especially when they perceive their marginal utility of reward points to be declining.\u201d\u200a\u2014\u200aOliver\u00a0Wyman<\/p><\/blockquote>\n<p>The key for airlines is to ensure that passengers are \u2018engaged\u2019 in the program sufficiently to want to sign-up for the co-brand credit card, and to credit their hotel stays, car rentals, dining and shopping to the airline program.<\/p>\n<p><strong>Should awarding miles for flying be viewed as a \u2018cost\u2019 or as an \u2018investment\u2019?<br \/>\n<\/strong><br \/>\nAwarding miles to actual flyers shouldn\u2019t be viewed as a cost, but as an investment which delivers returns via increased loyalty, higher engagement, and participation in high-margin partner &amp; co-brand offers. Structured correctly, it\u2019s even profitable to generously reward once-a-year flyers, as they will either fly more often; engage with high-margin ancillary offers; or ultimately, suffer breakage (and the airline wins when the miles expire unused).<\/p>\n<p>Selling miles to third parties such as banks is enormously lucrative for airline frequent flyer programs. But does the airline actually make more money from its loyalty initiatives?<\/p>\n<p>It\u2019s often more difficult to highlight the additional revenue that comes from loyalty initiatives\u200a\u2014\u200abut a well designed program can actually deliver profits to the host airline up to 10 times what the FFP itself generates.<\/p>\n<p><strong>Phil Gunter<\/strong> from New World Loyalty, is the former head of Virgin Australia\u2019s Velocity Frequent Flyer Program. He explains\u2026<\/p>\n<blockquote><p>\u201cAlthough the cost of a FFP is easy to quantify (and often large) and there has been a lot of interest in the profit a FFP can make through selling points, airlines should never forget that the biggest impact of a successful FFP is greater AIRLINE revenue! I have completed a number of in depth analysis\u2019 and each time <strong>the airline revenue driven by the FFP is far greater than either the cost of the program or the FFP business unit profit.<\/strong> Unfortunately it is not uncommon for airlines to forget this and focus primarily on either reducing costs or driving FFP profit (often at the expense of Airline profit).\u201d<\/p><\/blockquote>\n<p><strong>SO SHOULD YOUR AIRLINE CARE IF YOU\u00a0FLY?<\/strong><\/p>\n<p>In short\u200a\u2014\u200ayes they should.<\/p>\n<figure id=\"attachment_428396\" aria-describedby=\"caption-attachment-428396\" style=\"width: 300px\" class=\"wp-caption alignnone\"><img decoding=\"async\" loading=\"lazy\" src=\"http:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_FFP__Partner_Marketing-300x53.png\" alt=\"Source: American Airlines Investor Presentation - Flight-based loyalty AND partner mileage sales are important to American\u2019s profitability\" width=\"300\" height=\"53\" class=\"size-medium wp-image-428396\" srcset=\"https:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_FFP__Partner_Marketing-300x53.png 300w, https:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_FFP__Partner_Marketing-768x137.png 768w, https:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_FFP__Partner_Marketing-1024x182.png 1024w, https:\/\/customerthink.com\/wp-content\/uploads\/AAdvantage_FFP__Partner_Marketing.png 1731w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-428396\" class=\"wp-caption-text\">Source: American Airlines Investor Presentation &#8211; Flight-based loyalty AND partner mileage sales are important to American\u2019s profitability<\/figcaption><\/figure>\n<p>This investor presentation by American Airlines shows that those customers with both partner and flight activity generate 2.5 times greater revenue than the average AAdvantage member.<\/p>\n<figure id=\"attachment_428397\" aria-describedby=\"caption-attachment-428397\" style=\"width: 300px\" class=\"wp-caption alignnone\"><img decoding=\"async\" loading=\"lazy\" src=\"http:\/\/customerthink.com\/wp-content\/uploads\/AA_-_AAdvantage_Activity_1-300x186.png\" alt=\"Source: American Airlines Investor Presentation - The most profitable AAdvantage members are those that are loyal by both flying, and by engaging with co-brand products.\" width=\"300\" height=\"186\" class=\"size-medium wp-image-428397\" srcset=\"https:\/\/customerthink.com\/wp-content\/uploads\/AA_-_AAdvantage_Activity_1-300x186.png 300w, https:\/\/customerthink.com\/wp-content\/uploads\/AA_-_AAdvantage_Activity_1-768x475.png 768w, https:\/\/customerthink.com\/wp-content\/uploads\/AA_-_AAdvantage_Activity_1-1024x633.png 1024w, https:\/\/customerthink.com\/wp-content\/uploads\/AA_-_AAdvantage_Activity_1.png 1523w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-428397\" class=\"wp-caption-text\">Source: American Airlines Investor Presentation &#8211; The most profitable AAdvantage members are those that are loyal by both flying, and by engaging with co-brand products.<\/figcaption><\/figure>\n<p>87% of American\u2019s passengers only fly once per year\u200a\u2014\u200agetting them to engage with the program is the key to new revenues.<\/p>\n<p><em>References and Further Reading:<\/p>\n<ul>\n<li>\nCatchit Loyalty analysis based on airline 10-K SEC filings, investor presentations, and discussions with airline executives\n<\/li>\n<li>Seth Kaplan\u200a\u2014\u200aCNBC Power Lunch 29 July 2016<\/li>\n<li>Oliver Wyman\u200a\u2014\u200aThe New Economics of Loyalty Programs<\/li>\n<\/ul>\n<p><\/em> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many highly-coveted airline perks such as free bags, priority boarding, and club lounge access, can now be obtained by carrying an airline\u2019s co-branded credit card. In fact\u200a\u2014\u200asome airline credit cards allow you to earn elite VIP status simply by spending on the card. The trend of extending these valued benefits to co-brand cardholders, together with [&hellip;]<\/p>\n","protected":false},"author":10651,"featured_media":92682,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128,95,14],"tags":[],"_links":{"self":[{"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/posts\/428379"}],"collection":[{"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/users\/10651"}],"replies":[{"embeddable":true,"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/comments?post=428379"}],"version-history":[{"count":0,"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/posts\/428379\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/media\/92682"}],"wp:attachment":[{"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/media?parent=428379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/categories?post=428379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/customerthink.com\/wp-json\/wp\/v2\/tags?post=428379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}