Thanks to the booming global economy and growing demand, the airlines industry is overhauling at an impressive pace after facing severe downturn in view of the 11th September terrorist attacks in 2001 at USA and the global economic slowdown. In order to sustain this and retain advantage in the chaotic, highly competitive marketplace, it is essential for the airlines industry to offer greater value to the customer than ever before and retain the existing customers. Consequently, the Airlines industry is abound with loyalty programs. Frequent Flyer Program (FFP) is a model much in vogue in the context of offering greater incentives to the customers.
Frequent Flyer Program: An Overview
Deregulations in the United States that date back to the late 1970s led to the inception of the Frequent Flyer Programs. European airlines were relatively late to embrace this paradigm, as the program was inconsistent with their premium-service and premium-price strategy. However, some of them now operate the most innovative and competitive programs with the following objectives:
• Repeat business among customers
• Product differentiation
• Gathering new information regarding the customers
• Creating additional channels of revenue through sale of points
With more than 70 FFPs across theglobe at the moment, the program boasts over 100 million members and offers 10 million awards per year.
With levels of competition ever increasing and margins reducing, an airline needs to maximize customer retention, especially high value customers, to increase revenues. Loyalty program could be beneficial to both the airline and the customer, provided it is managed well. There are many factors that influence loyalty management. It is important for any loyalty management program to be customer driven.
Strategic Issues in Loyalty Management
Frequent Flyer Program
• Membership Strategy
Any customer can enroll into a program and this can be used to collect information about the customer. This means that the only way to identify our most valuable customers is by their ‘number of flights taken in a period of time’. With this, customers cannot identify themselves uniquely within the program
•Limited Redemption Options
Reward is one of the drivers for customers to be loyal. Customers should have an option to redeem their earned points in different ways. Hence it is important that the program offers a variety of redemption options to all its customers.
Customer Service is an essential part of any service-oriented industry. Customers play an important role in the success of such business. To ensure that the customers are loyal to the business, a high level of service and hospitality at every customer contact stage to enhance the customer’s experience is essential. It is important to identify the areas where the customer is displeased and take necessary measures to improve.
Communication to Members
A single voice to the customer i.e. the same view from the company/organization to the customer is important. Categorize communication to high and low value customers separately and carefully send out the communications. Communication should be appropriately targeted.
Introducing alternative ways of earning and spending frequent flyer program currency is an excellent way to increase customer retention and incremental revenue. Co-branded cards are beneficial to all parties involved. Most importantly customers gain mileage for every dollar they spend. If used properly, a co-branded credit card, in relation with FFP, can be used as a profit-making tool. Aco-branded card will be attractive to both high frequency and low-frequency customers for different reasons.
A detail understanding of customer behavior is required to tie up with partners. With partnerships, an FFP program can generate revenues. Partnering can be done with airline and non-airline companies. Under the non-airline companies, reward benefits could be provided in the Entertainment, Dining, Retail, Non-airline travel and many other sectors. Reconciling partner billings – from comprehensive Partnership Management functionalities- can maximize revenue recovery. Partners share any financial risk associated with the program.
Customer Relationship Management
Customers build loyalty in one or more of the four loyalty drivers: price, product quality, brand image and service quality. Determining the one or more loyalty drivers they value most and continually providing that value in a manner that exceeds their expectations, is Customer Relation Management (CRM). Figuring out the most profitable customer is very tricky.
To reduce an airline’s mileage liability, one may consider introducing a different mile age credit and a differ- ent mileage expiry rule for the miles earned. The future financial liability of unredeemed miles cannot cause an airline to go bust, because there are no rules/restrictions on frequent-flyer programs to allow airlines to increase the number of miles required for a free flight, or to restrict seat availability. Both are a form of devaluation. Availability of seats is less com- pared to the unredeemed miles. This helps airline to market their seats for more miles (e.g. double the redeemable miles).The same applies to upgrades.
Functions of a Loyalty/Frequent Flyer program
The core functions of a frequent flyer program would be:
Earn – Accruals
Burn – Redemption
Administration (Fulfillment, Statements)
Frequency of sending out statements to members would depend on the program. Statements could be sent at regular intervals of time or could be based on the member transactions for a time period. Fulfillment consists of the complete joining pack that includes the membership card, baggage tags, literature about the program, its products & services etc.
Interface with the airline reservation system i.e. the PNR repository
Passenger Name Record (PNR) repository is the base for accruals. Any loyalty system would either be interfaced with such a repository or the PNR data would be available within the loyalty system. This data is primarily used to verify member’s flight (generally host airline).
The loyalty system could be interfaced with many other systems like the Interactive Voice Response (IVR), Crew briefing system etc.