How do you react when the head of a major airline loyalty program so bluntly states their case? More to the point, what do you say to the person wondering why they don’t get retention bonuses comparable to sign-up bonuses on an annual basis. Do you believe the programs when they say something like, "Every time we tweak [the benefits] we try to take off something that not many people are using and add something that we think more people will use."
Both the headline of this post and the above quote were offered up by Jeff Robertson, VP SkyMiles, during a session last week at the Executive Travel Summit outside DC. Robertson also offered insight as to why a less valued customer – one who doesn’t hit the spend requirements for Medallion status, for example – can suddenly become valuable enough to rate the status with $25,000 spend on a credit card. Unsurprisingly, it is because Delta will have made a lot of money based on that spend, pushing the customer past the value tipping point into being considered worth rewarding.
Throughout the five days I was at the sessions it was interesting to hear the different views of the parties involved. Sure, consumers want more and airlines want to give less. Airlines say the costs to provide the benefits are going up (as are airfares and load factors, so not too hard to believe). Customers say they want long-term loyalty to be rewarded, among other things. What was particularly interesting to me was hearing the view the credit card companies have on the topic.
Sure, the CC folks are incredibly biased. But that doesn’t mean the ideas they have cannot be solid. David Rabkin, SVP Consumer co-brands for American Express offered up a few views which seem pretty similar to the two-way street discussion, but which also have me wondering about which types of loyalty are the ones really worth rewarding. Using two different examples Rabkin quite clearly indicated that share of wallet is more valuable from a loyalty perspective than total revenue. In one instance it was a simple comment about credit card spending, "Someone who gives a high percentage of spend is loyal, even if it isn’t as much money as someone who spends a lot of money but across different cards…. The guy who only has a small wallet and gives you all of it is golden; give him all the rewards you can."
The second example offered up three hypothetical customers:
- Very frequent domestic lowest-fare customer
- Multiple long-haul F customer, but who also flies on competitors
- Credit card user who pulls your co-branded card out thrice daily
Of these, Rabkin made the argument that #3 was the best customer for the airline in terms of loyalty. Or, as he stated in the session (slightly paraphrased):
We love that guy who is flying in the back of the plane but he’s not making us any money. We love the $10k fare but he’s not loyal. We have to focus on the guy who is bringing us the best revenue.
I certainly agree with rewarding the best revenue more than the other options, but I’m not nearly as convinced that share of spend matters so much as total volume. That’s not to say either is 100% important or not, but earning the majority of revenue from a customer based on 3rd-party transactions is a strange way to believe they’re loyal to me. At another session over the weekend there was some discussion of lesser-known loyalty programs and how some of them (BMI was the big name in this space previously) were shells which seemed to be associated with an airline but where the bulk of the points activity seemed to be wholly third party. There are a couple still out there today. What happens when the operations of the loyalty program become so completely disconnected from the operations of the airline? Is that a sustainable way to run the business? Sure, the airlines get to manufacture the award inventory on their own planes, but when partners get involved there are a lot of variables they don’t control, and that can be a challenge.
Ultimately, considering that 60% of points earning these days happens outside of flying (I thought the number would be higher) it isn’t all that hard to believe that Rabkin is correct in who the most valuable customer is. But does that make them the most loyal? And is that the loyalty to be rewarded?
And then there is the final theme which was pervasive throughout the sessions, "Miles are a relic of history. In the next 5 years, maybe 3, programs will be revenue based." That’s a direct quote from an industry insider and I think that the timeline is probably about right.
The industry is entering into a period of significant change in the coming years. There is significant pressure to reward the right types of loyalty, not just time on a plane and not just absolute spend. There will be moves to shore up programs, ensuring that they remain revenue positive for the airlines while also not losing too much in the competitive landscape. Then again, with less competition, that is much easier to do. It isn’t like there are any programs out there which are ridiculously generous across the board.
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