A Look at Airline Loyalty Programmes
Airlines in the US have the highest membership counts for their frequent flyer programmes in the world. While a large population helps support these figures, the US also has a large air network dominated by domestic flights and many flyers sign up for multiple programmes across carriers. Multiple memberships are not likely in Europe, with people usually sticking with their national flag carrier for loyalty programmes.
Delta, with the largest membership figures until United and Continental’s programmes are completely consolidated, estimates that its frequent flyer programme is worth around US$1.6 billion to the company in revenue, including its co-branded credit card with American Express. Southwest Airlines is a notable absence from this list. Southwest does not disclose how many people belong to its Rapid Rewards membership programme, but has revealed that 3.2 million people redeemed a free reward ticket in 2010.
Complaints about availability of redemptions…
The perennial complaint is that it continues to become harder to redeem miles for free tickets, especially in the US market. With airlines cutting capacity in the face of industry consolidation and higher fuel prices, the supply of seats is shrinking, while demand is recovering from the recession. Plus, airlines sell a lot of miles to partners. For example, American Airlines issued 185 billion miles in 2010, of which 62% were sold to its partners. With so many miles in existence and fewer seats available, it is difficult to redeem miles for tickets.
As a result, the percentage of awards for total revenue passenger miles has declined for United, Continental and Southwest since 2008 and US Airways has a significantly lower portion of free travel due to its short haul network. All three experienced higher load factors since 2008 as well.
…addressed with other redemption possibilities
With so many ways to earn miles aside from flying, airlines have expanded the redemption possibilities to hotel rooms, car rentals, merchandise, dining, online shopping and many others to preserve the value of their programmes. This appeals to frequent flyers who do not want to travel anywhere else and cash-strapped consumers who can use their miles on merchandise. While the majority of miles are not accumulated through flying, the majority of redemptions are still made for flights however. Although difficult to get, free flights are still a powerful incentive.
For example, United Airlines awarded 975,000 awards that did not involve travel on the airline in 2010, up from 885,000 in 2009. These included redemptions for Red Carpet Club membership, car rentals and hotels, which was implemented in late 2009. These awards, though, only accounted for 14% of total miles redeemed in 2010; 86% were still for travel on United airlines and for seat upgrades. As seen in the table below, 26% of awards redeemed at American Airlines meanwhile were not related to travel in 2010.
Innovation is the way forward
With industry consolidation and maturity in developed markets, loyalty programmes will have to rely on innovation to keep their members active and loyal. New partnerships, social media activities and mobile applications are all ripe for innovation. AAdvantage Mystery Miles’ promotion on Facebook in spring 2011, which increased page “likes” from 2,558 to 163,000 in the space of 24 hours, is a good example of this. Furthermore, personalisation of loyalty programmes will help airlines increase ancillary revenues by matching appropriate products to their customers.
Related: Who Goes Where