The perfect customer loyalty program for airlines already exists but they aren't using itGet the Full StoryTyler Olson Shutterstock
Frequent flyer programs aren't what they used to be — award options are shrinking.
Airline miles were sold to credit card companies in bulk which devalued the points.
Programs like Amazon Prime — which charge customers a fee — could be a good model for airlines to improve the way they reward loyal customers.
The note was disguised as a friendly frequent flyer program email from one of the big airlines that I fly often.
The message said, "Say hello to a new award travel option." There was a picture of the Swiss Alps beckoning me to redeem my points. But after more than a million miles together, I’ve learned something about award options on the big airlines: they’re shrinking.
This time, the airline was quietly saying it would make fewer seats available at the lower "saver" award levels that used to be standard. It’s one of a number of mechanisms the airlines have used in recent years to reduce the value of points, such as more miles to redeem on popular flights, new fees to book reward tickets shortly before departure, or limited access to exclusive airline lounges.
The airlines got themselves into this bind, and only airlines can get themselves out. Like an empowered authoritarian addicted to hyperinflation, the airlines for many years printed miles to raise extra cash. They sold them in bulk to credit card companies, who in turn used them to lure new customers and encourage cardholders to charge more on their cards. It was a mutually-beneficial commercial relationship that often forgot about the originally intended beneficiary of such an arrangement: the customer.
It doesn’t have to be this way. Across the new economy, scores of companies earn the loyalty of their customers by simply delivering a better experience. Consider Amazon, where members of the loyalty program spend an average of 86 more per year than non-members, shop multiple times per month and increase their spend year after year. But rather than Amazon buying their loyalty with free merchandise, these Prime members pay Amazon for the privilege, 99 per year. Over 80 million Americans have signed up.
In the airline industry, however, the results have been as predictable as an increase in any other money supply: inflated prices and devalued currency. The largest US airlines now have an outstanding liability of over 15 trillion frequent flyer miles. At the "saver" redemption rates, this would have added up to over 600 million round-trip domestic tickets. Today, not so much.
Based on research my colleagues and I have conducted, the median "price" for a domestic reward ticket is about 39,000 miles, since the cheapest awards are rarely available. For business class tickets to Europe, the lowest round-trip price on one of the major alliances has gone up from 100,000 to 140,000 miles over the past five years, and for first class tickets to Australia, the redemption requirement increased by 63 —assuming any award seats are even available! A model built on the promise of free travel in exchange for loyalty is breaking down, and with it the fraying strands of trust between airlines, airports and their customers.
That’s why it’s time for a new model for airline loyalty programs that makes customers want to pay the airlines, instead of forcing airlines to bribe their customers. In this new model, airlines and airports will deliver an improved experience for each passenger on each trip, based on three principles.
1. Respect the passenger.
Above all, a loyal relationship is built on trust and honesty. Today’s broadcasts over the P.A. need to become genuine communication among adults. That means posting realistic departure times when flights are delayed, designing fees that are transparent and uncomplicated, and silencing repeated airport announcements aimed at a traveler from Mars. Imagine an airport experience without the drone of "all terminals are non-smoking," "the moving walkway is ending," or anything beginning with, "Due to recent security measures."
2. Be smart with the data.
Today’s best retailers deploy sophisticated analytics to predict their customers’ needs and tailor the experience to each individual. Using the same methods, we can transform airline web booking sites, manage lost baggage while you are still in the air, and get taxis into the queue before you arrive. Remember, airlines know where you have been, where you are right now, and where you are going next. It’s time to use that data to make your journey better—and to generate revenue by selling you what you want when you want it.
3. Manage the whole experience.
In the complex aviation ecosystem, carrying a single passenger from Las Vegas to Los Angeles involves dozens of companies interacting with one another. Neither the airport nor the airline fully controls the entire passenger journey. But that shouldn’t be the customer’s concern and it shouldn’t impact the journey in a negative way. To really elevate the passenger experience, the best airlines and airports should take a holistic view and work together to meet their joint customers’ expectations.
For example, a single smartphone app will tell you where to park at the airport, send a box lunch to your gate and direct you to the right carousel for your bags when you land. Should your bags be delayed, you’ll know before your land but you might not mind, since they will have been redirected to your hotel. And of course you will already have received an upgrade to first class on your return flight to make up for it.
Bringing these pieces together is not easy. It will take work to retool decades of procedures that have been developed around real operational challenges and concerns, as well as mainframe IT infrastructure. Getting it right will require new analytics to understand the needs of different passengers at different times of day and real-time wireless communication that empowers front-line employees to use judgment. The prize of a new customer relationship is worth the effort.
Samuel Engel is the global managing director of ICF Aviation.NOW WATCH: For 138,000 the Four Seasons will fly you in a private jet around the world