FFPs to play vital role in airlines' future growth
As the economy gathers pace, so does the travel and airline industry, competition is picking up, according to a white paper from ITC InfoTech India. In fact, in its efforts to attract more new customers, the industry is already offering more than 70 major frequent flyer programmes (FFPs) globally, with over 100 million members.
The white paper, entitled 'Frequent Flyer Programs: An Overriding Trend of Airline Marketing', explains that with levels of competition increasing and margins reducing, all airlines must maximize customer retention - especially for their high value customers - to help maintain and increase revenues.
Airlines therefore need to develop and modify their loyalty management programmes constantly, identify potential growth in customer accounts, and group customers into similar growth baskets. This strategy, the company suggests, will help airlines to approach customers with more appropriate and timely service offerings.
The key factors that airlines must therefore consider when structuring or restructuring their loyalty offerings include:
- Membership strategy
As customers enrol in a FFP, airlines get the opportunity to gather information. They also need to put in place a membership strategy to identify customers flying frequently, and make them the right offer. - Limited redemption options
Customers should have an option to redeem points earned in different ways. The airline company can encourage travel during off-peak season or on new routes, this enables greater market penetration, and opportunity to keep them loyal to the airline's FFP. - Customer service
To enhance customers' loyalty, airlines must provide a high level of service and hospitality at every stage of customer contact. - Communication with members
Communication should be appropriately targeted, and in a 'single voice'. For example, avoid sending messages for enrolling in an FFP to customers who are already members. - Branding and co-branding
Introduce alternative ways of earning and spending the FFP currency, as this is an excellent way to ensure customer retention, boost engagement, and increase revenue. For example, credit card companies gain customers with a potential to spend, while airlines earn from each flight mile booked. - Partnerships
A partnership can help an FFP generate revenue. Partnering can be done with airline and non-airline companies and reward benefits can be provided in the areas like entertainment, dining, retail, non-airline travel and other sectors. - Customer Relationship Management (CRM)
Customers become loyal due to one or more of the four drivers, namely price, product quality, brand image or service quality. Determining the one or more loyalty drivers your customers most value and continually providing it to them is CRM. - Manage loyalty liability (breakage)
The future financial liability of unredeemed miles cannot cause an airline to go bust, because there are no rules or restrictions on FFPs to allow airlines to increase the number of miles required for a free flight, or to restrict seat availability. Availability of seats is less com-pared to the unredeemed miles. This helps airlines to market their seats for more miles.
When strategizing and research all of those factors, it is also critical that the airline considers the core functions of a frequent flyer loyalty programme, which include:
- Enrolment options
Customers can enrol themselves into the programme via the web or through a service centre, or by filling up physical enrolment forms at different locations at airports. - Earning opportunities
The member can earn points for both airline or non-airline activities. For airline activities there can be two types of points earned by members: redemption and tier. - Redemption
Points can be redeemed against any airline/non-airline product/service offered through the programme. - Tier changes
Members move between tiers based on their tier points. Generally upgrade is a daily process while downgrade can be based on a calendar year. Criteria for upgrade and downgrade are part of the programme definition. - Campaign
Members are targeted for different campaigns and encouraged to use products/ services offered by an airline. Different member groups could be formed based on their tier, geographical location, preference for these campaigns. - Airline reservation system
The Passenger Name Record (PNR) repository is the base for the accrual of points. In any loyalty system a customer has to interface with the PNR data within the loyalty system.
Although FFPs started with US airlines, they are widespread across the world today. Customers of Alaska Airlines and their alliances have more than a dozen airlines to choose from their mileage earning packages. Frequent flyers can earn as much as 1 mile for every US$1 charged to an Alaska Airlines/Bank of America Visa Card, and points can be earned from 30 worldwide hotel and car rental partners.
Some new generation carriers have truly redefined FFPs. For example, Jet Blue and Southwest started an innovative loyalty package; the highlight of their programme is that it increases the likelihood that award travel will be accompanied by take-along traffic, in turn leading to an increase in revenue. Carriers such as Ryan Air have co-branded cards, which is an economically feasible solution as the bank sponsors the programme and while the company receives money for the sale of tickets.
The full white paper has been made available for free download from ITC InfoTech's web site - click here (free registration required).
Sources: ITC InfoTech India / The Marketing Factbook.
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