Comment: Airlines and their battle for the hearts and minds of frequent flyers

Will next-generation frequent flyer programmes lead airlines to a ‘brave new world’, asks Janet Titterton, director of Collinson Latitude, a global provider of ancillary revenue products and services.

Thirty years have passed since American Airlines (AA) launched the ‘AAdvantage’ frequent flyer programme (FFP), taking airline loyalty in a new, revolutionary direction. FFPs have spread across the industry globally through the intervening years, but many loyalty programmes are frankly showing their age, arguably still belonging as much in 1981 as 2011.

True, FFPs have evolved far beyond the mere earning and burning of airmiles. Loyal passengers now routinely redeem their miles for an improved travel experience, such as airport lounge access or, indeed, for goods and services completely unrelated to travel. But the overall sense remains that airline loyalty programmes, rather than being fully-realised and sophisticated, are largely nascent examples of unfulfilled potential.

Can airlines afford such slow progress? Carriers are feeling financial pressure, from the global recession through to the prospect of soaring, unpredictable fuel costs. In the face of these intense economic challenges merely to keep operating flights, ancillary revenues are more important than ever before to help balance the books. All the evidence suggests airlines think so too, if the trend toward unbundling in the travel industry is any indication. Why then are many airlines slow to exploit the ancillary revenue opportunities that FFPs and loyalty programmes bring?

Not everybody, of course, is failing to see the ‘brave new world’ on the horizon. Once again, 30 years on, AA is among the leaders in the pack, a point proved by the carrier’s disputes with global distribution system (GDS) providers Travelport and Sabre. Nobody should believe that AA’s bid to remove the GDS from the travel booking process is merely an attempt to eliminate the GDS service fees. Ancillary revenues and passenger loyalty are very much at the heart of the ‘direct connect’ philosophy.

From an airline’s perspective, improving the quality and consistency of engagement with customers is a priority. Third-party bookings deny the airline direct access to the customer, and that loss of access brings with it a concomitant loss of opportunity. The customer’s first point of (online or offline) contact when planning a travel booking also represents the first opportunity to sell that customer associated ancillary products and services, from insurance to car hire, from hotel rooms to guided tours.

A third-party booking removes this wealth of ancillary commercial opportunities from the grasp of the airline. If, on the other hand, the airline can offer a one-stop shop for the traveller’s needs, why should that passenger go anywhere else?

Direct access to the customer also allows the carrier to effectively promote airline-specific special offers. Such offers might otherwise be ‘lost’ as many airlines compete for attention on third-party booking sites, such as Expedia, or on a GDS display screen. easyJet’s new flexible fare for business travellers, including priority boarding and a checked-in bag at no cost, is an innovative example of such an offer, representing the latest evolution in tailored product re-bundling.

Unbundled services, such as baggage, for which airline passengers have lately been separately charged, are now being offered to key customers as part of a flight package of re-bundled inventory to create an enhanced product. Whatever form the special offer might take, a ‘direct connect’ approach clearly provides the airline with the best possible means of visibly promoting the deal.

Maximising the opportunities to sell passengers travel-related products, packages and services is not the only way in which the ‘direct connect’ philosophy can boost ancillary revenues for an airline. Third-party bookings deny the airline visibility of the wider customer spend at the time of the transaction. The airline knows of the flight booking, of course, but did the passenger also order cultural guided tours at the destination city, for example, or winter sports insurance? Without such customer-specific data, airlines will struggle to offer the kind of customised loyalty and rewards packages that allow them to build long-term, profitable relationships with passengers.

The better you understand your customer’s lifestyle, the better you can offer targeted benefits packages reaching beyond the direct travel service itself. If you know that certain passengers love skiing, for example – and their travel habits with your airline will make that fact clear – you could offer those customers a package of winter sports-based benefits, either as part of a rewards programme or through a subscription-based membership programme.

The same targeting could apply to ‘culture vultures’ or any other common-interest group. This kind of third-party lifestyle inventory means customers enjoy a sense of high value from an airline even when out on the ski slopes or sitting in the opera, far from an aircraft. Loyalty is sure to follow.

Airlines are not just fighting against today’s GDS fees. They are not just fighting for today’s passenger bookings. This battle is not for short-term gain. Airlines are fighting to secure customer loyalty, and the consequent direct and ancillary revenues, that will last for many, many years. No one should be surprised, therefore, if they fight hard.