American’s decision to copy the structure of Delta and United’s so-called “loyalty programs” last week got me thinking about, well, loyalty. These programs have evolved to a point where they really aren’t about loyalty at all. If they cared about loyalty, then they’d do this differently. We got into this discussion in the comments on my American post last week, but I thought it worth talking about in greater detail. Were I running the show, I’d stop pretending these programs are about loyalty and create something far better at addressing the issue.
Even though they operate under a single name, each of the big US airlines has two separate frequent flier programs. On the one side are the award mile programs. Those are the ones that let you earn points from a variety of different sources and then spend them on free trips or magazines, or something else depending upon what scheme has been cooked up that week. On the other side are the elite status programs, those that allow you to earn miles during a single period (usually a year) and get special perks for either flying a lot or spending a lot of money… or now both.
The award miles really have nothing to do with loyalty. Those are all about revenue generation. Sure you can earn miles when you fly, but the easiest way to earn miles is by getting credit cards. Those credit card companies buy miles from airlines to hand out to their cardholders, making money themselves off annual fees and high interest rates. The airlines can play with these programs as much as they want, but they’re about making money above all. And for that reason, they aren’t going to go away. They also are never going to be focused on generating loyalty.
The elite program is supposed to be about loyalty. By dedicating your flying (and your dollars) to a certain airline, you get perks. The problem is that those perks are getting worse.
The most important perk of all is the upgrade. This is what frequent fliers live for, and it’s what makes the life of a road warrior tolerable. While upgrades still exist and on the surface appear to be given away generously, that’s just a façade. The reality is that airlines have discovered that if they price Business and First Class options more competitively, then they can actually sell those seats. Delta, for example, now sells about 2/3 of its First Class seats, and that means upgrades are becoming more scarce for all but the top tier elites.
So what are the real benefits? Well, there are still seat assignments blocked only for elites. There are also extra legroom seats that some elites can get for free or at a discounted rate. First bag fees are waived, as are, in some cases, fees for same day changes and phone bookings. Elites also get priority check-in/security/boarding. Before, this use to be a real perk because you couldn’t even buy these options. But now that airlines have gone à la carte, you can buy an elite experience for yourself if you want.
Heck, you don’t even have to buy one. You can get airline credit cards, and those will waive bag fees and get you priority boarding every time. At some point, these benefits just aren’t nearly as valuable as they once were. And that means these programs just aren’t going to reward loyalty, let alone build it.
Of course the people who live in an airline’s hub are going to continue to be loyal to that airline. If you live in Atlanta and need nonstop flights to a variety of places, are you really going to fly anyone else? No. So you’ll earn your elite status because you’re going to fly Delta anyway thanks to a far superior schedule.
The real battlegrounds lie in two types of places. First, there are the competitive hubs. Places like LA, New York, and Chicago have multiple legacy carriers operating a hub, and that means people have real choices. Second, there are the spokes. All of these non-hubs have similar options from the big guys, flying to their hubs and then beyond from there. In these markets, there is real competition and the airlines can be competing for loyalty. With programs that are nearly identical and devoid of substantive benefits, it’s hard to see how that’s going to happen. Airlines are once again racing toward commoditization despite saying they’re going the other way.
These programs have been institutionalized, and I can’t imagine them going away (especially since there are set requirements for elites within each alliance), but if I were an airline that really cared about loyalty, I’d be doing something completely different. The right solution will vary for every airline.
For example, when I moderated the customer panel at the Phoenix Aviation Symposium last month, Holger Blankenstein, Chief Commercial Officer of Volaris, told us about the closest thing Volaris has to a loyalty program, VClub.
Volaris is an ultra low cost carrier that pulls people off buses. People in México have long relied on buses as the primary means of inter-city transport, and Volaris is trying to change that behavior. VClub is pretty straightforward. You pay $49 a year and you get access to lower fares on every flight. (Spirit and Frontier do this to some extent, but they don’t do it on every flight.)
How does this generate loyalty? Well people who are used to taking buses are concerned about the complexity of air travel. This club makes the purchase process easier. If you’re a member, you’re going to be less likely to shop around, feeling confident that you’re getting a good deal from Volaris. A large percentage of Volaris travelers are in a group with elastic demand that can be stimulated to fly more with a good deal. There’s also the emotional component. Just knowing you’re a member of a club, and seeing that you’re paying less than rack rate every time you fly, makes you feel good. It helps with positive association. For Volaris, this has been a home run (if not just for the millions of dollars the airline has generated in membership fees).
Does this work at a legacy US carrier? No, it’s a different dynamic. But there is plenty of opportunity for a legacy US carrier to use the reams and reams of data out there to create a program that might actually help build loyalty.
Airlines know a lot about people. They know where they live, how old they are, where they fly, what their travel habits are, how much they pay to fly, and more. It can get very granular. Airlines can (whether they track it or not, they CAN) know if someone likes window or aisle, if that person has a favorite drink, if that person tends to use wifi onboard, etc. What’s more, people expect that airlines will know this about them. It’s not like some company buying a list that gives them info that a traveler might not want them to have. This is stuff airlines should know and use.
To build loyalty, airlines should use that information to show travelers that they are there to serve them and provide what they need. This program doesn’t even have to provide things for free. Let’s say I’m flying from LA to San Francisco and I want the 2pm flight. What if United came back to me and said this.
We know you love a window seat, but there isn’t one on the 2pm. Can you take the 3pm instead? We can get you seat 12A.
This becomes even more natural with the rise of conversational commerce, another topic we discussed on my panel in Phoenix. (Also an area where airlines need to start getting creative.)
There are a ton of things airlines could do based on the information they have to make air travel a more personal experience. Wrap those services up into a branded loyalty program and you have a compelling case to make to a customer looking to have a favorite airline. The more an airline shows it is trying to take care of a traveler, the more loyal that traveler is going to feel.
To me, that is the kind of action that generates loyalty. And the best part is that it doesn’t only generate loyalty from the most frequent travelers who are elites today. Bob might fly twice a year to Buffalo, but as long as he has an AAdvantage number, that doesn’t mean American can’t know what Bob needs and make for a better experience.
Airlines have come to rely too much on these big, bulky, faceless programs that have set (declining) benefits. Those may lock people in, but they don’t create loyalty. They may bring in a bunch of money, and that’s fine, but they aren’t doing what many people think they are. If airlines really care about creating loyalty, then they need to rethink what they’re doing entirely.