New generations of travelers displaying different behaviors alongside changes in how airlines set loyalty program status and a general lack of innovation have created a disconnect in expectations between carriers and consumers.
While some maintain there’s nothing wrong with loyalty programs – they remain a significant revenue earner for airlines, and travelers love earnings points – many agree it’s time for a shake-up because programs are no longer fostering the loyalty they once did.
Research from Lufthansa Innovation Hub‘s TNMT revealed a decline in participation in frequent flyer programs. It points to a study from Airport Dimensions that showed 52% of travelers participating in plans in 2023, down from 66% in 2019.
Additional research from McKinsey cited by LIH revealed 30 trillion miles were sitting in travelers’ accounts unspent in 2018. Point.me, a PhocusWire Hot 25 Startup for 2024, added that more than $30 billion worth of loyalty points goes unspent every year.
The startup’s co-founder and CEO Adam Morvitz said the deals done between travel loyalty programs and financial institutions such as banks and credit card companies have meant more points “in circulation than ever before, customers are more engaged and interested in discovering new brands and programs, and there’s massive opportunity for savvy programs to capitalize on momentum.”
He added there should be expansion of programs, not retractions.
The LIH study proposed loyalty programs move from being transactional and able to engage travelers only across a few touchpoints to something far more personalized that feeds into the post-pandemic demand for flexibility as well as the rise of cohorts less likely to attach themselves to a brand. LIH quoted an OAG survey from earlier this year that revealed 47% of millennials and 37% of Gen Z shifted their airline loyalty this year compared with only 23% of Gen X.
Why are loyalty programs not looking to other industries for inspiration?
Mark Ross-Smith – Loyalty Status Co
The conclusion of the report, and one shared by other experts in airline loyalty, is that airlines should extend the travel offering beyond tickets to provide the personalization, engagement and flexibility that consumers want.
“Why are loyalty programs not looking to other industries for inspiration?” said Mark Ross-Smith, CEO of Loyalty Status Co (formerly StatusMatch). “I believe there is demand for great products [that] add value to the lives of travelers. Airline loyalty programs need to get creative, think like a traveler and start providing more value beyond the traditional model of tiers, miles and lounges.”
The company, a PhocusWire Hot Startup for 2023, just launched an airline loyalty status subscription with Royal Air Maroc, and Ross-Smith described the uptake as “phenomenal and beyond what was expected.”
He believes innovation in airline loyalty is more likely to come from startups and technology vendors devising new digital products than from carriers, and he is encouraged by other newbies in the sector.
“I’m a super fan of anything startup in this space. I see opportunities for Point.me [and others] and personally like it because it makes things more transparent.”
Ross-Smith is less a fan of airlines branching out into more lifestyle products because becoming more lifestyle-focused to appeal to emerging generations could mean alienating core members. He also believes airline loyalty programs are successful because they provide something that external plans cannot – access to seat inventory – which makes them aspirational.
“Ever notice how airline loyalty programs use aspirational imagery in their marketing?” he said. “Not sure what aspirational imagery a bank would use to promote their loyalty program.”
Morvitz agreed on the aspirational element and said that in 2020 most consumers decided to hold onto points to redeem them for travel later as opposed to exchanging them for something else.
Web3 but lose the NFT
One area being explored by a number of airlines and other companies that could spell innovation is whether Web3 applications could provide increased flexibility and more attainable rewards for consumers. Etihad Airways, for example, recently released its latest 3D aircraft model for its non-fungible token (NFT) collection. The carrier, in partnership with Crossmint and Arcube, enables NFT holders to access Etihad rewards.
Subscribe to our newsletter below
Uptrip, a collaboration between the Lufthansa Innovation Hub and Lufthansa’s Miles & More program, is another example. Passengers of Lufthansa Group airlines can scan their boarding pass in the app and gain NFT trading cards. Collections of cards are redeemable for rewards such as lounge access, upgrades or for status and award miles.
Some believe airlines can go a lot further. Lin Dai, founder and chief executive of OneOf, a company specializing in Web3 software connecting physical and digital worlds, said the technology enables companies to build a one-to-one – and even one-to-many – relationship with consumers by building a community. He said while the average United States consumer is signed up to about 20 loyalty programs, usually points-based, they pay attention to only two or three.
“Programs are designed as a one-size fits all, it has to be. The reality is I have these benefits, but I never use my Bloomingdales or Saks Fifth Avenue credit. But what I really need when I travel with my family is more than one pass for the lounge.”
He suggests someone who is a fan of Saks and not traveling for the summer could digitally trade their pass for the shopping credit in a marketplace.
“Basically, it’s a Web3 powered loyalty program to allow user-to-user to self adjust the rewards they care about. So there is a self-optimized way that now you have two really happy members, each with a very personalized version of the rewards program but also engaged members, because it’s very rare you get to, as a community, share benefits and work with a like-minded rewards members, so that increases loyalty beyond the program.”
For the programs and carriers, there’s also the risk of a moving target in terms of NFT pricing and fluctuations.
Adam Morvitz – Point.me
Morvitz of Point.me, which wants to become the go-to loyalty management platform for travelers, said, “There are some in the space who think NFTs will completely transform all current loyalty programs. We think of it more as an additional opportunity and channel to engage with new and current members. For example, frequent flyer status and traditional points/miles remain, but NFTs present opportunities to increase member (and new member) engagement and present them with gamification wins like lounge access, status and flight upgrades, and even points (in their current form).
“In the short-term, the opportunity could add more confusion to a space where many already struggle and certainly some knowledge of crypto is required to fully take advantage. For the programs and carriers, there’s also the risk of a moving target in terms of NFT pricing and fluctuations.”
Dai, the CEO at Oneof, which works with a number of large credit card companies, believes that the future of airline loyalty goes beyond the one-size-fits-all model to a personalized reward program.
“It’s very hard for the program, on the fly, to determine how to personalize for each individual user,” he said. “So having a marketplace dynamically powered by Web3 really allows the member to self adjust and optimize the value. I think that’s where everything is going to go.”
Whether through offering new digital products, expansion into lifestyle areas or exploration of Web3 technologies, some airlines see the need for change.
Point.me co-founder Tiffany Funk points to Air Canada‘s Aeroplan program unveiled in 2020 “as a great example of a built-from-scratch solution for the modern economic environment. By looking at each component of the loyalty program in a hyper-critical way, they’ve been able to reset the levers of loyalty. Aeroplan is better able to incentivize the behaviors that drive revenue for Air Canada, and customers are able to be rewarded in the ways that resonate most with them, which of course then furthers that brand affinity and loyalty.”
She added that other carriers are beginning to incorporate elements of the Aeroplan program into their own loyalty initiatives.
More recently, IAG Loyalty, the program for carriers including British Airways and Iberia, partnered with JR Technologies to enable multi-product shopping carts combined with payment via loyalty points and cash.
The Aerostream technology means travelers can earn and redeem IAG currency Avios on each product in the shopping cart, including flights, hotels and ancillary products.
The airline loyalty landscape is changing to incorporate flexibility and increase offerings, but innovation is likely to come at a slow pace. Think evolution rather than revolution.
Ross-Smith said, “If we look at the last five years and use that as the guide to try and predict the next five years – I’d say we’re screwed. Where is the innovation? The innovation is coming from suppliers and vendors, and not from within the airlines themselves. This is due to airlines having a culture of risk-aversion and lack of talent from other industries moving into airlines. Things will move, but it will be slow. I do think we will see someone – maybe a newer airline, like Beond, PLAY or Alaska Air – take a new bold approach to loyalty because they have nothing to lose, and everything to gain.”
He suggested high-tier members of loyalty programs outside travel, such as credit cards and retail outlets, could be given similar status on airlines.
“What if you couldn’t earn gold airline status but it had to be prepaid? What if a startup airline never created a loyalty program and instead said to passengers, ‘Show us your gold card with any competitor, and we’ll give you gold benefits with our airline.’ There’s tremendous opportunity to do something different and potentially make a lot of money. Apple thought different. Look where it is now.”
