Airlines have led the industry in developing a loyalty mechanism that drives repeat behavior and has clear and understandable rewards. However, as consumers change and the way we consume products brings about change, the model of airline loyalty is facing issues.
The basics of airline loyalty are well understood: I earn reward through repeat business, and as I spend more I accrue more miles and/or points. Based on a set of fare-like rules, I can redeem mileage for free or discounted travel. The challenge has been that the loyalty model requires a lot of purchases to garner any award, a churn and burn model.
According to an IATA 2015 study airlines carry $12B in “loyalty debt”, and this is a problem. Mileage and points are slowly devaluing while the overall balance (or debt) is increasing. The challenge is that consumers either hoard points due to limited ability or desire to burn, or they can’t earn enough to burn.
For instance, on a north American network carrier a consumer can earn 5-7,000 points for a flight to Europe, but it costs 60,000+ points to redeem. It takes up to 10 flights to get one free flight.
We think there is a better way. Today Datalex works with its airline customers to give them incremental spend opportunities for their loyal customers. At Datalex we enable loyalty as a virtual currency that can be used to increase conversion, reduce the cost of payment and drive loyalty through simple award structures. We want to help transform loyalty from a debt the airline carries to a new revenue channel.
By transforming miles to virtual reward currencies, the airline has the capability to offer limited or small burn opportunities for upgrades, ancillaries, or even partial payments, while retaining control of the value of the mile and/or point.
Moving forward Datalex is introducing a retailing approach to loyalty, linking the airline’s capabilities in offer management (promotions) to award loyalty in limited buckets, all tied to a call-to-action, for example ”Double miles on our new route, must spend by August 2017”.
We believe by breaking the “bulk” balance of the customer mileage into a collection of time-bound, value-aligned offers, the airline can align behavior away from churn to a more strategic way of influencing behavior through limited offers, for example “Fly home Saturday and enjoy a 10,000 point bonus for 2017.”
Further, loyalty is the customer’s currency, let’s leverage it. If I have a high balance, then use that as collateral against purchases; give me a line of credit equivalent to the dollar value of my points. The cost to process $100 in points is free, no chargeback risk (typically 1.5% of revenue), no interchange cost (credit card processing runs at $2-$3 for $100) and burns loyalty while eliminating churn.
This Is just the start. At Datalex, we are embracing virtual currencies to drive value to the airline as part of our future state airline model. Sign up to our Payments blog series to get the latest posts direct to your mailbox or for more information contact us at email@example.com
Vice President of Product and General Manager of Datalex Americas