Airline Loyalty Programs - their Role, Positioning and Potential for Even Greater Profits (#257)

Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals. I’m your host, Paula Thomas. And if you work in loyalty marketing, join me every week to learn the latest ideas from loyalty specialists around the world.

 

Hello and welcome to today’s episode, all about airline loyalty programs. Their role positioning and potential for even greater profits, which still seem to have plenty of room for growth. I’m joined for an interesting discussion by Mark Ross-Smith, a well-known airline loyalty thought leader now based in Malaysia.

 

Mark is the CEO and co-founder of a company called Status Match as well as the founder and editor of Travel Data Daily.com. I hope you enjoy listening to our discussion about some innovative ideas to drive customer loyalty, learning from both the gaming industry, as well as other strategies that have been adopted by other leading airlines with great success.

 

So Mark, welcome to Let’s Talk Loyalty. 

 

Hey, Paula. Fabulous to be with you. 

 

Yes. Fabulous. To have you here, Mark. You are a big name, particularly in the airline loyalty industry. So some wonderfully provocative, uh, thinking on your part, which I’m looking forward to discussing with you today. So before we get into all about airline loyalty kind of conversations, first of all, of course, I want to ask you about your personal favorite loyalty program.

 

My personal favorite loyalty program is a computer game. It’s called League Of Legends. It’s one of the world’s most popular PC video games. It’s on the PC platform. uh, there’s, uh, there’s more than 4 billion hours a month people play this game it’s been around for about 10 years or so. Wow. The company that runs it has been posting profits between 1.5 and 2 billion USD annually from the computer game. And if we think about loyalty, you know, gamification as a word always comes up. Yeah. Yeah. And you know, where does that come from? It comes from games, you know? Ooh. So the, this computer game, I’m maybe addicted to the wrong word here, but highly engaged. And you know, it, it’s got all the elements of a traditional program. There’s tiers. You work your way up through the tiers based on different skill level, how long you play the game. It’s got, virtual currency and points within the game. In fact, it’s got mul, this game has multiple virtual currencies that can unlock different characters and, um, ways to enhance the game experience. And there’s a community aspect as well, you know, so you can play with your friends, you can meet new people as well. So it’s kind of, it checks all the boxes in terms of engagement and what a loyalty program could be. So, uh, for me, I’m very loyal, maybe addicted is yeah, sure. But, um, But hi, definitely highly engaged. And in fact, I’ve drawn a lot of inspiration from video games to apply into other non-video game loyalty program. 

 

Oh, wow. Okay. Well, we will definitely explore that, and yeah, definitely. I think a very exciting, interesting space Mark, because you know, for me as a nongamer, I kind of wish I was for exactly the reasons that you’ve said. So first of all, to find something that is so engaging.  um, you know, to, to literally enjoy spending time with, um, I’m sure there’s parameters now that, uh, the family have to put around making sure it doesn’t become too addictive, but absolutely. I think it’s an extraordinary, uh, concept, and I, I suppose I first respected games when the likes of Candy Crush came out. So, I certainly wouldn’t be the traditional gaming profile. I think it’s traditionally assumed that it’s a male demographic, but what Candy Crush, for example, definitely proved is that there are, you know, all sorts of people that can engage with games. So what I’m hearing actually, Mark is perhaps there’s a need for loyalty professionals, listening to our show at our conversation today to officially take up gaming as, um, some professional research.

 

I can hear the cheers already at Paula.  I can see everyone downloaded games that, oh, we’re doing work today. We’ll just play games. 

 

Totally, totally. But actually that there is another good example, mark, which just came to mind. So I wrote an article actually inspired by the, um, the Cannes Lions Festival of Creativity. I hope I have the, the name, correct, but it literally follows the, the Canne Film Festival. And it’s, uh, maybe top of my wishlist as a professional destination, I want to get to at some point. But KFC, which is not a brand, I would typically associate with loyalty or I don’t consume their products, for example, I don’t think I’ve ever been in a KFC restaurant for example, but in China, KFC built their entire loyalty strategy based on gamification and targeting the game and community. So I’ll make sure to link to it in the show notes, but I think exactly what you are saying, Mark is there is huge inspiration available within that entire business model, Um, with extraordinary numbers, like you’ve just quoted from League Of Legends, for example, that we can all take learnings from.

 

Gaming is really big. You know, we talk a, hear a lot about like meta and the Metaverse these days, right? This immersive gaming type experience. Is coming into our world. This is, this stuff’s already, it’s been around a long time already. You might remember, you know, second life. Yeah. Like 10, 15 years ago came. Exactly. Yeah. Since then, you know, things like World Of Warcraft that come in, they, they are these immersive gaming experiences. Yeah. And they’re, they’re created in a way to keep you engaged to keep you in the game, right? Yeah. The, the, the product design people behind this are really, really smart. Yeah. And to your point in KFC in China, Especially in, in Southeast, like Korea, South Korea is actually very interesting. There’s dedicated TV channels that just stream gaming, like on TV, you can just tune into a down and watch it, you know? Yeah. Look at, uh, Twitch, you know, the, the video game streaming platform. Uh, I think it was. Amazon that bought it billion dollars or something pretty big. Um, people are making careers, just streaming video games. People are just watching you play a video game. You can make career out of these days. Right. Wow. And which means the game behind. It has to be interesting enough for people a to wanna watch it at almost like a sport. Yeah. And B interesting enough to play it. Right. And what better way to keep people playing a game than have loyalty elements in that, you know, tiers, currency, achievements on these, these sorts of things. Yeah. So there’s, there’s a definitely a lot that the non-gaming world can learn from the gaming world.

 

Totally. And the other point that’s coming to mind as well, Mark is, um, I’m very passionate about the role of content as a tool to drive loyalty. Um, clearly I’m a content producer in a specific format, but I think I mentioned to you off air that I did meet, um, a couple, actually a husband and wife team a couple of years ago at the Web Summit, big technology conference. And they’re working with World Of Warcraft, the husband, composes music for them. And the wife is the conductor of the orchestra. And I mean, 80 man, woman orchestra, creating and performing. For example, they’ve performed with the Philharmonic Orchestra here in Qatar, but the role of music to drive loyalty as a form of content, clearly very emotional, perhaps better understood. But that blew my mind as another thing that, again, when we talk about our, you know, careers in telco and careers in airline, nobody’s really talking about content and certainly not something as dramatic to me as music as a way to build emotional loyalty with their members. 

 

Totally music is, is ultra powerful. Uh, think about putting an, my airline hat on for a sec. Yeah. Think about when you’re board aircraft. Airlines have got boarding music, you know, and they often go for 10, 15 minutes and they’re, they’re beautiful pieces. Yeah. They’re very uplifting, they make you feel good, which is kind of what you want, what you boarding aircraft, you ought feel good about the Journey ahead. Yeah. Not, not some kind of rock music and like, oh, You want something coming to the ears? That right. Tone. Yeah. Uh, you know, video games, music, movies, it, it flows over into these things. Um, highly underrated. I think I, music is yeah. Um, used in the right way to invoke these emotions when you’re playing a game. Cuz if you’re, if you’re doing something, whatever task it is, and then some emotional, highly charged emotional element subconsciously or not, this sort of comes in. Yeah. What happens is you subconsciously link the, think, the act that you’re doing. Right, whatever that is. Maybe you’re not playing, maybe playing a game or maybe with, with, with that music. And it, it creates like a bond in, in your memory and you start to have these same, it’s the same feelings as love you. Start falling in love with it. 

 

Wow. Okay, well, we’re going in a whole other direction there. So, uh, so good insights, Mark. Thank you for, for bringing that to our attention. So listen, I was reading lots of your articles. Obviously. You’ve been working in airline loyalty now for how many years would you say Mark? Actually, it’s a long time. Huh? 

 

Uh, look, officially, I want to say about seven. Un-officially 20. 

 

Okay. Okay. Consumer first and, uh, consultant later. Huh?

 

Correct. Came in from being a legit, real frequent fly myself, um, with a bunch of airlines, um, having another business, uh, and then, you know, I, some point sold that business and I thought, you know, had no job at that point, just a company. Like, what am I gonna do next? Uh, I thought, you know, I really want to get into this airline loyalty stuff. It’s kind of cool. So that’s, that’s the official part of my career when I really started that journey into how do I, how do I get into this? You know, being someone that had already had career doing something else.

 

Yeah. Yeah, no, it’s a great perspective Mark and definitely one, I think that we need to explore a lot more to, I suppose, put ourselves in the shoes of customers and really understand the pain points that, um, the passengers experience and there’s loads around that, and lots of reasons actually, why that doesn’t currently happen within the airline loyalty industry, I guess, because you know what all of us who’ve worked in airline loyalty know is that as soon as you join the business, uh, you do get immediate access to business class, for example for free, of course, to fly around and do whatever you need to do within the airline. So it’s almost like for me, I mean, I was what, 25 years of age, when I was put into that wonderful position. So yes, I definitely didn’t have the same kind of pain points that I have now, for example, as somebody who aspires to fly in business class finds it, you know, hard to justify the pricing. And yet I do really value that experience. 

 

Yeah, you, you you’re right. If you speak to someone works on airline, typically you’ll hear the conversation will go or something like this. Oh, I’m going to Spain for the weekend or I I’m going to Singapore or the weekend. I’m just jumping on a plane. There’s some seats available. Yeah. And the there’s a pretty large disconnect between what non-airline employees go through. Think of like a typical passenger and a airline staff member. Right? So airline staff are paying, you know, between what, 50, 90% off their ticket, right? So suddenly they’re not, she that 20 grand to fly halfway around the world, right? And so what that, what that means is there’s a different experience that they. With the product versus normal travelers, right? So they, firstly there’s the, the amount that they’re paying and the also the way that they book that, right. They’re booking through a staff travel portal. There’s no upsells, There’s no pop ups, There’s no, Hey, click here, get the credit card and say $300 on your flight. If they don’t take the flight, they can get a refund. If they’ve even been charged for that flight, they get a refund very quickly, which. Not the experience with most people. , you know, they check, they check in at different counters at the airport. with typically not as long lines, um, different baggage allowances, different ticket running rules. Uh, and you know, a lot of these people are just happy to get on the flight at the end of the day. Whereas versus, you know, you and me and millions of other travelers, we, we pay some pretty big bucks to get on these tickets, to fly at specific times And we expect to fly at certain times. And, you know, If something doesn’t go right, and we’ve paid 10 – 20,000 bucks for the ticket. Um, our expectation is the outlet’s gonna do something for us. Whereas a staff member doesn’t have that experience cuz what they pay and their expectations are totally different. Um, another good example on this is, um, the credit cards right in, in loyalty program. So in airline loyalty, generates huge cash flow from these Cobrand credit cards. And if you work in an airline, why would you need to have a Cobrand credit card? Because you already get cheap flights. Sure. You know, you don’t need to save up these miles for 1, 2, 3 years to, you know, fly your family to Disneyland for a couple of weeks. You just, you just look at what flights have availability you jump on. ’em cool. We’re going. And so what, what it means is most people, what I say most, I mean, 99.9% of people on airline don’t have the Cobrand credit card cuz they just don’t need it, right? Sure. Yeah. And so there’s, there’s probably a good argument now. What, what would happen, If they were forced to get the card or what would happen if you took away staff travel as a benefit, would they then get the credit card? And if they did, how would that change your behavior within an airline? And then what would that look like reflected back into the loyalty program? how would they then want to solve their own problems and their own challenges to make the program better for the millions of travelers that go through these pain points, every single day? 

 

Yeah. Yeah. And do you think, I mean, obviously there is a lot of, you know, uh, money, I guess, invested in market research with top customers, and I know for example, you were one of Qantas’s top frequent flyers and you got to spend a lot of time with management and they wind and dined you by all accounts and, and really took care of you. And I guess as part of that, um, Experiential side of being a frequent flyer, you got to express your views. I’m sure they were very curious as to your experiences. So do you think that is one way, um, I suppose to continue investing in getting those insights of exactly those pain points for, for real life customers? 

 

Qantas treat very well over the years, I must say. shout out Quantas if your listening. Um, A lot of fantastic experiences, and I, what it felt like for me is they, they wanted to have those conversations, you know, a lot of. Just kind of close those channels off it, like, oh, these pesky travelers again, how dare these V I P these privileged people complain about not getting a hot meal, how they’re only spending a hundred thousand euros, how dare they, you know? Yeah. Um, there’s a lot of that and I didn’t get that sense with, with Qantas, they genuinely wanted to engage with their top customers, learn more about what drives them, what doesn’t drive them. because if someone’s spending a bunch of cash with you. Yeah. Often it’s easier to get ’em to spend even more, right? Yeah. And if you can tweak and do a few different things, uh, why not? Uh, at the time, this was nearly 10 years ago, the airline was introducing a new super tier. So above a, like a typical platinum tier, like a super VIP tier. And so there was a lot of, um, a noise around this new tier and you know, what it’s gonna look like and the benefits. So, you know, what better way to figure out what benefits you’ll put into a new tier than to talk to the people that would qualify for it. Sure, right. Yeah. And because, and if you engage that audience yeah. Uh, people that might qualify for it, what happens is you, it’s a, it’s, it’s a giant advertisement basically saying, Hey, if you do this, you’re gonna get there, you’re so close already. And what happens is there’s this, there’s this sort of spending up element where you, a bunch of people that would’ve been close to getting it, they they’ve been involved in this, this new tiered into creation in some very small way. It gets, it gets announced and like, I need to get there and they they’re already spending a lot. They can spend more and they do. Yeah. And so with airlines, you know, when they launch new tiers. Yeah. You hire tiers. This is, um, there’s a lot of people that will just spend up totally unnecessarily to get into that tier, and you could almost justify creating the UT all the costs and all the staff and all the branding, all the, all the, everything around you could justify purely by the people they’re gonna spend up in the first month or two to get into that deal.

 

Totally. Totally. And I think the key words you mentioned there, Mark is these are people who can spend more and, you know, particularly, I think again, just from reading some of your, your articles, there’s, there’s the whole piece around, for example, well, obviously taking more flights and maybe being able to justify that. Um, I do know people, you know, who, flown halfway around the world. Um, you know, without really needing to, as in, it was a business trip that could have been done on zoom, but actually had that kind of same kind of milestone focus about being determined to get to the next tier and the company was paying. So why not? So that definitely does happen, um, for people who can spend more. But what I also love is this concept of share of wallet. Um, because I really believe that, you know, the loyalty programs I’ve been involved with, you know, we spent an awful lot of time, you know, trying to obviously focus on driving profitable behavior change and looking at, oh, you know, this segment did that. And we were able to, you know, drive this upsell or a cross sell. We really only looked at or had access to behavior within our own business. And it never even occurred to me, to be honest again, it’s probably be one of the reasons why I do this show is like these big ideas about, oh my God, actually they’re of course spending with other airlines in this situation probably doesn’t happen so much in telecommunications. Um, but I think there is a massive opportunity, and I’m keen to understand Mark, whether you think in most cases at the moment, the airlines you are talking to do, they have a good understanding of their share of wallet? And if they don’t, I guess what can they do to get that visibility? Because there is a great article, we’ll make sure to link to it in the show notes as well about, you know, just showing, you know, two different people, obviously with very different profiles, maybe one is considered loyal because they’re flying, you know, so many times with the airline and increasing the number of flights, but actually then another passenger who is actually only giving you 50% of their travel. So, um, they’re actually not being loyal, even if they seem to be and flying more with you. If they’re still flying more with their competitors.

 

It’s exactly right. So in your example, the person that’s only giving you 50% of business to the airline, they might be a platinum-type member, and they’re the highest tier you can get they’re seen as a great customer. Yeah. But you, what you don’t know is they’ve got a hundred fights with only competing airlines that they’re done every year over that spending twice as much. And so in terms of share of wallet or percentage of lo real loyalty is, would be, you know, less than 50%. Yeah. Whereas, you know, um, you got another passenger. Twice a year, they go visit grandma and a hundred percent of their share of wallet is on your airline. They’re very loyal. Yeah. Like they’re actually better customer in terms of loyalty to the airline brand. Yeah. And so there’s this whole thing about how do you one, how do you track share of wallet, which I consider one of the golden metrics for airline loyalty. These are one of the top three things you need to be tracking. Yeah. Uh, especially on your most valuable customers, because if one of your most valuable customers starts flying with a competitor. Yeah, chances are they’re gonna do more and more and more and more of it, even if you don’t see their activity with your go down. That, that that’s a real risk. Yeah. And so you need to track it the background. So the next question is, how do you, how do you, how do you measure this stuff? And there’s, there’s a bunch of different ways. Nothing is a hundred percent. Um, there’s a bunch airlines that do a pretty good job of this today, especially in North America, mostly using, credit card spend data. Okay. Uh, so what that is, you know, they know what credit card you have on file and in, in the USA, that yeah. Is very unique opportunities to leverage data insights. Totally, totally. And, and they can, you know, get an idea of where else you’re. Spending, right. So you’re spending on airline A and airline B, C and etc. Um, actually opportunities for customers to have a bit of fun with that, you know, you could just for fun, you know, put all your competitor airlines, spend on one credit card and all airlines spend another credit card just to play. So they think they’re not getting any spend. Yeah. Yeah. You get all the yeah. A credit card is one. The one that the, probably the one I find most interesting is telco. So airlines using telco location data. So there’s a, Telco’s a thing called HLR. It’s a home location registrar. And what that does is your mobile phone, every second, it’s ping this cell towers around you saying, I’m over here, I’m over here, I’m over here. And that’s how they, they route phone calls, right? To say, you know, we’re gonna route to this tower. Um, in some countries you can, as a third party, you can, you can access this data. And so I could, you know, Maybe not in your case, but I could type in, you know, Paula’s phone number. Yeah. And say, Paula is in this city right now. She’s roaming on this network. Her home network is blah blah telco. And so if you travel overseas, suddenly, if I’m, if I’m doing a lookup on your number, I can see when you’re traveling. Even if I have no insight at all, to any of your flight activity, any of your credit card, da – credit card data, I can still see, you know, Paul’s she’s today, she’s in Dubai and I ping her again tomorrow. Oh, she’s in Singapore and then she’s in Australia and then she’s in Japan. And I correlate that back to the flight history at my airline. Did Paula fly by airline or an Alliance or a partner to get there? If no, then, well we’re missing out on something, and if yes, then great. You know, we, we got what we think might be a hundred percent share wallet. And so that, arms with that data, you can then, uh, plug that into your CRM system and treat people differently depending on their share of wallet, rather than what status tier they are. 

 

Totally. And are there many countries that, that data is available Mark in your experience? Because, uh, you know, privacy concerns are so huge right now, I can’t imagine this is, is possible in Europe. I could be wrong, but, uh, is this something that, that you know is possible in, in certain countries around the world? 

 

I wanna say about 50% of countries, you can. Wow. Um, don’t quote, I think it’s about, I think it’s about that. Uh, laws definitely have changed in certain markets over the years, but this HLR data is not a new thing it’s been around for at least 20 years. 

 

And I guess there’s a way to, uh, perhaps build it, um, in a way that could be GDP, pardon me, GDP or compliant. Um, for example, within Europe, you know, with permission, if the, um, the telco customer is a member of a telco loyalty program and does give permission for that data to be shared, then I’m guessing that would be, uh, certainly a way that could be done with permission and compliance on both sides.

 

Yeah, some, some telcos make a lot of money selling data as well. So there’s telcos selling data directly to a company. And then on the other side, there’s, there’s like aggregators that pick up as much data as they can through other sources. Yeah. Um, it’s, I don’t know how much privacy we really have these days. That’s true. You know, I, my view is, you know, you either get over it or you dont. Yeah. If you don’t get over it, you kind, you kind of have to remove yourself from social media and, and a lot of life. Yeah. Um, otherwise you just get over it, protect what you can. Um, you know, and then just sort of manage yourself like that. But I guess from a company perspective, there’s a lot of opportunities to tap into that. 

 

Yeah. Yeah. Well, it’s definitely one. I really like Mark this idea of the golden metric and understanding the share of wallet from an airline perspective. Because as I said, I think we’re so focused on internally understanding the behavior and focusing on improving that, that sometimes we don’t look beyond our own four walls, and definitely something I think is super interesting to explore. The other big one that I really love, I suppose, very topical at the moment is the value of airline loyalty programs, um, compared with the airline themselves. And I know this is one that, uh, certainly you posted on, you know, just recently, for example, um, the example that I saw that you were, were commenting on, and I was interested actually, in some of the comments that came through from the industry. But the particular example was the El Al frequent flyer, uh, program valuation, a program called Matmid. I didn’t know it. And you named it for me, but El Al’s frequent flyer program has just basically been essentially valued, um, at 500 million US dollars, but the airline itself is only valued at 180 million dollars. So it seems that the loyalty program is worth on paper, at least almost triple the valuation of the airline. 

 

Yep. It’s pretty typical, very typical. Most airlines. Um, I can hear the haters now. Um, yeah, you know, the last two airline loyalty programs have always been most especially legacy carriers, been pretty profitable for the longest time. Uh, and that, that, that. The revenue’s mostly generated from the co-brand credit cards and transferring points and miles from banks into the, into the program a, a, a lot on that. So that’s where the valuations come from is from the cash flow from, from that in, in. In North America, it’s say the arguably the airline industry, because the airlines are able to leverage government loans based on the valuation of the loyalty program. Cause the airlines had already mortgaged to the Hills, everything else. They had nothing left to mortgage. Oh, is loyalty program thing we got, oh, what do you know? It’s worth more than the airline itself. Yeah. You know, American Airlines very famously hasn’t really, uh, operationally hasn’t posted a profit for many, many years. Uh, and yet, yet as a company, as a group, it’s, you know, billion-dollar profits every year and that’s underpinned by the advantaged loyalty business. Yeah. And, you know, there’s lot of other folks commenting on the same thing is American Airlines. They’re not really an airline. They’re a marketing company that has a flying metal tubes division. You know, they, that, that they’re a marketing tech company, which kind of brings the next question, you know, in a lot of airlines, the, the loyalty role, the most senior loyalty role is like head of loyalty or VP of loyalty, something like that, you know? Yeah. Why isn’t it, why isn’t it a C level role? Why isn’t it C of loyalty? some airlines do, but yeah. Why shouldn’t it add more and more importantly, why is, why is loyalty not represented on the board? Right. Proportionally to the value it brings to the business, which arguably is more than airline. Yeah. Right. So why isn’t the board made up of more marketing branding loads like these kind of people? Yeah. Cause that’s where the money is. The money for a lot of airlines is not in selling tickets and flying people around the world that business flying people is needed to support their financial services business, AKA the loyalty program. So why not, why not put more focus into loyalty because that’s where the that’s where that’s where all the enterprise value is. That’s where the profitability is. That’s where the interest from investors is, is this thing that has sustainable revenues for the last 20 years. It’s very stable, even through, you know, 2008, the economic downturns through nine 11, even, even through the pandemic, the worst time, arguably in commercial aviation in history. Yeah. And airline loyalty programs are still posting profits. What does that tell you?  

 

Well, I thought you articulated it very well, mark, when you know, and again, in another of your articles, you basically, um, you know, suggested that it’s not the situation anymore. In fact, that airlines have loyalty programs, but in fact, loyalty programs have airlines. And I do think if there, That dramatic shift in the thinking again, to your point at the C-suite, if it’s actually first and foremost, a loyalty business that obviously requires aircraft to deliver the product, I think there’d be a fundamental shift in the level of respect that the loyalty program gets, of course, because actually it is then the business, rather than the flying metal tubes division that you talk about.

 

Just on El Al’s for a second. You know, the loyalty program valued at 500 million that’s today’s value, right? Yeah. Imagine if, and then, and then they’re not the biggest airline in the world, you know, imagine if they grew some of those, the right metrics, that 500 million is why couldn’t it be 10 times that? Yeah. You know, for an airline to, to jump up 10 times in their, their market, On the market, right. As unheard of, right? Sure. How many, how many aircraft do you need to buy? How many pilots do you need to employ? How many routes do you need to fly? Like how much does that cost to do all that? To drive up 10 times or 10X versus how much would it cost investment into loyalty to drive at 10X? Right? Which is again, if it’s worth two and a half times near three times, the airlines value, you’re much better putting your resources into loyalty than into pilots, fuel network, all this other stuff. I mean, you need the airline. Don’t get me wrong. Of course. Or actually that’s the other way around. It’s the airline needs the financial services part of AKA the loyalty program.

 

But I think it’s a good point, Mark, because what I’m hearing is, you know, again, to go back to your, um, favorite, uh, example as, as a frequent flyer with Qantas, what I do think that they have done extraordinarily well, of course, is this focus on loyalty means. That they go out and invest their time and efforts in essentially selling the loyalty currency and the revenue then that comes through that, as we’ve said, requires the airline to fulfill it. But I think that mindset of we’re in the loyalty business, we have aircraft and, and, you know, uh, roots to, to fly of course, to, uh, to delight our customers. But actually, I think your focus, as you said, rather than the investment on the aircraft and that hugely expensive, tiny margin airline business, suddenly goes into, uh, becoming, you know, potentially a, an explosive community with extraordinary revenues, um, across, you know, much more like coalition style loyalty, I guess.

 

Exactly. Uh, you know, there’s 57 new startup airlines that I’ve seen come pop up on the last year. Wow in, in the world. And I, I haven’t seen many of that actually have a decent loyalty proposition or, or if any loyalty proposition at all, that kind of blows my mind. Yeah. Considering how value the world is seen and proven how valuable loyalty is. And it just doesn’t appear that many are going out direction in terms of being a loyalty-first company there being an airline-first company. So we’ll see how that plays out to your point on coalition. This is really interesting because you know, if you are, if you’ve got a lot of options to earn points through everyday spent through just normal life living, you go to the supermarket, earns some points, you telco bill, you earn some points. If you got points through all these different partners, what happens is, um, subconsciously you know, You go, you own your 50 points from the supermarket. You’re collecting them. Uh, when you go to fly, what happens? You go, well, you know, I’ve been collecting all these blah blah, airline miles. Um, that’s the first time I’m gonna choose or at least look for a flight for, right? So it’s, it, it kind of acts like a, a quasi brand lock in mechanism, right? Where you’re making the airline or the loyalty program money through. And the supermarket buying miles on your behalf and go into account. Great. Uh, and then, and then what happens is when you go to fly, you’re like, oh, I’m gonna fly that airline. Cuz I’ve got some miles there. They might not be the cheapest airline they might not be the most direct. They might not the best product, but you know, Hey, I’ve got some miles there, you know, I’m loyal to them. I like it. I’ll fly with them. And so what it does, it, it, it funnels people into specific brands versus the alternative. And so collecting miles at, you know, a supermarket or just for everyday spend is, yes, there’s the financial element for the loyalty program on them selling points of miles. Great. But there’s also the, um, you know, the, the art of loyalty side where it’s. Um, it’s, it’s a software approach. It’s, it’s the schmoozing you to, to please fly us next time. It’s putting that brand front of mind, um, so that when, when you are ready to fly and that might not be for one or two or three or four, whenever it is, but when you are the chances of you going to that brand’s website is, is so much higher because you’ve been collecting the currency versus if you weren’t collecting the currency.

 

Yeah. Yeah, for sure. Yeah. And I think what I’m hearing as well, mark and I, I know your expertise is very much in the vertical of airline, and I’m going to ask you a question about everyone except airline. Um, but what I hear coming through, and again, when I was, you know, running loyalty programs, and again, in the telco sector, which I know you, you worked in as well. To me, there was a lot of this kind of points, fatigue, you know, there was a lot of this issue, which is exactly again, what coalitions are designed to address. And I think points, fatigue exists. In probably every single sector except airlines, because the level of aspiration and the joy of travel, even if it’s to gift travel or whatever, I don’t think there’s points fatigue in my experience. Um, and certainly as a consumer. So what I guess my question is, is we have a huge audience, of course listening. You know, some of them are definitely airline loyalty people. Plenty of them are not. So we have people in quick service, restaurants and retail and all these other sectors utilities, for example, where we’re all looking for that unique selling point. So if you were to go into a telco now, let’s say as a loyalty manager, And you maybe have an existing program or not. I guess you do have an opportunity to look to the, you know, the best airline with the best loyalty proposition in that market. And again, I don’t know Malaysia very well, for example, where you are based, but, like, what would be your advice or, or your approach, do you think, would you build your own loyalty program with your own points and that challenge that we’ve talked about in terms of point fatigue, or would you go to the, the airline and say, Hey, can we just, uh, buy points from you guys? And you know, is, you know, what’s the decision-making criteria, would you say? Because I guess there’s a lot of trade offs when you go with the, you know, just buy them for somebody else. I mean, they’re going to be more expensive, for example, the data and insights, maybe not as good, but yeah, I just think it’s a very interesting, interesting idea because it is so difficult to build a compelling loyalty program as a standalone business? 

 

Have a whole another podcast just on this topic. I think Paula. Sure. Um, sorry for the long question.  the, I, I. The answer really depends on maybe the size of the company looking to build out their loyalty proposition, uh, whether they partner with an airline or buy those that currency or not. If we look at why airline currency is interesting and aspirational, um, it, it often comes down to airlines. When you fly, you’re on a plane for an hour, 2, 3, 12 50, you know, you’re in that, that travel ecosystem for hours and hours at a time. And so you’re seeing the brand, the seat back and you trade meals, come out, you see the brand everywhere. You’re just immersed in it. Totally immersed for long periods of time. Whereas when you walk into Starbucks, it’s two minutes and you’re out. Sure. Right. So that’s why also people are more interested in the airline just cuz they’re more passionate just because they’re putting more of their attention in it. Because they’re, they’re living in that plane for 12 hours on the flight. Yeah. Right. And so for an external business that is looking to, you know, do we credit our own currency or do we leverage off airline currency? The airline currency has this pretrained audience on the value of, of their currency, and airlines are not stupid. They will charge you a premium to buy those miles if you’re out the business. Right? Sure. But you know what? It’s probably worth it for the other business, especially if you’re a small company. Yeah, because you, then you’re then tapping into this other customer base. Yeah. They, they know the value of these points. Yeah. It’s a big brand. So presumably if it’s a, you know, you’re kind of trading up in terms of brand, so that’s good for your business. Um, and you don’t have to think about it as much. And then, you know, if you got the right economics and partnership agreement in place, you know, maybe the airline’s gonna help promote your business. Um, yeah, and actually what I, what I’ve found, and this is a really hard thing for some companies to grasp a lot of the power in these kind of relationships is. Yes. There’s power in the airline promoting your product when you’re a partner. Yeah, but actually, if you are, if you are the other brand, you promote the fact that you’re a partner of that airline brand. That, that is actually hugely powerful. Hugely magic magical. Yeah. Um, because you know, your own customers better than the airline knows your customers. So you, you promote in the channels that, that, you know, best, and then suddenly you’re unlocking the loyalty members at the airline sort of come into your business. So there’s a, there’s a lot of power in that. Yeah. Um, so, you know, to your question, I think it depends, okay. A lot on where, where you want to go, that doesn’t really help anyone this thing, but there’s obviously tremendous value in, in an loyalty currency. And that’s been a proven model for at least the last two decades. 

 

Yeah, but I really like the words you used, Mark, which is pre-trained because again, to go back to my own example and my own experience, essentially, no matter how much time, effort, money, and communications we spent, it always felt like never more than, I’m gonna say 35% of the customer base really understood our telco loyalty program. Like, we never really appreciated the depth of the challenge to educate and train the customer on what our currency was, what the value was, what the benefits was. So I think you’re absolutely right. That idea that, you know, to, to essentially partner and buy from another pre-trained, uh, loyalty base. I think there’s a huge benefit there to a partner brand that, um, yeah, I hadn’t really thought about vefore. 

 

There’s also another element is, do, do you want more than 35 or 40% of people engaged in the loyalty product? Cause maybe that’s all you need. Like for an airline. If someone, for example, people have a lead status in airline, like a silver, gold, platinum type status. Sure. This typically represents two, three, 5%, maybe five, maybe. Yeah. 5% of the member base in the loyalty program. Though that small percentage of, of loyalty members represents about 30% of revenue to the airline, a total ticket spend at an airline. Right? So if you’re looking at which, which basis within your loyalty program, like which customer segments you could influence the most, right? Because the loyalty programs all about influencing people to do stuff, to take certain actions, right? So you can drive whatever metric you want from that audience. And, you know, example of airlines. If you got like a silver, a gold status, the chances of being able to afford and spend more on stuff is pretty high versus someone that doesn’t have that. Right. Yeah. And it’s easier to get these people to do stuff. So hence there’s tiers and points to influence that very small group of people, because when you influence them, it, it magnifies the revenue that you can, you can, you can achieve at it versus that it would be, it cost a lot more to get those kind of gains out of the nonstatus people, right? So you focus on the people with status because you could just do a lot more with it’s a lot. So, you know, in telco world, maybe it’s about, uh, looking at who has the ability to spend more, again, our role. Um, you know, and, and, and then targeting them with, with specific things or specific currency and seeing how that, how that drives outcomes. Um, you know, telco and airlines have a pretty good relationship together. Um, cuz both make money out of roving. So totally. Um, yeah, and there’s, there’s a bit of an audience overlap there. Um, I’ve seen airlines where they, they export the, the loyalty members, phone numbers, for example, uh, you know, send it to their favorite telco and say, you know, how many of these people have, uh, are in your database? You know, we know they’ve traveled, you know, they’ve traveled where else, if they travel that we don’t know about, it’s, it’s an interesting one and they can sort of see the over overlap on the databases. And from there you can make it pretty educated decision on if you should partner with that telco as an, as an, from an airline perspective, this is. Yeah. Um, based on the audience overlap and how many more, you know, people could we move the needle on all sorts of stuff? 

 

Super interesting. Yeah. And I know another thing that you’re, you’re quite passionate about mark is, you know, the fact that loyalty, you know, still has so much potential. Um, one that I wanted to ask you about is this idea of frequent flyer programs as media businesses. Um, and you know, I, I know, for example, you know, obviously within financial services, as we’ve said, obviously they promote partners, but increasingly I’m seeing retailers, whether it’s Walgreens, for example, in the US where they’re literally building an entire media business, Um, from their loyalty program. Um, so literally kind of leveraging those data insights and permissions. And I’m wondering if that’s something that you hear happening in airlines or whether it’s something you think is an opportunity for airline loyalty people. 

 

Airline’s still a bit of this already, uh, around the points and miles, um, aspect of it, some of it flows over into the, in Flat magazines is as well. Is it a little bit there? I think fundamentally where this is going is again, to the point on airline loyalty valuation. Yeah. It’s underpinned by miles, but if you go take a step back further, it, the miles represent high margin revenue, right? And so the more high margin revenue you can generate, whatever that looks like? sometimes it’s points of miles, sometimes it’s media, sometimes it’s selling an upsell kind of loyalty product. Maybe it’s a subscription-based product for, whatever that looks, whatever that looks like. It’s all high margin revenue, cuz remember airlines, don’t like margins on, you know, some of the seats pretty, pretty disgusting. And so totally shocking. Yeah. Whereas, you know, in, in, in loyalty can be with the right customer and the right miles is, so it can be a hundred percent depend. Right. Um, you know, if you work on margins somewhere between 30 and 60%, that’s pretty typical of most airline businesses. And that’s more, more like a media company or a tech company in terms of the type of cash it’s generating. It’s more aligned with that. And the market values those businesses differently. So creating a media company or a media arm to a loyalty business makes total sense because it’s the same type of revenue. 

 

I like it. I like it. Wonderful. Um, well, I mean so much there. I think the, um, I suppose the final, big topic that I, I really liked, which I think we’ve alluded to already, but it’s already, um, to me, I suppose this idea about loyalty being at the C-suite. Um, you mentioned a couple, which I, I happened, I suppose, um, realized the specific examples where, uh, loyalty experts let’s call them, and loyalty management people, do sit at the C-suite level. So the examples you quoted is IAG of course, with Avios, Qantas and Asia Miles. So I guess, do you think that this is a trend that there is this level of, um, increasing respect, I guess, for loyalty programs within the airline business, where they are perhaps bringing them, um, and promoting them up the chain or, or what’s your view? Because I think you mentioned to me fair that, um, you have had questions from airline loyalty professionals, who themselves realize that they’re probably not well enough? Um, they’re not visible enough let’s say internally, maybe not positioned at a senior enough level, so I’m not sure what they can do, but yeah, just what’s your view on, um, you know, loyalty at the C-suite?

 

Loyalty is definitely a sea level role and should be at the board room, probably with a few seats, more than one. Um, given the value that it represents to the group and the value that it can bring to the group. If it’s, Um, prioritize, adapt properly. Yeah, exactly. Yeah. Um, so there, there is definitely more and more airlines moving this direction. Generally. It’s where the, the, the setup is loyalty is a separate entity owned by the airline. Yeah. So it’s not with, it’s not a division within the airline as such. It’s a loyalty code, limited type deal owned by the airline. Um, what that does it frees? There’s a bunch of benefits of doing this. Obviously you can, um, you’ve got a proper PNL. That’s totally separate from the airline that you’re more accountable for or auditing that kind of stuff, and so you can leverage, uh, loans and all sorts of stuff based on that specifically, uh, brings proper structure, brings governance and all sorts of stuff that you kind of need to, to have behind that. Um, uh, more important. From my perspective, having worked in airline where loyalty is a division, um, you, you move away from some of the bureaucracy and the politics within the airline structure and you know how people talk about, you know, the airline’s very siloed divisions, you know, no one talk to each other, you know? Yeah. Yeah. My, my views actually the opposite. Uh, I wanna double down on that. Why just silo even more, you know, and to some degree that’s kind of, spinning out, not spinning off, spinning out the, the loyalty proposition does because then loyalty can just go do its own thing. It’s not, doesn’t have this burden of, you know, we have to run every decision by networking and revenue management and, it just gets away from that. If you kind of free of the shackles of the traditional airline nonsense that comes with it and just go do your own thing. Yeah. And that’s why we see most, if not all airline loyalty programs that have sort of split out, have done extremely well, cause they, now they can just focus on what really matters. Yeah. And. We’ve seen tons of examples over the years where it sort of spun out. One of the programs got bought back in actually couple of them, sort of rained back in a bit to the airline. Um, but it’s, it’s, it’s really only good news there, and it’s good news for the airline as well, because suddenly you’ve got this lot of program goes out there makes a bunch of cash, and then when the airline eventually runs outta money for people to hand up and say, Hey, could you help us? Yeah. And so, oh, now loyalty, loyalty wasn’t that important before, but oh, now it’s just saved the company. It’s, you know, it’s prioritized. Yeah. Uh, so it’s definitely, it’s definitely a C level type role. I do get people all the time from inside airlines, you know? Even as simple, you know, Hey, saw this article you wrote on da, da, da, da. Um, you know, we, we showed, um, you know, the CEO environment meetings, your article, that’s what we referenced to try and drive this other thing that we were doing. Um, it’s, I, I, I like hearing these stories because. You don’t write these articles, thinking this is ever gonna happen. And then when someone tells you, Hey, this actually was brought up in one of our executive meetings, tt’s like, oh, that’s cool. You know? Yeah. It’s good that it’s, it’s being used to help, you know, loyalty professionals with airline do what is sometimes hard to articulate within an airline because you know, you’re in your job every day, you’re just doing your thing and that’s great. Yeah. Um, you know, there’s. Really a few different loyalty airline conferences in the world, you know, and it’s been hard to get to some of them the last few years so it’s hard to talk to your peers about this stuff. And, you know, as an airline, you don’t really have, you know, half a million bucks to engage one of the big consultant groups to do this kind of stuff for you. And so where do you go? Sure like you, you, you’re limited on your options and suddenly you see, you know, all these articles and thought leadership stuff online. It’s like, well, hang on this guy seems to know what he’s talking about. You know, I’ll use that.  uh, and so I think that’s, that’s helped, Um, a, a bunch of airlines, at least strategically position themselves internally. Um, to, to leverage what the, the asset that they really have. Uh, and I think there’s gonna be a bit of a turning of the tide within airlines. Uh, especially as we come out of this, this, you know, global mess that we’re in right now. Um, where loyalty, the, the big guys have shown the value to the world of their loyalty businesses and everyone else is looking at it and going, how, how do we do that? How do we emulate that? And part of that. Sadly in some ways I think means sort of deconstructing the airline management existing structure and rebuilding it in a way that is more aligned to the value that loyalty brings to the airline. And what that means is there’s just more loyalty marketing, branding type people and minds that have to come to the top. 

 

Well, I, you know, wholeheartedly agree. What can I say, Mark? Um, it’s music to my ears. I think it’s music to the ears of every loyalty professional who’s listening because, um, I do love the fact that despite the chaos and the craziness and the devastation, the world has gone through what I do love is the increasing opportunities for us in this business. Um, because again, it comes back to my core passion, which is it puts integrity and customers at the core of the business. Um, so I do think we have a unique opportunity in, uh, loyalty marketing to, uh, to serve the customers. And I really get great joy from that. I’m hearing that coming through as well from you Mark. So listen, we’re coming up to the end of our time. Um, I don’t have any more questions for you, but I’m sure you have some parting notes or a favorite example, or what, um, thinking or ideas would you like to leave our audience with before we wrap up?  

 

Specifically for airlines. Again, my favorite thing, uh, I, I think, is getting to know your customer and walking, or in this case, flying a mile in your customer’s shoes, uh, could go a long way. Yeah. Uh, you know, really experiencing the pain points and the joys of what customers go through every day. And this is not just one fly a month, not, you know, do it, do it, do it more often, you know, really walk in their shoes, uh, see, see what makes them tick because, what you’ll inevitably find. Not just things that can be solved, but there’s new revenue opportunities that will come out of it. People will say, I wish I could do this. I wish I could not do this. I’d pay more for blah, blah, blah, over here. Yeah. And so instead of cost-cutting your way to success, which doesn’t work. Yeah. You can start building new products and building rapport, with customers as well. And you know, if customers start seeing. More airline, especially management people get involved on this, you know, on this level, uh, I’ve, I’ve personally succeed it to be very, very successful. So I would, I would like to see more, especially airline people, um, be customers of their own product. 

 

Yeah, yeah. That and to, you know, circle back to our opening discussion, Mark, maybe we all need to go and, you know, do a stint in a gaming company and come back to our airlines with all of that insight and, you know, ideas about engaging our customers and perhaps that’s a, that’s another way to, uh, to, to fix the, the situation. 

 

Exactly. So if you play League Of Legends, make sure you look me up on the Oceana server.  

 

Wonderful. Great. Listen, it’s been a fantastic conversation. Uh, Mark Ross-Smith, Airline Loyalty Consultant with New World Loyalty and CEO co-founder of StatusMatch.com.

 

Thank you so much from Let’s Talk Loyalty.

 

This show is brought to you by the Australian Loyalty Association. The leading organization for loyalty networking, and education in Asia Pacific, their international virtual loyalty conference will take place on the 25th of August, 2022. Register now to hear global experts discuss current trends in loyalty marketing, there will be fantastic networking opportunities, questions and answers, gamification and great prizes to be won. Visit australianloyaltyassociation.com to find out more.

 

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