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

PAULA: Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals.

PAULA: 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.

PAULA: 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.

PAULA: I’m joined for an interesting discussion by Mark Ross-Smith, a well-known airline loyalty thought leader, now based in Malaysia.

PAULA: Mark is the CEO and co-founder of a company called Status Match, as well as the founder and editor of traveldatadaly.com.

PAULA: I hope you enjoy listening to our discussion about some innovative ideas to drive customer loyalty.

PAULA: Learning from both the gaming industry, as well as other strategies that have been adopted by other leading airlines with great success.

PAULA: So Mark, welcome to Let’s Talk Loyalty.

MARK: Hey Paula, fabulous to be with you.

PAULA: Yes, fabulous to have you here, Mark.

PAULA: You are a big name, particularly in the airline loyalty industry.

PAULA: So some wonderfully provocative thinking on your part, which I’m looking forward to discussing with you today.

PAULA: 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.

MARK: My personal favorite loyalty program is a computer game.

MARK: It’s called League of Legends.

MARK: It’s one of the world’s most popular PC video games.

MARK: It’s on the PC platform.

MARK: There’s more than 4 billion hours a month people play this game.

MARK: It’s been around for about 10 years or so.

MARK: The company that runs it has been posting profits between 1.5 and 2 billion USD annually from the computer game.

MARK: And if we think about loyalty, gamification as a word always comes up, yeah.

MARK: And where does that come from?

MARK: It comes from games.

MARK: So this computer game, I’m maybe addicted to the wrong word here, but highly engaged.

MARK: And it’s got all the elements of a traditional program.

MARK: There’s tiers.

MARK: You work your way up through the tiers based on different skill level, how long you play the game.

MARK: It’s got virtual currency and points within the game.

MARK: In fact, it’s got multiple, this game has multiple virtual currencies that can unlock different characters and ways to enhance the game experience.

MARK: And there’s a community aspect as well.

MARK: So you can play with your friends.

MARK: You can meet new people as well.

MARK: So it checks all the boxes in terms of engagement and what a loyalty program could be.

MARK: So for me, I’m very loyal, maybe addicted, but definitely highly engaged.

MARK: And in fact, I’ve drawn a lot of inspiration from video games to apply into other non-video game loyalty programs.

PAULA: Oh, wow.

PAULA: Well, we will definitely explore that.

PAULA: And yeah, definitely, I think, a very exciting, interesting space, Mark, because for me, as a non-gamer, I kind of wish I was, for exactly the reasons that you’ve said.

PAULA: So first of all, to find something that is so engaging, to literally enjoy spending time with, and I’m sure there’s parameters now that the family have to put around, making sure it doesn’t become too addictive.

PAULA: But absolutely, I think it’s an extraordinary concept.

PAULA: And I suppose I first respected games when the likes of Candy Crush came out.

PAULA: So, I certainly wouldn’t be the traditional gaming profile.

PAULA: I think it’s traditionally assumed that it’s a male demographic.

PAULA: But what Candy Crush, for example, definitely proved is that there are, all sorts of people that can engage with games.

PAULA: So, what I’m hearing, actually, Mark, is perhaps there’s a need for loyalty professionals listening to our show and our conversation today to officially take up gaming as some professional research.

MARK: I can hear the cheers already, Paul.

MARK: I can see everyone downloading games, and, oh, we’re doing work today.

PAULA: Totally, totally.

PAULA: But actually, there is another good example, Mark, which just came to mind.

PAULA: So, I wrote an article, actually inspired by the Cannes Lions Festival of Creativity.

PAULA: I hope I have the name correct, but it literally follows the Cannes Film Festival.

PAULA: And it’s maybe top of my wish list as a professional destination, I want to get to at some point.

PAULA: 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.

PAULA: But in China, KFC built their entire loyalty strategy based on gamification and targeting the gaming community.

PAULA: So I’ll make sure to link to it in the show notes.

PAULA: But I think exactly what you’re saying, Mark, is there is huge inspiration available within that entire business model with extraordinary numbers like you’ve just quoted from League of Legends, for example, that we can all take learnings from.

MARK: Gaming is really big.

MARK: We hear a lot about like meta and the metaverse these days, right?

MARK: This immersive gaming type experience that is coming into our world.

MARK: This stuff’s already been around for a long time already.

MARK: You might remember Second Life, like 10, 15 years ago, exactly.

MARK: So instead, you got things like World of Warcraft that come in.

MARK: They are these immersive gaming experiences.

MARK: And they’re created in a way to keep you engaged, to keep you in the game.

MARK: The product design people behind this are really, really smart.

MARK: And to your point in KFC in China, especially in Southeast Korea, South Korea is actually very interesting.

MARK: There’s dedicated TV channels that just stream gaming.

MARK: Like on TV, you can just tune into it and watch it.

MARK: Look at Twitch, the video game streaming platform.

MARK: I think it was Amazon that bought it.

MARK: People are making careers just streaming video games.

MARK: People are just watching you play a video game.

MARK: You can make a career out of these days, right?

MARK: Which means the game behind it has to be interesting enough for people A, to want to watch it, almost like a sport, and B, interesting enough to play it, right?

MARK: And what better way to keep people playing a game than to have loyalty elements in that?

MARK: You know, tears, currency, achievements, these sorts of things.

MARK: So there’s definitely a lot that the non-gaming world can learn from the gaming world.

PAULA: Totally.

PAULA: And the other point that’s coming to mind as well, Mark, is I’m very passionate about the role of content as a tool to drive loyalty.

PAULA: Clearly, I’m a content producer in a specific format, but I think I mentioned to you off air that I did meet 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.

PAULA: The husband composes music for them, and the wife is the conductor of the orchestra.

PAULA: And I mean, 80-man woman orchestra creating and performing.

PAULA: For example, they performed with the Philharmonic Orchestra here in Qatar.

PAULA: But the role of music to drive loyalty as a form of content, clearly very emotional, perhaps better understood.

PAULA: But that blew my mind as another thing that, again, when we talk about our 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.

MARK: Music is ultra-powerful.

MARK: Think about putting my airline hat on for a sec.

MARK: Think about when you board an aircraft, airlines have got boarding music, and they often go for 10, 15 minutes.

MARK: They’re beautiful pieces.

MARK: They’re very uplifting.

MARK: They make you feel good, which is kind of what you want when you’re boarding the aircraft.

MARK: You want to feel good about the journey ahead, not some kind of rock music.

MARK: And you want something calming to the ears, that right tone.

MARK: Video games, music, movies, it flows over into these things.

MARK: Highly underrated, I think.

MARK: Music is used in the right way to invoke these emotions when you’re playing a game.

MARK: Because if you’re doing something, whatever task it is, and there’s some highly charged emotional element, subconsciously or not, that sort of comes in, what happens is you subconsciously link the act that you’re doing, whatever that is, maybe you’re playing a game, with that music.

MARK: And it creates like a bond in your memory.

MARK: And you start to have these same feelings.

MARK: It’s the same feelings as love.

MARK: You start falling in love with it.

PAULA: Wow.

PAULA: Okay, well, we’re going in a whole other direction there.

PAULA: So good insights, Mark.

PAULA: Thank you for bringing that to our attention.

PAULA: So listen, I was reading lots of your articles.

PAULA: Obviously, you’ve been working in airline loyalty now.

PAULA: For how many years would you say, Mark, actually, it’s a long time, huh?

MARK: Look, officially, I want to say about seven, unofficially 20.

PAULA: Okay, consumer first and consultant later, huh?

MARK: Correct.

MARK: Came in from being a legit, real frequent flyer myself with a bunch of airlines, having another business.

MARK: And then, at some point, sold that business.

MARK: And I thought, I had no job at that point, just love a company.

MARK: Like, what am I going to do next?

MARK: I thought, I really want to get into this airline loyalty stuff, it’s kind of cool.

MARK: So that’s the official part of my career when I really started that journey into how do I get into this, being someone that had already had career doing something else.

PAULA: Yeah, yeah.

PAULA: 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 the passengers experience.

PAULA: And there’s loads around that.

PAULA: 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, 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.

PAULA: So it’s almost like for me, I mean, I was, what, 25 years of age when I was put into that wonderful position.

PAULA: So yes, I definitely didn’t have the same kind of pain points that I have now.

PAULA: For example, as somebody who aspires to fly in business class finds it hard to justify the pricing.

PAULA: And yet I do really value that experience.

MARK: Yeah, you’re right.

MARK: If you speak to someone who works on the airline, typically you’ll hear the conversation or go to something like this.

MARK: Oh, I’m going to Spain for the weekend, or I’m going to Singapore for the weekend.

MARK: I’m just jumping on a plane.

MARK: There’s some seats available.

MARK: And there’s a pretty large disconnect between what non-airline employees go through.

MARK: Think of like a typical passenger and an airline staff member, right?

MARK: So airline staff are paying between what?

MARK: 50, 90% off their ticket, right?

MARK: So suddenly they’re not selling that 20 grand to fly halfway around the world, right?

MARK: And so what that means is there’s a different experience that they have with the product versus normal travelers, right?

MARK: So firstly, there’s the amount that they’re paying and also the way that they book that, right?

MARK: They’re booking it through a staff travel portal.

MARK: There’s no upsells, there’s no pop-ups, there’s no, hey, click here, get the credit card and save $300 on your flight.

MARK: If they don’t take the flight, they can get a refund if they’ve even been charged for that flight.

MARK: They get a refund very quickly, which is not the experience of most people.

MARK: They check in at different counters at the airport, with typically not as long the lines, different baggage allowances, different ticket-reading rules.

MARK: And a lot of these people are just happy to get on the flight at the end of the day, whereas versus you and me and millions of other travelers, we pay some pretty big bucks to get on these tickets to fly at specific times, and we expect to fly at certain times.

MARK: And if something doesn’t go right, and we’ve paid 10, 20,000 bucks for the ticket, our expectation is the airline’s gonna do something for us.

MARK: Whereas a staff member doesn’t have that experience because what they pay and their expectations are totally different.

MARK: Another good example on this is the credit cards, right?

MARK: In loyalty programs.

MARK: So airline loyalty generates huge cashflow from these Cobra and credit cards.

MARK: And if you work in an airline, why would you need to have a Cobra and credit card?

MARK: Because you already get cheap flights.

MARK: You don’t need to save up these miles for one, two, three years to fly your family to Disneyland for a couple of weeks.

MARK: You just look at what flights have availability, you jump on them, cool, we’re going.

MARK: And so what it means is most people, what I say most, I mean 99.9% of people in airline don’t have the Cobra and credit card because they just don’t need it.

MARK: And so there’s probably a good argument.

MARK: What would happen if they were forced to get the card or what would happen if you took away staff travel as a benefit?

MARK: Would they then get the credit card?

MARK: And if they did, how would that change your behavior within an airline?

MARK: And then what would that look like reflected back into the loyalty program?

MARK: 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?

PAULA: Yeah, yeah.

PAULA: And do you think, I mean, obviously, there is a lot of money, I guess, invested in market research with top customers.

PAULA: And I know, for example, you were one of Qantas’ top frequent flyers, and you got to spend a lot of time with management, and they wind and dined you by all accounts and really took care of you.

PAULA: And I guess as part of that experiential side of being a frequent flyer, you got to express your views.

PAULA: I’m sure they were very curious as to your experiences.

PAULA: So, do you think that is one way I suppose to continue investing in getting those insights of exactly those pain points for real life customers?

MARK: Qantas treated me very well over the years, I must say.

MARK: Shout out to Qantas if you’re listening.

MARK: A lot of fantastic experiences.

MARK: And what it felt like for me is they wanted to have those conversations.

MARK: You know, a lot of airlines just kind of close those channels off.

MARK: It’s like, oh, these pesky travelers again.

MARK: How dare these VIP, these privileged people complain about not getting a hot meal?

MARK: They’re only spending 100,000 euros.

MARK: How dare they, you know?

PAULA: Yeah.

MARK: There’s a lot of that.

MARK: And I didn’t get that sense with Qantas.

MARK: They genuinely wanted to engage with their top customers, learn more about what drives them, what doesn’t drive them.

MARK: Because if someone’s spending a bunch of cash with you, often it’s easier to get them to spend even more.

MARK: And if you can tweak and do a few different things, why not?

MARK: At the time, this was nearly 10 years ago, the airline was introducing a new super tier.

MARK: So above like a typical platinum tier, like a super VIP tier.

MARK: And so there was a lot of noise around this new tier and what it’s gonna look like and the benefits.

MARK: So 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.

MARK: And if you engage that audience, people that might qualify for it, what happens is, it’s a giant advertisement, basically saying, hey, if you do this, you’re gonna get there, you’re so close already.

MARK: And what happens is, this is a sort of spending up element where you go a bunch of people that would have been close to getting it, they’ve been involved in this new tier, into creation in some very small way.

MARK: It gets announced, and they, I need to get there.

MARK: And they’re already spending a lot.

MARK: They can spend more, and they do.

MARK: And so with airlines, when they launch new tiers, new high tiers, this is, there’s a lot of people that will just spend up, totally unnecessarily, to get into that tier.

MARK: And you could almost justify creating the new tier, all the costs and all the stuff and all the branding, all the everything around it.

MARK: You could justify it purely by the people they’re gonna spend up in the first month or two to get into that tier.

PAULA: Totally, totally.

PAULA: And I think the key words you mentioned there, Mark, is these are people who can spend more.

PAULA: And particularly, I think, again, just from reading some of your articles, there’s the whole piece around, for example, well, obviously taking more flights and maybe being able to justify that.

PAULA: I do know people who have flown halfway around the world without really needing to, as in it was a business trip that could have been done on Zoom, but actually had that same milestone focus about being determined to get to the next tier and the company was paying, so why not?

PAULA: So that definitely does happen for people who can spend more.

PAULA: But what I also love is this concept of share of wallet because I really believe that the loyalty programs I’ve been involved with, we spent an awful lot of time trying to obviously focus on driving profitable behavior change and looking at, oh, this segment did that, and we were able to drive this upsell or cross-sell.

PAULA: And we really only looked at or had access to behavior within our own business.

PAULA: And it never even occurred to me, to be honest again, it’s probably one of the reasons why I do this show is 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.

PAULA: But I think there is a massive opportunity.

PAULA: And I’m keen to understand, Mark, whether you think in most cases at the moment, the airlines you’re talking to, do they have a good understanding of their share of wallet?

PAULA: And if they don’t, I guess, what can they do to get that visibility?

PAULA: Because there is a great article, we’ll make sure to link to it in the show notes as well, about just showing two different people, obviously with very different profiles.

PAULA: Maybe one is considered loyal because they’re flying 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.

PAULA: So they’re actually not being loyal, even if they’re seen to be and flying more with you, if they’re still flying more with your competitors.

MARK: This is exactly right.

MARK: 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.

MARK: They’re seen as a great customer.

MARK: But what you don’t know is they got 100 fights with the only competing airlines that they’re doing every year over that, spending twice as much.

MARK: And so in terms of share of wallet, or percentage of real loyalty, it would be less than 50%.

MARK: Whereas, you got another passenger twice a year, they go visit grandma, and 100% of their share of wallet is on your airline.

MARK: They’re very loyal.

MARK: They’re actually a better customer in terms of loyalty to the airline brand.

MARK: 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.

MARK: These are one of the top three things you need to be tracking, especially on your most valuable customers, because if one of your most valuable customers starts flying with a competitor, chances are they’re gonna do more and more and more and more of it, even if you don’t see their activity with the oil and let go down.

MARK: That’s a real risk.

MARK: And so you need to track at the background.

MARK: So the next question is, how do you measure this stuff?

MARK: And there’s a bunch of different ways.

MARK: Nothing is 100%.

MARK: There’s a bunch of airlines that do a pretty good job of this today, especially in North America, mostly using credit card spend data.

MARK: So what that is, they know what credit card you have on file.

MARK: And in the USA, there’s very unique opportunities to leverage data insights.

MARK: And they can get an idea of where else you’re spending, right?

MARK: So you’re spending on L&A, L&B, C&E, et cetera.

MARK: Actually, opportunities for customers to have a bit of fun with that.

MARK: You could just for fun, put all your competitor airlines spend on one credit card and all airlines spend on another credit card just to play it so they think they’re not getting any of your spend.

PAULA: Yeah, yeah.

PAULA: You get all the other credit cards.

MARK: Credit card is one, the one that the probably, well, I find most interesting is telco data.

MARK: So airlines using telco location data.

MARK: So there’s a, telco is a thing called HLR.

MARK: It’s a home location registrar.

MARK: What that does is your mobile phone, every second it’s peeing the cell towers around you, saying, I’m over here, I’m over here, I’m over here.

MARK: And that’s how they route phone calls, right?

MARK: To say, we’re gonna route to this tower.

MARK: In some countries, you can, as a third party, you can access this data.

MARK: And so I could, maybe not in your case, but I could type in Paula’s phone number and say, Paula is in this city right now.

MARK: She’s roaming on this network, her home network is blah, blah, telco.

MARK: And so if you travel overseas, suddenly if I’m doing a lookup on your number, I can see when you’re traveling.

MARK: Even if I have no insight at all to any of your flight activity, any of your credit card data, I can still see, Paula’s today, she’s in Dubai, and I ping her again tomorrow.

MARK: Now she’s in Singapore, and then she’s in Australia, and then she’s in Japan.

MARK: And I correlate that back to the flight history of my airline.

MARK: Did Paula fly by airline or an alliance or a partner to get there?

MARK: If no, then well, we’re missing out on something.

MARK: And if yes, then great.

MARK: You know, we’ve got what we think might be 100% share of wallet.

MARK: And so that, armed with that data, you can then plug that into your CRM system and treat people differently depending on their share of wallet rather than what status to you they are.

PAULA: Totally.

PAULA: And are there many countries that that data is available, Mark, in your experience, because, you know, privacy concerns are so huge right now.

PAULA: I can’t imagine this is possible in Europe.

PAULA: I could be wrong.

PAULA: But is this something that you know is possible in certain countries around the world?

MARK: I want to say about 50% of countries you can.

MARK: Wow.

MARK: Laws definitely have changed in certain markets over the years, but this HLR data is not a new thing.

MARK: It’s been around for at least 20 years.

PAULA: And I guess there’s a way to perhaps build it in a way that could be GDP, pardon me, GDP or compliant.

PAULA: For example, within Europe, you know, with permission, if 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 certainly a way that could be done with permission and compliance on both sides.

MARK: Yeah, some telcos make a lot of money selling data as well.

MARK: So there’s telcos selling data directly to a company, and then on the other side, there’s like aggregators that pick up as much data as they can through other sources.

MARK: I don’t know how much privacy we really have these days.

MARK: My view is, you either get over it or you don’t.

MARK: If you don’t get over it, you kind of have to remove yourself from social media and a lot of life.

MARK: Otherwise, you just get over it, protect what you can, and then just sort of manage yourself like that.

MARK: But I guess from a company perspective, there’s a lot of opportunities to tap into that.

PAULA: Yeah, yeah.

PAULA: 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.

PAULA: The other big one that I really love, I suppose, very topical at the moment is the value of airline loyalty programs compared with the airline themselves.

PAULA: And I know this is one that certainly you posted on just recently, for example.

PAULA: And the example that I saw that you 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 LL, Frequent Flyer Program Valuation, a program called MatMid.

PAULA: I didn’t know it and you named it for me.

PAULA: But LL’s Frequent Flyer Program has just basically been essentially valued at 500 million US dollars, but the airline itself is only valued at $180 million.

PAULA: So it seems that the loyalty program is worth, on paper, at least almost triple the valuation of the airline.

MARK: Yep, it’s very typical, very typical, most airlines.

MARK: I can hear the haters now.

PAULA: Yeah.

MARK: You know, the last two airline loyalty programs have always been most, especially legacy carriers, been pretty profitable for the longest time.

MARK: And the revenue is mostly generated from the co-brand credit cards and transferring points and miles from banks into the program.

MARK: A lot on that.

MARK: So that’s where the valuations come from, is from the cash flow from that.

MARK: In North America, it’s, say, arguably, the airline industry, because airlines are able to leverage government loans based on the valuation of the loyalty program, because the airlines had already mortgaged to the hills everything else.

MARK: They had nothing left to mortgage.

MARK: They were like, oh, this loyalty program thing we got.

MARK: Oh, what do you know?

MARK: It’s worth more than the airline itself.

MARK: American Airlines very famously hasn’t really, operationally hasn’t posted a profit for many, many years.

MARK: And yet, as a company, as a group, it’s billion-dollar profits every year.

MARK: And that’s underpinned by the advantaged loyalty business.

MARK: And a lot of other folks commenting on the same thing is American Airlines, they’re not really an airline.

MARK: They’re a marketing company that has a flying metal tubes division.

MARK: They’re a marketing tech company, which kind of brings the next question.

MARK: In a lot of airlines, the loyalty role, the most senior loyalty role is like head of loyalty or VP of loyalty, something like that.

MARK: Why isn’t it a C-level role?

MARK: Why isn’t it a CEO of loyalty?

MARK: Some airlines do, but why isn’t it more?

MARK: And more importantly, why is loyalty not represented on the board?

MARK: Proportionally to the value it brings to the business, which arguably is more than airline.

MARK: So why isn’t the board made up of more marketing, branding loads, like these kind of people?

MARK: Because that’s where the money is.

MARK: The money for a lot of airlines is not in selling tickets and flying people around the world.

MARK: That business, flying people, is needed to support their financial services business, aka the loyalty program.

PAULA: Yeah.

MARK: And so why not put more focus into loyalty?

MARK: Because that’s where all the enterprise value is.

MARK: That’s where the profitability is.

MARK: That’s where the interest from investors is, is this thing that has sustainable revenues for the last 20 years.

MARK: It’s very stable, even through 2008, the economic downturns, through 9-11, even through the pandemic.

MARK: The worst time, arguably, commercial aviation in history and airline loyalty programs are still posting profits.

MARK: What does that tell you?

PAULA: Well, I thought you articulated it very well, Mark, when, again, in another of your articles, you basically suggested that it’s not the situation anymore, in fact, that airlines have loyalty programs, but in fact, loyalty programs have airlines.

PAULA: And I do think if there was that dramatic a 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.

MARK: Just on LL for a second, the loyalty program valued at 500 million.

MARK: That’s today’s value, right?

MARK: And then they’re not the biggest airline in the world.

MARK: Imagine if they grew some of the right metrics, that 500 million is…

MARK: Why couldn’t it be 10 times that?

MARK: For an airline to jump up 10 times in their market cap on the market, right?

MARK: That’s unheard of.

MARK: How many aircraft do you need to buy?

MARK: How many pilots do you need to employ?

MARK: How many routes do you need to fly?

MARK: How much does that cost to do all that, to drive up 10 times or 10X?

MARK: Versus how much would it cost an investment into loyalty to drive at 10X, right?

MARK: Which is, again, if it’s worth two and a half times, nearly three times the airline’s value, you’re much better putting your resources into loyalty than into pilots, fuel, network, all this other stuff.

MARK: I mean, you need the airline.

MARK: Don’t get me wrong.

PAULA: Of course.

MARK: Or actually, that’s the other way around.

MARK: The airline needs the financial services, pardon.

MARK: Yeah, I get the loyalty program.

PAULA: But I think it’s a good point, Mark, because what I’m hearing is, again, to go back to your favorite example 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.

PAULA: And the revenue then that comes through that, as we’ve said, requires the airline to fulfill it.

PAULA: But I think that mindset of we’re in the loyalty business, we have aircraft and routes to fly, of course, to delight our customers.

PAULA: 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 becoming potentially an explosive community with extraordinary revenues across much more like coalition style loyalty, I guess.

MARK: Exactly.

MARK: You know, there’s 57 new startup airlines that I’ve seen come up, pop up in the last year in the world.

MARK: And I haven’t seen many that actually have a decent loyalty proposition, or if any, loyalty proposition at all.

MARK: That kind of blows my mind, considering how valuable…

MARK: The world has seen and proven how valuable loyalty is, and it just doesn’t appear that many are going in that direction in terms of being a loyalty-first company, they’re being an airline-first company.

MARK: So we’ll see how that plays out.

MARK: To a point on coalition, this is really interesting because if you’ve got a lot of options to earn points through everyday spend, through just normal life, you go to the supermarket, you earn some points, you telco bill, you earn some points.

MARK: If you’re going to point through all these different partners, what happens is subconsciously, you earn your 50 points from the supermarket, you’re collecting them.

MARK: When you go to fly, what happens?

MARK: You go, well, you know, I’ve been collecting all these blah, blah airline miles.

MARK: That’s the first I’m going to choose, or at least look for a flight for.

MARK: So it kind of acts like a quasi-brand lock-in mechanism, right?

MARK: Well, you’re making the airline or the loyalty program money through the supermarket, buying miles on your behalf and going to your account, great.

MARK: And then what happens is when you’re going to fly, you’re like, oh, I’m going to fly that airline because I’ve got some miles there.

MARK: They might not be the cheapest airline.

MARK: They might not be the most direct.

MARK: They might not have the best product, but hey, I’ve got some miles there.

MARK: I’m loyal to them.

MARK: I like it.

MARK: I’ll fly with them.

MARK: And so what it does is it funnels people into specific brands versus the alternatives.

MARK: And so collecting miles at a supermarket or just through everyday spend is, yes, there’s the financial element for the loyalty program on them selling points and miles, great.

MARK: But there’s also the art of loyalty side where it’s a softer approach.

MARK: It’s the schmoozing you to please fly us next time.

MARK: It’s putting that brand front of mind so that 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 website is so much higher because you’ve been collecting the currency versus if you weren’t collecting the currency.

PAULA: Yeah, yeah, for sure.

PAULA: Yeah.

PAULA: And I think what I’m hearing as well, Mark, and I know your expertise is very much in the vertical of airline.

PAULA: And I’m going to ask you a question about everyone except airline.

PAULA: But what I hear coming through, and again, when I was running loyalty programs, and again, in the telco sector, which I know you worked in as well, to me, there was a lot of this kind of points fatigue.

PAULA: There was a lot of this issue, which is exactly again, what coalitions are designed to address.

PAULA: 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, and certainly as a consumer.

PAULA: So what I guess my question is, is we have a huge audience, of course, listening.

PAULA: Some of them are definitely airline loyalty people, plenty of them are not.

PAULA: 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.

PAULA: 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 best airline with the best loyalty proposition in that market.

PAULA: And again, I don’t know Malaysia very well, for example, where you’re based, but what would be your advice or your approach?

PAULA: 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?

PAULA: Or would you go to the airline and say, hey, can we just buy points from you guys?

PAULA: And what’s the decision-making criteria would you say?

PAULA: Because I guess there’s a lot of trade-offs when you go with the, just buy them to somebody else.

PAULA: I mean, they’re going to be more expensive, for example.

PAULA: The data and insights may be not as good, but yeah, I just think it’s a very interesting idea because it is so difficult to build a compelling loyalty program as a standalone business.

MARK: Have a whole other podcast just on this topic, I think, Paula.

PAULA: Sure.

PAULA: Sorry for the long question.

MARK: I think the answer really depends on maybe the size of the company looking to build out their loyalty proposition, whether they partner with an airline or buy that currency or not.

MARK: If we look at why airline currency is interesting and aspirational, it all comes down to airlines.

MARK: When you fly, you’re on a plane for an hour, two, three, 12, 15.

MARK: You’re in that travel ecosystem for hours and hours at a time.

MARK: And so you’re seeing the brand, the seat back, the meals come out, you see the brand everywhere, you’re just immersed in it, totally immersed for long periods of time.

MARK: Whereas when you walk into Starbucks, it’s two minutes and you’re out.

PAULA: Sure.

MARK: Right?

MARK: So that’s why also people are more interested in the airline, just because they’re more passionate, just because they’re putting more of their attention in it.

MARK: Because they’re living in that plane for 12 hours on the flight.

MARK: And so for an external business that is looking to, do we create our own currency or do we leverage off the airline currency?

MARK: The airline currency has this pre-trained audience on the value of their currency.

MARK: And airlines are not stupid, they will charge you a premium to buy those miles if you’re in other business, right?

MARK: It’s probably worth it for the other business, especially if you’re a small company.

MARK: Because you’re then tapping into this other customer base.

MARK: They know the value of these points, it’s a big brand.

MARK: So presumably, if you’re kind of trading up in terms of brand, so that’s good for your business.

MARK: And you don’t have to think about as much.

MARK: And then, if you got the right economics and partnership agreement in place, maybe the airline is going to help promote your business.

MARK: And actually, what I 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, but actually, if you’re the other brand, you promote the fact that you’re a partner of that airline brand.

MARK: And that is actually hugely powerful, hugely magical, because you know your own customers better than the airline knows your customers, and so you promote in the channels that you know best, and then suddenly, you’re unlocking the loyalty members at the airline sort of come into your business.

MARK: So there’s a lot of power in that.

MARK: So to your question, I think it depends a lot on where you want to go, that doesn’t really help anyone listening.

MARK: But there’s obviously tremendous value in an airline loyalty currency.

MARK: And that’s been a proven model for at least the last two decades.

PAULA: Yeah.

PAULA: But I really like the words you used, Mark, which is pre-trained.

PAULA: 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 going to say 35% of the customer base really understood our telco loyalty program.

PAULA: 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.

PAULA: So I think you’re absolutely right.

PAULA: That idea that to essentially partner and buy from another pre-trained loyalty base, I think there’s a huge benefit there to a partner brand that I hadn’t really thought about before.

MARK: There’s also another element, do you want more than 35 or 40% of people engaged in the loyalty product?

MARK: Because maybe that’s all you need.

MARK: Like for an airline, if someone, for example, people have a lead status in airline, like a silver, gold, platinum type status.

MARK: This typically represents 2, 3, 5%, maybe, yeah, 5% of the member base in a loyalty program.

MARK: That small percentage of loyalty members represents about 30% of revenue to the airline, a total ticket spend in an airline.

MARK: So if you’re looking at which bases within your loyalty program, like which customer segments you could influence the most, because a loyalty program is all about influencing people to do stuff, to take certain actions.

MARK: So you can drive whatever metric you want from that audience.

MARK: In the example of airlines, if you’ve got a silver or gold status, the chances of you being able to afford and spend more on stuff is pretty high versus someone that doesn’t have that.

MARK: And it’s easier to get these people to do stuff.

MARK: So hence, there’s tiers and points to influence that very small group of people.

MARK: Because when you influence them, it magnifies the revenue that you can achieve at it versus that it would cost a lot more to get those kind of gains out of the non-status people.

MARK: Right?

MARK: So you focus on the people with status because you could just do a lot more with it, it’s a lot easier.

MARK: So in telco world, maybe it’s about looking at who has the ability to spend more, again, share of wallet, and then targeting them with specific things or specific currency and seeing how that drives outcomes.

MARK: Telco and airlines have a pretty good relationship together because they both make money out of rowing.

MARK: And there’s a bit of an audience overlap there.

MARK: I’ve seen airlines where they export the loyalty members’ phone numbers, for example, send it to their favorite telco and say, how many of these people are in your database?

MARK: We know they’ve traveled, you know they’ve traveled, where else have they traveled that we don’t know about?

MARK: It’s an interesting one.

MARK: And they can sort of see the overlap on the databases.

MARK: And from there, you can make a pretty educated decision on if you should partner with that telco as an as an from an airline perspective, this is based on the audience overlap and how many more, you know, people could be moved the needle on all sorts of stuff.

PAULA: Super interesting.

PAULA: 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.

PAULA: And one that I wanted to ask you about is this idea of frequent flyer programs as media businesses.

PAULA: And, you know, I know, for example, you know, obviously within financial services, as we said, obviously, they promote partners.

PAULA: But increasingly, I’m seeing retailers, whether it’s Walgreens, for example, in the US where they’re literally building an entire media business from their loyalty program.

PAULA: So literally kind of leveraging those data, insights and permissions.

PAULA: 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.

MARK: And I still a bit of this already around the points and miles aspect of it somewhat flows over into the inflight magazines as well as well as a little bit there.

MARK: I think fundamentally where this is going is, again, to the point on airline loyalty valuation, it’s underpinned by miles.

MARK: But if you go take a step back further, the miles represent high margin revenue, right?

MARK: And so the more high margin revenue you can generate, whatever that looks like, sometimes it’s points and miles, sometimes it’s media.

MARK: Sometimes it’s selling an upsell kind of loyalty products.

MARK: Maybe it’s a subscription-based product for a lot, whatever that looks like, it’s all high margin revenue because, remember, airlines don’t make margins on some of the seats, pretty disgusting.

PAULA: Shocking, yeah.

MARK: Whereas in loyalty, it can be with the right customer and the right mile that you sell can be 100% depending, right?

MARK: If you work on margins somewhere between 30% and 60%, that’s pretty typical of most airline businesses.

MARK: And that’s more like a media company or a tech company in terms of the type of cash it’s generating.

MARK: It’s more aligned with that, and the market values those businesses differently.

MARK: So creating a media company or a media arm to a loyalty business makes total sense because it’s the same type of revenue.

PAULA: I like it.

PAULA: I like it.

PAULA: Wonderful.

PAULA: Well, I mean, so much there.

PAULA: I think the I suppose the final big topic that I really liked, which I think we’ve alluded to already, but it’s already to me, I suppose, this idea about loyalty being at the C-suite.

PAULA: You mentioned a couple which I hadn’t, I suppose, realized the specific examples where loyalty experts, let’s call them, and loyalty management people do sit at the C-suite level.

PAULA: So the examples you quoted is IAG, of course, with Avias, Qantas, and Asia Mile.

PAULA: So I guess, do you think that this is a trend, that there is this level of increasing respect, I guess, for loyalty programs within the airline business where they are perhaps bringing them and promoting them up the chain?

PAULA: Or what’s your view?

PAULA: Because I think you mentioned to me off air that you have had questions from airline loyalty professionals who themselves realize that they’re probably not well enough and they’re not visible enough, let’s say internally, maybe not positioned as a senior enough level.

PAULA: So I’m not sure what they can do.

PAULA: But yeah, just what’s your view on loyalty at the C-suite?

MARK: Loyalty is definitely a C-level role and should be at the boardroom, probably with a few seats, more than one, given the value that it represents to the group and the value that it can bring to the group, if it’s daft or properly.

MARK: Yeah, exactly.

MARK: So there is definitely more and more airlines moving in this direction.

MARK: Generally, it’s where the setup is loyalty is a separate entity owned by the airline.

MARK: So it’s not a division within the airline as such.

MARK: It’s a loyalty co-limited type deal owned by the airline.

MARK: What that does is it frees up.

MARK: There’s a bunch of benefits of doing this.

MARK: Obviously, you’ve got a proper P&L that’s totally separate from the airline that you’re more accountable for, more auditing, that kind of stuff.

MARK: And so you can leverage loans and all sorts of stuff based on that specifically.

MARK: Brings proper structure, brings governance and all sorts of stuff that you kind of need to have behind that.

MARK: More importantly, from my perspective, having worked in airline where loyalty is a division, you move away from some of the bureaucracy and the politics within the airline structure.

MARK: And you know how people talk about, you know, the airlines are very siloed, visions, you know, no one talked to each other, you know, yeah.

PAULA: Yeah.

MARK: My view is actually the opposite.

MARK: Why not double down on that?

MARK: Why not just silo even more?

MARK: You know?

MARK: And to some degree, that’s kind of what spinning out, not spinning out, the loyalty proposition does, because then loyalty can just go do its own thing.

MARK: 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.

MARK: You’re kind of free of the shackles of traditional airline nonsense that comes with it and just go do your own thing.

MARK: And that’s why we see most, if not all, airline loyalty programs that have sort of split out have done extremely well, because now they can just focus on what really matters.

PAULA: Yeah.

MARK: And we’ve seen tons of examples over the years where it sort of spun out.

MARK: One of the programs got brought back in, actually a couple of them sort of reigned back in a bit to the airline.

MARK: But it’s really only good news there.

MARK: And it’s good news for the airline as well, because suddenly you’ve got this loyalty program goes out there, makes a bunch of cash, and then when the airline eventually runs out of money, they put their hand up and say, Hey, could you help us guys?

MARK: And so, oh, now loyalty wasn’t that important before, but now it’s just saved the company.

MARK: It’s prioritized.

MARK: So it’s definitely a C-level type role.

MARK: I do get people all the time from inside airlines, even simple, hey, saw this article you wrote on da, da, da, da, da.

MARK: You know, we showed the CEO in one of our meetings, your article, that’s what we referenced to try and drive this other thing that we were doing.

MARK: I like hearing these stories because you don’t write these articles thinking this is ever going to happen.

MARK: And then when someone tells you, hey, this actually was brought up in one of our executive meetings, it’s like, oh, that’s cool.

MARK: You know, it’s good that it’s being used to help, you know, loyalty professionals in the 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.

MARK: And that’s great.

MARK: Yeah, you know, there’s only 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.

MARK: And, you know, as an airline, you don’t really have, you know, half a million bucks to engage one of the big consulting groups to do this kind of stuff for you.

MARK: And so where do you go?

PAULA: Sure.

MARK: Like, you’re limited on your options.

MARK: And suddenly you see, you know, all these articles and thought leadership stuff online.

MARK: It’s like, well, hang on, this guy seems to know what he’s talking about.

MARK: You know, I’ll use that.

MARK: And so I think that’s helped a bunch of airlines at least strategically position themselves internally to leverage what the asset that they really have.

MARK: And I think there’s going to be a bit of a turning of the tide within airlines, especially as we come out of this global mess that we’re in right now, where the big guys are showing the value to the world of their loyalty businesses.

MARK: And everyone else is looking at it and going, how do we do that?

MARK: How do we emulate that?

MARK: And part of that, sadly, in some ways, I think means sort of deconstructing the airline management’s existing structure and rebuilding it in a way that is more aligned to the value that loyalty brings to the airline.

MARK: And what that means is there’s just more loyalty marketing branding type people and minds that have to come to the top.

PAULA: Well, I wholeheartedly agree, what can I say, Mark?

PAULA: It’s music to my ears.

PAULA: I think it’s music to the ears of every loyalty professional who’s listening, because 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.

PAULA: Because again, it comes back to my core passion, which is it puts integrity and customers at the core of the business.

PAULA: So I do think we have a unique opportunity in loyalty marketing to serve the customers.

PAULA: And I really get great joy from that.

PAULA: I’m hearing that coming through as well from you, Mark.

PAULA: So listen, we’re coming up to the end of our time.

PAULA: I don’t have any more questions for you, but I’m sure you have some parting notes or a favorite example or what thinking or ideas would you like to leave our audience with before we wrap up?

MARK: Specifically for airlines, again, my favorite thing, I think getting to know your customer and walking or in this case flying a mile in your customer’s shoes could go a long way.

MARK: You know, really experiencing the pain points and the joys of what customers go through every day.

MARK: And this is not just one flight a month.

MARK: You know, do it more often.

MARK: You know, really walk in their shoes.

MARK: See what makes them tick because what you’ll inevitably find is not just things that can be solved, but there’s new revenue opportunities that will come out of it.

MARK: People will say, I wish I could do this.

MARK: I wish I could not do this.

MARK: I’d pay more for blah, blah, blah over here.

MARK: And so instead of cost cutting your way to success, which doesn’t work, you can start building new products and building rapport with customers as well.

MARK: And if customers start seeing more airline, especially management, people get involved on this level, I’ve personally seen it to be very, very successful.

MARK: So I would like to see more, especially airline people, be customers of their own product.

PAULA: That and to circle back to our opening discussion, Mark, maybe we all need to go and do a stint in a gaming company and come back to our airlines with all of that insight and ideas about engaging our customers.

PAULA: And perhaps that’s another way to fix the situation.

MARK: Exactly.

MARK: So if you play League of Legends, make sure you look me up on the Oceania server.

PAULA: Wonderful.

PAULA: Great.

PAULA: Listen, it’s been a fantastic conversation.

PAULA: Mark Ross-Smith, airline loyalty consultant with New World Loyalty and CEO, co-founder of statusmatch.com.

PAULA: Thank you so much from Let’s Talk Loyalty.

PAULA: This show is brought to you by the Australian Loyalty Association, the leading organization for loyalty networking and education in Asia Pacific.

PAULA: Their International Virtual Loyalty Conference will take place on the 25th of August 2022.

PAULA: Register now to hear global experts discuss current trends in loyalty marketing.

PAULA: There will be fantastic networking opportunities, questions and answers, gamification, and great prizes to be won.

PAULA: Visit australianloyaltyassociation.com to find out more.

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