In early 2020, On Point Loyalty published a research report on the “Top 100 Most Valuable Airline Loyalty Programs” in the world, insights which proved remarkably relevant throughout the year as major US airlines began leveraging their programs to raise funds throughout the Covid-19 pandemic.
In this episode, industry expert Evert de Boer explains some of the reasons why the financial power and true value of airline loyalty programs has been relatively hidden until now, and highlights some the dramatic changes that are taking place in the industry. He shatters some myths about the value of flight reward seats, as well as his experience on how C Suite Airline Executives are taking a fresh look at these valuable assets that have been hidden in plain sight in most airlines until now.
3) Free Report: The”Top 100 Most Valuable Airline Loyalty Programs“
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.
Welcome to episode 82 of let’s talk loyalty. Today, I am chatting to Evert de Boer, Managing Partner at OnPoint loyalty, a global consulting and investment firm focused exclusively on the airline loyalty space in today’s discussion ever talks us through a white paper on some fascinating research that his company published in January, 2020 entitled the top 100 most valuable airline programs.
And it was really fascinating to get a sense of some of the valuations of these loyalty programs. In addition to that report, we chat through all of the various changes that have happened as a result of the COVID-19 pandemic and how, in some ways, these have really elevated airline loyalty programs, which are increasingly becoming more recognized for their extraordinary financial power. So Evert do Boer, welcome to let’s talk loyalty
Very much. It’s a pleasure to be here. Wonderful.
And I should also wish you happy new lunar year. I believe that has just happened there where you’re based in Singapore.
That’s right. We just kicked off the start of the year of docs and I hope it’s going to be a better year than last year.
Wonderful Evart. Absolutely. I think everybody shares your intention. So listen to me, I’m sure plenty of our listeners are very familiar with the work that you do in OnPoint loyalty, incredible amount of research and white papers and reports that we’re going to talk about today. So do you want to, first of all, tell me at your, I suppose, answer to my favorite opening question, which is what is your favorite loyalty statistic?
Yeah, sure. And I think it’s, it’s a great question because of many reasons, I think there’s a lot of interesting statistics out there and, and, and for some, a genuine belief that people do not really appreciate them or know them. And I, I gave your question some solvent w what I would like to do is to share actually three sort of data points with you, because I think it bends a very telling picture or loyalty, particularly in the airline context. So the first counter statistic is that, you know, many people traditionally think of awards in a loyalty program, as free as in, they don’t generate any revenue for the airline.
And as a result, they are reluctant to open up inventory. So airline seats in the case, an airline, because they feel that you’re basically forgoing revenue. I think the interesting point behind it is actually that if you consider that airlines are selling those miles or points to partners, you can do a quick math and the masses is pretty straightforward. So assume that a member would on average in the U S I’m taking the U S just make an easy example in the U S a member would redeem 25,000 miles. If you then look at the associated revenue for that tickets, that so-called three tickets, the airline could have sold those 25,000 miles.
And maybe that’s the conservative approach depending on your hot penny and a half each. That means that that free ticket would have generated $375 in revenue. Yeah, it’s it’s it’s material. And if you have sector in breakage, again, conservative, conservative rate of between 10 to 15%, it means that a free ticket is actually yielding more than $400. Now, if you compare that with the average fair of domestic travel in the U S a war travel is actually used to creative. In other words, selling a seat in 20 sites, 25,000 mile increments delivers a greater yield, then selling the silks at a see-through, you know, auto channels.
And then of course, on top of that, you can sector in things like lower distribution costs, less commission, a bunch of other things, and adjust you. You start to see a completely different picture in terms of the notion that, you know, award travel is always free. As a matter of fact, award travel can actually be yields created for your airline.
My goodness, I think you’ve just blown my mind ever, you know, because I think I have a very good respect for the profitability of airline loyalty programs. And I want to credit our friends in loyalty magazine, actually in the UK, they did run many excellent loyalty conferences over the years. And I remember specifically hearing that loyalty programs for many of the world’s largest airlines are more profitable than the airline itself. So, and so that that’s at the overall level, but for you to, to make that incredible point there about the level of yields that’s being generated by these free seats is unbelievable.
Yeah. And I think, you know, it’s, it’s a very simple illustration of the financial power of his programs. And then if you take it to the next level, if you look at it on an aggregate level, it actually means that the loyalty program can, you know, it can be more profitable than your core transportation business, meaning that selling the business of selling miles to partners can generate not only a higher profit margin, but it’s also all first, you know, very different business characteristics, because a little business inherently is a very different business from running an airline. So if you put those two together, all of a sudden, you know, you’re sitting on your own little, very profitable controllable business, whereas the airline business, you know, traditionally airlines, they struggled to meet the weighted average cost of capital.
It’s, it’s an incredibly difficult business to run with, you know, I, that peaks with very low troughs as well. So yeah, the losing business offers a very clear departure from that. And as a result of that, it also means that if you look at especially the big us airlines is, you know, a material part of their profits comes from the loyalty program. And in some cases, no more than 50% of the profit generated by the airline comes from the loyalty program. And that’s kind of my segue into the, into my final points statistics. And there’s actually two, the first one is so, you know, keep in the back of your mind that these loyalty programs are very profitable.
They’re, they’re punching above their weight and you can say, yeah, but that’s not reflected at all in what the airlines traditionally have pulled out. So take any of the investor relations disclosures by big us carriers. And you will see, you know, 150 slides where they talk about fleet routes, destinations, new seats, IFE, catering, all that stuff. And, you know, at best a handful of slides on their loyalty program, because it’s sort of taken a stable stake. And it doesn’t really, in my opinion, of course I’m biased, but it doesn’t get the attention it deserves. And the last sort of, you know, little anecdotal data point there in 2013 iota that we all know as a sort of airline overriding association.
Yeah, exactly. They commissioned the report from the prestigious management consulting company, McKinsey about profitability in the airline industry. And basically the message was the profitability is not very good. And then this fiscal two page report, there was exactly zero mentions of loyalty programs. And goodness, I say it in a slightly, you know, facetious, but I think my, I think that these programs are very strong and pastable, and they offer lots of upsides and historically they, I don’t think they got the attention that they, that they should deserve.
Absolutely. Well, you make the point beautifully Evart. And I think I mentioned to you last time we spoke that I heard a shocking statistic, which again, I think repeats exactly what happened, obviously in 2013. And I remember seeing Willie Walsh who was then the chief executive of AER Lingus subsequently became the chief executive of British airways. And I now know is with IAG. I think his role is currently chairman, but Willy Walsh literally said in 100 years of aviation, the airline industry had made a loss. So I think that’s again, neglecting the, the power, the financial power of the loyalty program, even within our Lingus. And I think you’re on a mission to, to prove to everybody the incredible asset that’s available, literally just below the surface that we need to leverage.
Yeah, exactly. Exactly. And Mr. Mr. Walsh, I think is set to become the new CEO or chairman Fiat. So hopefully it will be an opportunity for him to say, well industry. Yes, of course. You know, I often used to do what I do with all the certification and safety and all the operational stuff, but perhaps there is an angle as well to educate the airlines on the potential goldmine that they’re sitting on. Because I think, you know, probably for tier one carriers, they’re sort of capitalizing on that. And certainly with everything that has happened last year, there was a big mindset shifts, but for tier two and tier three carriers, it is still, yeah, it’s not getting the attention it deserves.
Okay. So let’s just go back 12 months, maybe 12 and a half months, actually a Everett because you released an extraordinary piece of work, which was the first piece of yours that I read. And for listeners it’s entitled the top 100 most valuable airline loyalty programs published in January, 2020 and the second edition of this particular report, because you had done one previously in 2017 and there’s some extraordinary insights efforts in terms of literally the valuations, again, led mainly at the moment by the U S airlines. So let me just pull some of the top figures out for listeners. And again, I know this report is available on your website, which is on-point loyalty.com.
So I’m sure there’s plenty of people will want to read it. So just to give people an example of this goldmine that you’re referring to the top one is currently, or was currently, I should use the past tense for this. So the sky MAs program from Delta airlines last January, 2020, valued in round figures, that’s almost $26 billion followed in second place by AA advantage by American airlines, again, $23 billion. And in third place, the mileage plus program from United airlines where it’s just over $20 billion, these are extraordinary figures, Evers.
Yeah, they are. I do at the same time. Yes, they are absolutely extraordinary shakers. I always also say that, you know, don’t, I don’t think that we’ve got the, you know, the scientifically exact number necessarily is, is directional. What we’re saying is, listen, there is tremendous value in these programs we think, and we’ve gone through this big exercise. It’s basically collect data on 150 airlines. We collect more than 50 data points per airline. And it basically cuts across airlines, statistics, the program statistics, the country, the, the, the, the primary country operating countries, statistics.
And we essentially pour that into our model. And then the mall generates a proforma P and L. So we basically projected, what do we think the business would look like if you were to run it as a, as a separate business and to death. And ultimately you can apply a certain valuation multiple. And of course, you know, the multiples influenced by a number of factors, including again, the growth profile of the airline and then stability and its level of indebtedness and things like that. But ultimately, yes, you get, you get a number of evaluation program and it is material for these big airlines. Of course, it’s very large, but even for, you know, let’s say the top 50 airlines, it is in many cases, it is, it is a material number.
And I think it’s really one of the reasons why we published a report is really sort of try and open the eyes of the will, the various stakeholders and say, listen, there is a potential opportunity here. And we just don’t think that in many cases it’s being done just as, by the level of attention and investments and sort of overall standing, it has in the industry.
Absolutely. And obviously a huge amount changed very quickly after you published that effort. And I think what it did first and foremost was reaffirm again, the direction and the estimated values of these programs. And I think what you shared with me is United airlines seems to have, I think you said cracked the code in terms of leveraging their laundry program to, to essentially raise funds to, to, to continue operating through the pandemic. So I’d love for you to explain to me and all of the listeners, what exactly happened throughout 2020, particularly with the U S airlines and leveraging their loyalty programs as assets.
Yeah, that’s a good question. I, so let me just take you back historically what airlines have done in the past to, to sort of generate capital from their programs. There’s, there’s a kind of, there’s a number of different ways you can do it. Traditionally airlines have, or programs have used the approach of pre-selling miles to partners, basically in an effort to generate liquidity that presale the mouse with partners and that generates cash in the door. And that’s, that’s good, but at the same time, it can lead to UT Roshan because typically if you do large pre-purchase deals, whoever’s buying them. Typically the financial services partner will negotiate a reduction on the, on the price per mile. Of course, the second sort of way that has been done in the past is where the airline has set up the program as a standalone company.
And they basically sold, you know, a Bart or the whole of the company to external investors. Of course the same as example is Aeroplan that was sold by air Canada enterprises in 2000 and size IPO through multiple tranches and actually essentially the soul of the whole thing. And that was followed by a number of other divestitures, or it it’s essentially an equity Garfield whereby the shareholder carves out a piece of the business and then sell set to a typically a strategic or a financial investor, or in some cases, customer goes for an IPO that is, you know, it’s also good because it raises capital, but at the same time, if you sell something, you know, he’s gone, you’ve sold it.
So you, you lose a piece of equity. And with that may come, you know, of course, if you bring in different shareholders, they also want something to say, so it becomes a more complex operating environments. I think what United has done is, is very innovative in the sense that so they didn’t want to go for the big pre-sale. They didn’t want to go for an equity car, but they still obviously had their cash needs. They needed to meet. I think that they, you know, they, obviously the airlines are very familiar with leveraging all sorts of assets, like, you know, at Croft and Gates and the traffic rides and everything else. I think in the case of United, I think they found that the value that they could get some that was limited.
So they were sort of on the lookout for alternative ways to, to meet their financing needs. And they, they actually came up with a structure that allowed them to raise capital by collateralizing the future cash flows or their loyalty programs. So the loyalty program sell smiles through to partners, predominantly financial services partners that has a very stable and robust income stream. So United effective, he was able to come up with a structure. And I think with the help of the, the people at Goldman Sachs to come up with a structure that allows them to basically race the capital by collateralizing essentially the cash flows and some of the IP in the program.
And I think it is very interesting for that for a number of reasons. One is that it is the first time that this model has been used. So they maintain the full ownership in the program at the same time they get the, the, the, the capital they need. And secondly, what is very interesting is that when you borrow money, you have to pay interest. If the airline goes to the capital debt markets, it pays a certain price, depending on the profile of the airline, what United and the other carriers were able to do is by leveraging that loyalty program or making the loyalty program company as the entity that went to the market, they were able to realize a risk discount of between 200 and 300 basis points.
In other words, going through the loyalty program to issue bonds or borrow money. It’s, it’s, it’s a far more effective way of raising capital rather than using the airline. So, and again, you know, this is one of those little angles that I don’t think that airlines have realized traditionally, because traditionally is just how you’re on the program is seldom miles. It’s a nice revenue stream. You take it to portfolio as much as possible. It helps you to run the airline and that’s about it. I think now we’re really on the cusp of airlines to looking at it and say, well, hang on, I need to take one or two steps back and look at the bigger picture and, and, you know, get my head around what the program can do.
Not only just from generating cash from selling miles, but also some of the characteristics of that business allow me to do things, you know, in a smarter way, in a different way. And I think that that realization has really sunk in, in the industry and, you know, United those followed by, by Delta and spirits a few months later, Delta actually did the largest ever capital debt market transaction for an air for airlines beverage by racing 9 billion again. So it was more favorable terms. Yeah. So I think, you know, of course, you know, these are large programs or very large programs. The Delta American express relationship is it’s small it’s particular for its size, its duration for its a contractor.
It’s unbelievable. And you know, I think that at some point they were predicting that the revenues from the American express Dell co-brand card are going to reach $7 billion, which effectively is the more close to, you know, the passenger revenues will be EasyJet or anti-hunger. So co-brands itself generates as much money as the entire airline. It’s unbelievable.
Wow. Wow. It’s very exciting ever to have to say, I think you’ve chosen your career well, to focus in this sector, I actually did want to ask you, and you mentioned EasyJet there, Everett, and I see em, you know, I know they do have an invitation only loyalty program and, you know, and maybe it’s just a feature of the factors. You said that this is only sinking in for airlines now, but you know, where I come from, we have a very well-known low cost carrier called Ryanair who don’t yet have, you know, a traditional loyalty program. I know they have lots of different models. And, but would you see that, that all airlines, even those that are currently just focused on the core business will start to build these as, as new types of assets?
Yeah, absolutely. I think, you know, I actually, I’m a bit surprised or maybe baffled is about a word that
Good. It’s not just me. Yeah.
Free. So let’s go through them one by one. So EasyJet, you know, in my view, a program that is by invitation only, I, I don’t get that. I totally don’t get that. I think that they’re leaving a huge amount of money on the table by doing that, to be honest. And, and quite frankly, the same goes for whizzer and Ryanair. And I think with some of these LCCs, there is this built in, yeah, let’s call it the prejudice that SAS airline loyalty programs that is for big fat legacy full service carriers, because our loyalty program is low price.
And as a matter of fact, this is what Tony Fernandez, the CEO and chairman of the AirAsia group used to say, we don’t need loyalty, low prices on loans model. And he’s come on at 80 degrees alert because realizing, well, two things primarily number one is that the loyalty program can generate incremental and a creative value for the business. In other words, the example I gave earlier on where you sell miles or points, whatever you want to call it, two partners can be a very rich and attractive distribution channel rather than always just using the sledgehammer or low prices and, and really taking this business and building it into a sort of a data driven, very customer analytics focused business, where you can layer on additional, you know, new business ventures around mobile, around a wallet with Syntech.
It is, it is potentially a huge opportunity. So, and, and you see that area has embraced it. If you look at some of the LCCs in South America, they have embraced it spirit in the U S Southwest a longstanding successful program. So, yeah, well to make a long story short for EasyJet and Ryanair wizard, not to have deployed any sort of meaningful loyalty initiatives, I’m surprised that, you know, the shareholders haven’t sort of raised the alarm and said, well, guys, what are you doing? Because if you, if you were to extrapolate the numbers as we have in our report against sort of, you know, the number of passengers, they carried the GDP per capita in the markets that they operate in, the RPKs they produced, I can, I can feel it already without doing the math.
You’re going to get through a huge program with a very, very high evaluation. So yeah, it’s, like I said, I think the reason is it is a mindset of loyalty is for legacy plus, you know, we’re so focused. And so laser focused on costs, we don’t want any incremental costs, our cost per, you know, flown mile. I think those are sort of a very myopic views on what the business could do for them. And I, I think it will change. Yeah,
Yeah, absolutely. As you said, historically, you know, the airlines just had all the glory, all the, all the visibility and if the annual reports aren’t even recognizing some stunning figures, in fact, I pulled out Everett from, again, some of your reports, because what I liked you talked about is the, the more open information that’s coming through now that these new and debt financing structures are coming through since the pandemic. And one figure you quoted was that United reveals in 2019 and EBITA of one point a billion us dollars, and which was 34% of the group EBITDA margin. I just think that was extraordinary.
Yeah, absolutely. And I think that, again, we seem to be on the cusp of a new era in the sense that the programs for the airlines are also in a greater degree of disclosure around the performance of the programs, which is really a catalyst of what’s happening in the markets. Others are doing it. So it is, it is it’s generating this sort of aha moments or what about me realization with other stakeholders in the industry and yeah. You know, those, those sort of levels profit margin. So, you know, if you look at, if we just look at the program, a typical profit margin of a program is let’s say between 25 and 30% obstacles, the, of the revenue, which, you know, exceeds any pool of marginals in the airline typically.
So there’s this beautiful asset that’s sitting there and it was consistently and materially pastable. Yeah. I think the airlines will start to talk about it more and more. I think historically they were reluctant for a couple of different reasons. I think one of them is that if you present it overall, as meaning you mix the airline with the loyalty program, you can, well, I wouldn’t say sweep it under the rug, but if the airline is on the performing and you add in the lowest problem, it looks a little bit better. I think in reality though, I think the, the investors and analysts, they know how much the airline is producing.
So I don’t think you’re sort of, you know, you come to know exactly exactly it is what it is ultimately at the end of the day. So you’re leaving money on the table. It’s actually an interesting example in that context is there were two airlines in Brazil that IPO their program, Tom IPO multiply and go IPO, at least part of its smiles program. I want to go into the technical details. But if you look at the market cap of those two airlines pre and post IPO, sort of historical wisdom would say, or are you into your intuition would say, well, if you take a part of the airline out or you listed separately, then clearly that must reflect all the market capital, the airline.
So you would expect it to go down, right? And in reality, what happens on the day they IPO those businesses. If you look at the accurate anchor, the airline market cap stays the same and the same is it’s volatile. It goes up and down, up and down, up and down the market capital, the loyalty program is incremental value on top of the airline market cap. In other words, it is, you’re not taking something out, you’re getting it, you’re getting a bonus on top of the existing market cap. So that sort of supports the notion that the market looks as the airline. And that’s a highly volatile business is driven by these big macro economic factors that you can’t really control. You can’t control. Nobody can control the price of fuel or overall economic growth numbers, whereas a loyalty program, you can actually control, you can bond a stable business with that.
So, yeah, so that goes back to the earlier point. Why didn’t they disclose it because they, they, they think it will have a negative impact. Whereas in reality, there’s actually a positive impact. If you show that you’re developing this business. I also think that’s showing the market that you are, you know, if you say, look at our problem, we’re investing in it. We’re developing new capabilities where, you know, actively driving the customer value proposition. Our great teachers really know all those messages. They’re good for the airline. They’re good for the program. And they’re good for program partners because they look at the program and they look at the airline and say, wow, look at them. They’re actually investing in the business rather than just sending a bill every month for the miles or the points that you buy off, that it really underscores how serious you take the business as a segment and you’re investing in it.
And I think that’s, that’s very positive
Indeed. And you made the point to me before Everett as well, that there seems to be an increasingly shift to, as splitting out the operations of the loyalty program. I think IAG have done that, for example, to allow them, I suppose, the freedom and the, you know, the cultural approach to running the loyalty program, which has to be very different to, to the, the mindset of an airline executive.
Yeah, exactly. Yeah, exactly. I think what we’ve seen is this trend in the industry where there is a realization that loyalty businesses fundamentally different from the core airline business. So in order to give it to a greater degree or some of the losses or a high degree of agility, just to give you a simple example, I can, I’ve seen so many airlines where the loyalty program department wants to do something, but the response is, and particularly in it, the responses, yes, you’re on the, on the list, but we have other things we need to attend to first because in an airline it’s all about operational integrity and safety and meeting standards and reliability.
So you can come with a business case and let’s say, if you can make this change request immediately you to create, if that makes total sense for everybody and the, and the answer we’ll S we’ll send you the story, but we don’t have the resources for it right now. So if you take that and you do that times thousands, then you basically have a business case to say, okay, the business alludes the business is so different than let’s put it in a separate structure because it can move faster. But also that separation provides this level of clarity around KPIs, accountability, because when the loyalty program sits within the airline, and it’s sort of realized, or, you know, informal agreements with gentlemen agreements between the loyalty program and revenue management, it’s all sort of best endeavors basis.
You can’t do on a business line there because people will come and go, you will lose knowledge. Nobody will know what does equity, exactly. The KPI. So shifted to a separate structure. It will give accountability and transparency. And at the same time, it will allow it to develop faster. And in some cases also, you know, attract different talents because, you know, there, there’s, it’s hard to believe, but there people out there that say, I would, I don’t want to work for an airline, but I want to work for, you know, an up and coming exciting startup company. Yeah, exactly. Exactly. So there’s that advantage as well.
And then on top of it, of course, it’s sort of, if you do separate it, then you can do, you can do, you can start to do, if you want segmental reporting. If the airline decides, yes, we want to tell everybody, this is a program, there’s the revenues and our growing it and how we’re investing in it. You need to have a separate stocks for that. So, yeah. And you’re right. A lot of companies aren’t going down this path IAG as an example, another one, the number one or two in Europe have followed this boss, but also, Hey chef, for example, a and a separate structure, Quantas, separate business units. Yeah. So I think it’s, it’s, it’s, it’s something that we will see more and more often the industry as well.
Wonderful. They’re great examples ever. And because I’ve always been more on the, let’s say the, the product or, or communication side of, of any loyalty programs to me, again, my inherent frustration was always competing for communications capacity. So when you’re part of a big company and, you know, they want to talk about the next sale or the next next discount. So, and this is very much, I believe prevalent in, in airlines as well. You know, the communications capacity is driven by commercial and they don’t see that the loyalty communications as a priority. So I think what you’re talking about in terms of this new structure, again, just gives that relationship building capacity that before might have been confused again with your previous example of, you know, here’s the next airline sale.
Yeah, exactly. I think too, I think that, you know, that starts structure kind of helps to address some of the issues. I also think that, you know, some of it will remain because ultimately there is a finite amount of attention span or bias that a consumer has. So even though if you were to run a separate program than there, I think to some degree, there will always be a conflict or maybe not conflict, there will be a lyric. So how much messaging we can do. I do think that, you know, loyalty programs, they are, because the way they’re set up with all the data that they have, they can, they’re intrinsically better structured to deliver on, you know, Zeri, you know, the high precision marketing using the data from their own resources and its own partners as well, complex campaign management systems that do continuous, you know, testing and upgrading of messaging.
So yeah, that definitely helps.
Wonderful. And I think my final question for you then ever, I did an episode recently about the media value of loyalty programs, and there were some extraordinary case studies being quoted by mainly financial services where for example, a soulless email by a brand like American express on behalf of a partner was valued at about a quarter of a million dollars. So is this something that you’re seeing is being factored into the valuations of the, let’s say more advanced loyalty programs at the moment, or is that still something that, that could be developed further or, or what’s your view on that whole piece?
I think that’s probably an area that could be developed smarter. I don’t think it features as Trombly in current sort of valuation approaches. Although like you say, it can be material. The one thing I would put a caveat on though, is that I, we, we S we see a lot of sort of messaging in the market to loyalty programs saying, you know, data monetization is the way forward. You’re going to get huge value from that. And that I will be a little bit more reluctant to sort of immediately embrace because at the, at the end of the day, you know, you’re competing in a landscape with extremely large and sophisticated players like Google and Apple and Sage book.
So to think that you can sort of, you know, yes, you have a lot of data, but it doesn’t mean that, you know, data monetization is necessarily a, a given, but yeah, I think, you know, the example that you gave on American express with the partner offer. Yeah, of course they, they very smartly leverage the brands. The halo effect is the brands, and there’s a lot of value in that. And I think that’s what the successful programs do. They take the grants of the airline and basically leverage that to, to upsell and, and, you know, widen the scope or the sphere of influence of the problem. And that seems to work quite well.
Absolutely. Yeah. I think there’s a lot more to come on that whenever. So I think we should definitely just keep, you know, obviously keep an eye on us. I know you’re laser focused on this as a segment. Is there any other suppose vertical efforts that you think can follow the phenomenal success in terms of, you know, splitting out the, the loyalty programs and leveraging them as an asset? You know, I don’t know whether hotels are following this direction or do you see it happening elsewhere?
Do you think that there is a number of sectors that could benefits from applying some of the same philosophies at the same time? I think that the airline loyalty programs, they really sit in the sweet spot when it comes to this sort of, you know, value optimization. And that’s really, and that’s for two reasons, predominantly the first reason is that airlines or airline loyalty programs, there is a big Delta between the perceived value and the actual value of the reward. In other words, if you redeem for tickets from Dubai to London, that represents real value for the airline or the program, you know, the cost of, of giving you the tickets could actually be very low.
So that is very effective to play with. Yeah, because that’s a very attractive and a loyalty program. That’s one, the second sector is lot. We talked about earlier, the, you know, th the, the, the intrinsic financial performance of the airline industry is it’s, it’s, it’s, it’s on the lower side. And I put it very cautiously. It means that if you run the loyalty program as a business, there’s a huge sort of gap between your, you know, the core business. And that’ll put loads of problems. If you take those two factors and you look at under industries, they’re more present to that same extent. So if you, if you go to other industries, for example, the nature of the rewards is less attractive.
So the member or the consumer would look at it and say, well, you know, if I, if I run big pharma, or maybe it’s a bad example now, because it’s very effective, if you have a good
We’re highly motivated right there. Yeah. Yeah. But you’re right. Yeah. The growth, the supermarket doesn’t have the same level of, I don’t know whether it’s, you know, exactly,
Exactly. So that’s one thing. And also, you know, the supermarket or the hotel company or the financial services institution, their financial performance would typically be okay. It would be, you know, some cases will be very good. So there’s less of an incentive to sort of rumble loads of program as a standalone. I do think that, you know, the, the, these companies can benefit. I think it’s in nobody’s interest to have a loyalty program that’s hidden in your organization somewhere without clear KPIs that sort of do everything all the best efforts basis, not really getting recognized. That’s good for Noah. That’s absolutely clear so that I think the airlines or the other industries rather can get a, learn some, some, some lessons from the islands, for sure.
Mm, wonderful. My goodness efforts. I have learnt loads in the last day, whatever, half an hour, 40 minutes talking to you, is there anything else that you wanted to mention before we wrap up?
No, I think, well, we covered a lot of, hopefully I think the main message really is that these programs, they are very important. Traditionally has punched below their weight. I think it’s slowly starting to shift and I think that’s good for everyone. So yeah, I think industry will continue to evolve and, and hopefully these programs will continue to play their part in delivering real results for, for their constituents.
Wonderful. Yeah. No, as we all say, I mean, the pandemic is devastating. It’s, it’s, you know, really, really been a big issue, but there are some silver lining, so it’s M extraordinary to have conversations like this. So listen, thank you for bringing our attention to all of those incredible insights ever Debore managing Parker was on point loyalty. Thank you so much for let’s talk loyalty.
This show is sponsored by The Wise Marketeer, the world’s most popular source of loyalty marketing news, insights, and research.
The Wise Marketeer also offers loyalty marketing training through its Loyalty Academy, which has already certified over 170 executives in 20 countries as Certified Loyalty Marketing professionals. For more information, check out thewisemarketeer.com and loyaltyacademy.org. Paula Thomas (43:44): Thanks so much for listening to this episode of Let’s Talk Loyalty. If you’d like me to send you the latest show each week, simply sign up for the show newsletter on letstalkloyalty.com and I’ll send you the latest episode to your inbox, every Thursday. Or, just head to your favorite podcast platform, find Let’s Talk Loyalty, and subscribe. Of course, I’d love your feedback and reviews, and thanks again for supporting the show.
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