In this short summary episode, Paula Thomas looks back on a fascinating conversation with Evert de Boer, Managing Partner of On Point Loyalty, who discussed how the aviation sector has earned such huge profits from their loyalty programs over the years.
And how their importance grew even further in importance through the global pandemic, offering airlines a stable, recurring source of revenue even though customers were unable to travel, and even challenged the widely-held view that redemption seats are an expense for airlines.
Listen to this short summary to hear the highlights of our discussion with this airline loyalty industry thought-leader.
3) “Top 100 Most Valuable Airline Loyalty Programs”
4) #82: Global Airline Loyalty Programme Insights with Evert de Boer
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: Cheetah Digital’s relationship marketing platform bridges the gaps in your customer data, moving people from unknown consumers to loyal brand ambassadors.
PAULA: With customer acquisition, multi-channel messaging, and customized emotional loyalty programs, Cheetah Digital is a one-stop shop for enterprise brands looking to simplify and scale their relationship marketing strategy.
PAULA: Learn how brands such as American Airlines and Discovery Incorporated use Cheetah Digital to drive increased revenue with video case studies available on cheetahdigital.com.
PAULA: Hello and welcome to this week’s short episode of Let’s Talk Loyalty.
PAULA: When I’m looking back on an episode specifically about airline loyalty programs with Evert de Boer, managing partner at On Point Loyalty in Singapore.
PAULA: Evert first shared with us a couple of fascinating data points on how profitable these programs are for the airline industry.
PAULA: And most interestingly, really how underappreciated and misunderstood they are.
PAULA: Often these programs are seen as simply giving away something for free, when in fact it’s the opposite.
PAULA: These programs generate revenue, and in some markets an awful lot of it by selling points or miles to partners.
PAULA: Selling seats in this way can actually be more efficient for the airlines because it lowers commissions and distribution costs.
PAULA: In fact, we talked about the fact that sometimes an airline’s loyalty program can actually be more profitable than the airline itself.
PAULA: And I’ll never forget the first time I heard that, it completely blew my mind.
PAULA: The airline’s loyalty program also has very different business characteristics than running the basic airline.
PAULA: With an airline, there are so many factors which are completely out of our control.
PAULA: Things like the fuel costs, the overall economy, even the weather, and of course, we don’t even need to talk about the pandemic.
PAULA: But with loyalty programs, it is exactly the opposite.
PAULA: Almost everything is within your control.
PAULA: So a loyalty program is profitable, it can add a stable revenue stream to what can otherwise be an inherently unstable business model.
PAULA: To really illustrate how underappreciated airline loyalty programs are, Evert shared with us a McKinsey study.
PAULA: And clearly McKinsey is by any standard a superb company with an impeccable reputation.
PAULA: But one study they did on the airline industry concluded that the entire industry is simply not very profitable.
PAULA: But in fact, that report made no mention of the airline’s loyalty programs in that 52-page report.
PAULA: And I do think McKinsey was right in their assessment of the industry as a whole.
PAULA: I remembered a similar shocking statistic from the former chief executive of Aer Lingus.
PAULA: I attended a presentation, and at that, he explained that in its entire 100-year history, the airline industry had yet to make an overall profit.
PAULA: Evert then shared with us his own research on the valuation of some of the world’s leading loyalty programs in the industry, just to give a sense of the numbers we were talking about.
PAULA: For example, Delta Sky Miles, he estimated to be valued at about $26 billion.
PAULA: Yes, that’s billion with a B.
PAULA: AA Advantage from American Airlines was worth about $23 billion.
PAULA: And the Mileage Plus program from United, he had estimated to be worth $20 billion.
PAULA: Just some staggering numbers, and yet they’re often underrated and sometimes even forgotten.
PAULA: Ever talked about some of the ways that airlines have monetized their programs in the past, including even sometimes selling them off with an IPO in some cases.
PAULA: The most interesting thing was in 2020, United Airlines came up with an ingenious way of leveraging their program with the help of Golden Sachs in order to raise capital by collateralizing the future cash flows of their loyalty program, just as everything was shutting down due to the pandemic.
PAULA: This restructuring saved United a huge amount of money in interest payments.
PAULA: Obviously, lending money to an airline in 2020 would have been extremely risky, and of course, they would have been charged a very high interest rate.
PAULA: But United still had the steady cash flow from its highly profitable loyalty program.
PAULA: So they were able to borrow the money they needed to get through 2020 at a significantly lower interest rate.
PAULA: The next part I found super interesting was when Evert described how running an airline is so vastly different to running a loyalty program.
PAULA: And in his view, increasingly, airlines are starting to treat their loyalty programs as standalone companies that are often now running very separately to the core airline business.
PAULA: They simply require a different skill set to manage.
PAULA: So spinning them off, instead of treating them as just another department in the airline, in fact seems to be working much better in helping those loyalty programs run much more smoothly and profitably.
PAULA: Another potential revenue source for our loyalty programs is of course always the massive amounts of data they are collecting.
PAULA: So for airlines, it seems there’s still big opportunities to monetize that.
PAULA: It would mean they would have to position themselves with competing directly against the likes of Google, Apple and Facebook, but it does seem to be an opportunity in the media business to think about nonetheless.
PAULA: Lastly, Evert shared with us his thoughts on why the airline industry is uniquely positioned to run such effective programs.
PAULA: Quite simply, it’s to do with the difference between the perceived value of the reward the customer is receiving compared to its actual cost.
PAULA: The perceived value of a free plane ticket is extraordinary.
PAULA: When in certain situations, once the loyalty program has run well, the actual cost of fulfilling that seat should be much smaller.
PAULA: This was a fascinating episode with Evert de Boer.
PAULA: And if you haven’t heard him speaking, you should really head over to letstalkloyalty.com forward slash 82 and listen to the whole discussion in its entirety.
PAULA: That’s it for today.
PAULA: Tomorrow we are back with another interview, this time with another loyalty podcaster, Ian Pringle.
PAULA: Together we’re sharing what we’ve learned in the combined five years that we’ve been running our podcasts.
PAULA: Then on Thursday, I’m chatting with Albertsons, the second largest grocery chain in the United States, to hear some of their incredible innovations driving loyalty at scale throughout the recent global pandemic.
PAULA: That’s it for today.
PAULA: Thanks again very much for listening, everyone.
PAULA: This show is sponsored by The Wise Marketeer, the world’s most popular source of loyalty marketing news, insights and research.
PAULA: The Wise Marketeer also offers loyalty marketing training through its Loyalty Academy, which has already certified over 245 executives in 27 countries as certified loyalty marketing professionals.
PAULA: For more information, check out thewisemarketeer.com and loyaltyacademy.org.
PAULA: Thank you so much for listening to this episode of Let’s Talk Loyalty.
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