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Hello and welcome to episode 350 of Let’s Talk Loyalty, which today I’m thrilled to announce is now ranked in the top 3% of all podcasts worldwide. I hope you don’t mind me giving our show this huge plug. As we just found out today, that we’ve been moved up in the global rankings. Before, we were super proud to be in the top 5%, but having been there for about 18 months, I had no idea if we’d ever be ranked any higher.
So today we were awarded this incredible top 3% ranking. Now onto today’s show, which is a discussion about the valuations, challenges, risks, and opportunities of airline loyalty programs around the world. Our guest is Evert de Boer, who many of you will know as the managing partner of On Point Loyalty, an advisory firm based in Singapore, which specializes in offering consulting capital and insights to the airline loyalty industry.
As part of that service, On Point Loyalty produces a report every three years detailing their estimates on the valuations of over a hundred airline loyalty programs around the world. With the incredible impact of Covid on the airline industry in recent years, I was excited to find out how the valuations of their loyalty programs had changed since the last report published in January 2020.
I hope you enjoy listening to those results, as well as some of Ever’s insights on the reasons that airline loyalty programs in various markets have either increased in value and quite dramatically in the case of Delta Sky Miles or in other markets decreased in value. Then at the very end, you’ll also hear about Evert’s latest contribution to the loyalty industry.
His new software tool that supports the complex financial modeling that all loyalty program owners need. So, whether you’re in the airline industry or not, do listen out to hear about that at the very end. Please enjoy my conversation with Evert de Boer.
Paula: So, Evert de Boer, welcome back to Let’s Talk Loyalty.
Evert: Thank you, Paula. It’s great to be here.
Paula: Great, great. Two years on from our last conversation Evert. Lots has happened. Lots have changed. How are you feeling?
Evert: I’m feeling great! Yeah. I think, uh, you’re right. So, I think we spoke in February of 21, which is right about the time when Covid really started to sink in.
Paula: Yep.
Evert: And, uh, yeah, I think a lot has happened in meanwhile, and we are yet at a new, um, uh, sort of era right now, so yeah. Very exciting.
Paula: Fantastic. Great. And again, what triggered today’s conversation is the same as what triggered the last conversation, and it’s always a conversation I really look forward to when you publish this, uh, report on the top 100 most valuable airline loyalty programs.
So, we have plenty to discuss in the 2023 report. But before we get into discussing your findings, Evert, as you know, we’re starting our show now talking about what do industry professionals, what is your favorite loyalty program if you were asked that?
Evert: I think it’s a, it’s a great question. At, at the same time, I think you’ll allow me to give this somewhat, uh, diplomatic answer.
Paula: If you insist.
Evert: Um, but also to be honest, um, I, I, I don’t really have one particular program that I would say is my favorite program. Instead, I think there are certain features or benefits that I think are really great. So, if you will indulge me, I will, I will name a few.
Paula: Yeah.
Evert: Um, the first one Aeroplan, the, the program of Air Canada. They have a feature that allows members to use any combination of Star Alliance carriers when you redeem for an award ticket. Okay. So, for example, you could go out on Sunset, then connect on Austria, come back on Thai connect on Singapore Airlines.
Paula: Wow.
Evert: And basically, what it does is it exponentially increases the amount of itineraries that are available.
Paula: Wow.
Evert: Because in a lot of programs it is sort of restrictive. You must go and come on the on the same carrier. Yeah. But an airplane is completely, um, as they call it, uh, metal neutral. So, you can go on any partner and come back on any partner. So, I think that’s, that’s really great.
Paula: Nice. Okay. Yeah.
Evert: Another… yeah.
Evert: Yeah. Another feature that I like a lot and they’re certainly not the only one to do it but um, I take them as an example, it’s the Flying Blue Program of Air France KLM.
Paula: Ah-huh.
Evert: And what they allow you to do is carry forward any excess credits. So, as you go through the year, you build up tier credits to qualify or requalify.
Mm-hmm… and what they allow you to do is, well exactly that. If you have surplus credits, you can take them with you to the next qualification period.
Paula: Ah… nice.
Evert: They don’t go to waste, so to speak.
Paula: Okay.
Evert: So, at the end of the year, anything that’s left over, you carry it with you into the next period, which I think is, is a great, um, a great feature to have.
Paula: And just because we have a lot of non-airline people Evert, what I’m assuming you’re talking about there for is the, the tier status. So, when I’m upgrading from whether it’s a blue or whatever the basic silver tier is,
Evert: Silver is to gold… Exactly.
Paula: Up to platinum or who knows, whatever. So yes, so, so typically what happens is I’m upgraded to gold and that’s it.
I basically started zero and I have to re-earn everything from that baseline. So, so they, they carry it forward, all the excess.
Evert: Yeah. It depends a little bit on the program and how it exactly works, but in their case, I believe it is a, yeah… uh, a fixed time period. And if you come at the end of the period and you have earned more than you need it, let’s say you have 150 credits and you only need it 100.
Yeah. Mm-hmm… the, the Delta 50, you can carry forward to the next period. So, you don’t go back to scratch.
Paula: Nice. Yeah.
Evert: You have sort of artificial advantage when it comes to, uh, qualifying for the next period. And it really sorts of, it serves two purposes. One, you know, you will sort of continue to, um, uh, buy services from them.
Mm-hmm… uh, and two, it means that your, any excess doesn’t go to waste. So, it’s really a good incentive to, uh, to concentrate on that program.
Paula: But I really like as well Evert that, that’s something very actionable. So, what I love on this show is to be able to identify those kinds of insights. So, whether I’m running a program in retail or telecommunications, if I do have that same structure, I can apply that same idea.
And I think it’s very respectful, actually. Like, I really like the thinking behind it because you know, we’re all expecting, I suppose, you know, yes. The upgrade, yes, the new benefits and that’s great, but going back to zero never feels good. And why would you not allow them to, to retain that Delta? I think that’s a super clever and very thoughtful idea from, from KLM, Air France.
Evert: Yeah, no, I agree. And I think it’s, it’s like you say, it’s really a feature that could be used or applied in other programs as well. Yeah. Um, to some extent we, you could argue that airline loyalty programs, have in many ways, you know, done lots of very interesting things that can be adopted by other industries.
But this is certainly one that I think yeah makes a lot of sense. Also, against the backdrop of, you know, what members really don’t like, well, there’s two things members really don’t like, I would argue. Yeah. The first one is expiry. So, losing points or miles or credits. Yeah. Uh, at the end of a, of, of a period… And secondly, people really don’t like being downgraded at tier.
Paula: Totally.
Evert: So, if you go from gold to silver or whatever other permutation you can think of, of course, yeah. It’s not very good for the customer equity. So, this is an elegant way to sort of make sure that people yeah, no, remain on that path and, uh, no point, uh, or credit goes, uh, unused.
Paula: Absolutely. So, we are off to a wonderful start. I was gonna say flying start, but that would’ve been cringe. So, we’ll just move on. Um, tell us now, Evert, you have literally just released, as I said, the January 2023 edition of the, the most valuable airline loyalty program report, which is an incredible piece of work. Um, we talked it through in a huge amount of detail, as we said two years ago.
And I know this is the third edition, so you’ve been producing this report 2017, 2020, and now 2023. First of all, what I am impressed to see is that the, the three top most valuable airline loyalty programs are the same, uh, with Delta, American and United. And I was particularly impressed to see that Delta Sky Miles has gone up in value, almost two billion dollars.
So first and foremost, what was your initial reaction when you saw the results of this year’s report the first time?
Evert: I was equally amazed, just like you. Um, and the reason for my amazement really is that we use a, what I would describe as a almost empirical way of predicting the value. So, we collate independent data from external sources around the size of the airline.
The main operating country and the profile of the airline loyalty program, we do that for over 170 airlines globally. So you can imagine the amount of data that’s involved with 50 variables per.. yeah.. program. Okay. That, that all goes into our proprietary, um, algorithm that then ultimately generates the valuation.
So, We, yeah, like I said, we make it as sort of agnostic or independent as possible and let the model do its work and ultimately it will generate the valuations. Of course, when we get the valuations, we do a fact check or a collaboration against market transactions to see if they make sense because there were a number of transactions in the market in the, in the period between this report and the previous one.
Mm-hmm.. Um, but that all seems to align, so, yeah. Um, like you said, Delta went up American and United also went up. Yeah. There’s also a number of programs that went down in value. Um, and I think up or down, it can really be traced to normally, uh, a number of factors. Um, clearly the size of the airline is an important one, but also macroeconomic factors like GDP per capita and growth and GDP per capita, um, are quite sensitive inputs.
But also, the credit rating of the airline you could imagine that an investor would be willing to pay a higher valuation for a program that’s run by an airline that has an outstanding financial record. Mm-hmm… versus an airline that is a little bit more encumbered, so to speak. So, it’s. Yes, we see major changes in valuations, up and down.
Mm-hmm, and typically they are function of a compound, um, uh, source of, uh, of, of, uh, of root causes, really across the airline country and program profile.
Paula: Okay. Okay. So, I suppose the, the most obvious question then Evert is the, the impact of Covid. So, you’ve talked about a lot of, um, various different factors in terms of how those valuations do go up and do go down, but specifically Covid, I think in many ways, I think we, we agreed on the last conversation.
First of all, it really shown a light on the, the value of these programs independently of the airlines themselves. And again, we have a novel, awful lot of people who listen to this program, who don’t work in airline loyalty. They might work in retail loyalty or in any other particular sector. So, tell us a bit about, what are you thinking the, the impact of Covid was in terms of driving these valuations either up or down?
Evert: Yeah. I think it’s hard to distill the precise impact of Covid given the sort of, you know, methodical and very sort of almost academical approach to our evaluation, which is driven by those 50 variables that I, uh, mentioned earlier on. Okay. I, I do think if, if we were to take a step back and look at, you know, what has happened in the airline industry during Covid.
In the loyalty field specifically is exactly what you just highlighted. It really put the spotlight on these loyalty programs. Yeah. Primarily for their consistency, uh, reliability and ongoing profitability. So yeah, I think before Covid, yes, of course there were people, you know, that understand the value of these programs, but what Covid really did was effectively when the bottom fell out of air travel, these programs kept ongoing because people kept on collecting miles. And as a result, uh, of that, the airlines kept enjoying the revenues associated with the sale of miles to external partners. Yeah. So, it really put the spotlight on the programs in terms of their external revenue generating capabilities.
Mm-hmm… and along the sidelines of that, when the airlines needed financing during Covid, as they essentially ran out of money, they leaned on their programs to secure loans at terms far better than they will be able to secure using the airline as collateral. So big airlines beginning with United Airlines, followed by Delta, American, Spirit, Hawaiian, and others in the US. Mm. They collateralize the cash flows of their programs. Essentially unlocking access to capital to help them survive the Covid crisis. Um, and yeah. Uh, let them, you know, exit at the other end of the tunnel, so mm-hmm… And as part of that process, they did some very detailed segmental reporting, which I think really made people set up and say, hmm, hang on.
There’s really something here in these programs. They’re so consistent and so reliable, and they’re such rich sources of cash flow generation. Yeah. Um, to the extent, I think. It probably wasn’t, um, happening in the market before that. So Covid really was a catalyst for the appreciation of the value that these airline programs in particular can bring.
Paula: Absolutely. And I think what shifted for me as well, Evert, was, you know, again, from outside of the industry, I guess we would often just, you know, have these, I guess, fairly naive, uh, belief systems that the, the aircraft, for example, are perhaps the most valuable assets within an airline. But I think what you are saying is actually the loyalty program at the C-suite level suddenly became the most valuable asset in, in the minds of, of that cohort, of, of business owners.
Evert: Yeah. Well, I think they’re both probably very valuable and in the, the aircraft, uh, very valuable, but also very, um, an asset that in many ways sometimes has already been, um, you know, used as collateral or the aircraft were not even owned by the airline. Yeah. At least. So, but yeah, of course. Uh, there is a basket of, of, of, of assets available to these airline boards.
And I think what happened during Covid was that they set up and said, hmm, this load segment, if we were to set it up in the right way. Yeah. Then we can really use it for our financing needs. And I, I think that’s really, that’s a major change that we saw during Covid. Mm-hmm. Um, I also think it’s, it’s a, it’s sort of a, a prolongation of an ongoing trend where these loyalty programs, the role that they play within the airline ecosystem has slowly evolved from, let’s say, you know, somewhat gimmicky marketing programs at the beginning to kind of financial powerhouses that they are today. And that’s really been putting a… accelerated pace during Covid. Yeah. And I think that’s, that’s good to see because you know, I think you could argue that if you look at the airline industry, traditionally the focus has been on exactly what you say, aircraft, new aircraft, new seats, new routes, fuel, hedging.
Yeah. Alliances, joint ventures. Um, leasing… Uh, but, but certainly the, it hasn’t focused on loyalty programs, and I think slowly but surely we can see the, the trend is shifting, uh, starting to, um, starting to change.
Paula: Yeah, absolutely. And another, um, really nice comment actually in this report Evert, uh, I was just reading it through of course before today’s conversation, and I’ll just read the quote that I liked.
It says, loyalty delivers a materially higher operating margin compared to the airline segments. And again, I think that’s something that a lot of people in the airline industry even I don’t think really appreciate is the, the higher margin. So, I thought it’d be useful just to understand a little bit more in terms of, you know, how dramatic that is, um, as a point to, to make for people listening to this show.
Evert: Yeah, that’s a really. Um, observation and I, I think it’s one of the key things that we, that we talk about a lot. So, to put it in simple terms, the airline industry, being in the airline business is an extremely difficult business that has very little levers, offers very little control over the levers of profitability.
Yeah. Uh, it’s an extremely tough business to be in, uh, a business where typically the cost of capital, um, is not exceeded by the return on the invested capital. In other words, you lose money in this business. Loyalty programs, on the other hand, run as separate businesses. Mm-hmm are higher margin, uh, scalable asset light, uh, with a very high degree of control over the levers of profitability.
So, they’re, they’re fundamentally different businesses. In the example that we quote in the report is from IAG. Um, where IAG itself projects that the operating margins for its different segments, very greatly. And what they say is that the expected operating margin for its loyalty business, IAG loyalty is between 22 and 24%.
Now, if you contrast that with the operating margin for their airlines, Iberia, um, railing, Lingus and British Airways those are materially lower and they’re not only materially lower. Mm-hmm… I think the best performing wellness at 14. So, think about that gap between 22 and 24 and 14 mm. But also, the variance, the bandwidth that they project is much wider.
So there is an inherent, far greater degree of uncertainty around the performance of the airlines, whereas the loaded business, they can pinpoint with great certainty. The operating margin, which is at a significantly higher level in absolute terms.
Paula: Absolutely. And what I also feel is the, the, the opportunity for airline loyalty programs is, is almost unlimited.
You know, when I think about the global appeal of air travel, you know, compared to, you know, obviously, you know, the, the fixed air capacity, for example, of, again, operating an airline. The loyalty program has unbelievable potential to scale. Would that be fair to say?
Evert: Yeah, no, I think that’s, that’s a fair, uh, statement.
I think in many ways these loyalty programs can act as a flywheel of consumer activity where they use the halo effect of the airline brand to market an almost endless, uh, variety of products and services… Yeah. Um, and if you kind of extrapolate that thought, you know, now there’s a lot of talk about FinTech, buy now, pay later, um, types of businesses and they attract huge valuations and huge, very high multiples.
I would argue there’s really nothing that would stop a well-run load program to go into this space and build, you know, an almost like a. Uh, digital finance business using the brand of the airlines and, and, and, and, and really, you know, push above its weight and, and, and go beyond the traditional boundaries of an airline loyalty, uh, ecosystem.
So, yeah, I think you’re right. There is, there is plenty of opportunity for growth, um, also outside the airline, uh, ecosystem. Mm-hmm. and really use the assets to the best, uh, possible way.
Paula: I really like that idea Evert because I remember reading, there’s a very famous article, uh, which I think is titled The Bank of Starbucks, and it just talks about the, the billions of dollars that Starbucks obviously earns in terms of prepayments and gift cards and its loyalty program as we know, it’s always being talked about on this show as people’s favorite loyalty program.
So I, I really like this idea of a digital bank. As you said, uh, based on that overall, you know, insatiable desire, dare I say it for the, the actual benefits of travel. Um, and yes, completely restructuring how an airline starts to earn income, because actually flying people from A to B suddenly becomes, yes, the most aspirational.
But as you’ve already indicated, perhaps the most difficult, perhaps the most expensive. And there are lots of other ways for those groups to, to earn income because directly of the, the overall proposition that they own and that idea of inspiration, I think it’s a very clever idea.
Evert: I think it, it sounds appealing in reality for airlines to get their head around it.
Paula: Totally.
Evert: It’s easier said than easier said than done. But…
Paula: I can imagine, yeah. The regulation alone would be a nightmare, huh.
Evert: Yeah, absolutely. But even, you know, if we take it back, uh, two or three or four steps and just think about how to run the loyalty program, if you were to buy into the hypothesis that these loyalty programs are very different businesses and very valuable businesses, yeah.
I think it would be logical to say then, well, you would run them differently than an airline, but debt for many airlines is already one or two bridges too far because they say, you know, it’s intrinsically linked to our business and we must keep it within the family, for lack of better words. Yeah. Um, so yeah, I think that whole sort of, you know, going down the path of buying out pay later FinTech valuations, completely different business model.
That may be a little bit too far, but, but hopefully there’s things that airlines can do that are a little bit closer to them that I feel more comfortable with and are more realistic in the short term.
Paula: Absolutely. Yes. Realistic is definitely, uh, an important feature of all of this. And speaking then, I suppose, in terms of adjacent sectors or, or other categories Evert again, you produced this report only for airline loyalty programs.
And I was wondering, why don’t you do an equivalent for hotels, for big retail groups, for, for other categories that again, are investing huge amounts of money and I’m sure would be, uh, fascinated to see how they would be independently valued with your, your incredible formula. So, so why do you only do airline loyalty programs?
Evert: But to be honest I think that airline loyalty programs, they, they occupy a very specific sweet spot where basically two conditions are met. The first one is that airline loyalty programs, um, operate generally very or paid currencies, where the perceived value can materially exceed the actual value for the airline or the program operator.
Paula: Okay.
Evert: So, if you, if you redeem a seat in a premium cabin and the, and the flight is actually half empty, then it’s, one can argue that the cost of that seat is less than the typical selling price. Mm-hmm, so that’s one. Mm-hmm… So that’s a very attractive feature of these programs. The perceived value very high, the actual cost may be significantly lower.
The second thing that happens is that, what we spoke about before, the airline industry financially doesn’t deliver great returns. So, there is a huge contrast between the performance of the core industry and the performance of the multi segment. If we take these two together, it means that you have a business that’s affiliated but separate that offers great characteristics and a great, you know, uh, performance, um, standard when it comes to profitability.
And that makes these programs so, uh, attractive. If you were to, if we were to do this, for example, in retail, let’s say a supermarket. Mm, then those two conditions don’t really hold up as much anymore. Most supermarkets, the margins are very thin. The, the loyalty programs are based on cash back. So, the points have a fixed monetary value.
Whilst it’s very, you know, easy to understand, it’s not very exciting. Um, and also the loyalty program you know, if you were to run it as a profit center. Yeah. It’s probably in line with what the, let’s call it modern company delivers in terms of financial results. So, there is not a big contrast. And as a result, uh, yeah, there is less of a, I think, potential to explore that.
Paula: Okay. It’s not as sexy. Is that, is that a fair, fair thing to say?
Evert: That’s very good way of saying yes…
Paula: Oh dear. So, so were you surprised, I suppose, Evert, with, you know, what you’ve concluded in your, your latest report, and I will say, first of all, a couple of things that I really like about how you produce this.
It’s, it’s a short report, which makes it very accessible. I will say, for somebody like me who is not certainly very qualified or equipped with a lot of financial terminology, but it’s a very easy to understand report, 13 pages. So, I was able to read a top to bottom and actually feel like I learned something. Um, and I know that was the same with the previous report in 2020. Um, but with all of that, again, I can only imagine how many months of work I’m sure go into producing it. Given all of the variables that you’ve talked about. I know a lot of people when you published it were commenting that they didn’t see, for example, maybe a lot of Middle East Airlines in the top 20. I know they’re in the top 100.
Um, but that was something that did surprise me and I wanted to ask you. And then I guess just anything else that surprised you three years on from, from the last report that you did?
Evert: Yeah, I think that, so the, the three, let’s say the three major Middle East Airlines, um, Etihad, Qatar and, and, uh, Emirates.
Um, they’re not in the top 20 and one may expect them to be there based on their footprint. Mm-hmm… Um, again, it’s probably a combination of factors that help to explain why they are a little bit lower on the ranking. Um so these are very large airlines with very large international networks in our report.
Um, airlines that have a large domestic market, they tend to get a slightly higher valuation. Mm-hmm… Um, that’s one. Um, another contributing factor could be the ownership. Government owned airlines, they tend to attract a slightly lower valuation.
Paula: Okay…
Evert: Um, there’s factors like, um, interchange in markets. So, the US carriers, they benefit from high interchange.
Yeah. Interchange is essentially the budget that banks have at their disposal to buy miles. Yeah. In a lot of other markets, including the EU. Yeah. Um, and Australia interchange has been regulated or is simply not as rich as the US so it really is compound factors umm that helped to explain why, you know, airlines in the Middle East, despite their large international standing, are not in the, in the top 20.
Paula: Okay. Okay. And anything else that surprised you when you, when you produced the report this time?
Evert: Um, I think it’s, well, the results, like I mentioned earlier on, are a mixed bag. So, we see a number of airlines increasing in value. Um, and again, that can be traced back to a combination of different factors.
Mm-hmm. I think the, probably one of the most pronounced trends we saw is the drop in value that we saw in particular for South East Asian carriers. Um, and again, it’s a combination of factors that drive it, but a lot of it has to do with the credit standing of the airlines. So, okay. The credit worthiness of the airlines actually, uh, deteriorated compared to 2020.
And as a result of that, the value of the program also, um, uh, was reduced, uh, accordingly now.
Paula: Mm-hmm. Okay. Okay. And then I suppose what I liked in terms of your conclusion, Evert, um, again, just reading through the report, the other thing I really liked actually is I didn’t have to put in an email address.
I didn’t feel like I was being trapped into downloading something and then I would be, uh, sent a load of marketing material later. So, so well done on making it so accessible. Um, but in your, I suppose, closing section, there was two things that caught my attention. First of all, I liked your point about inertia and I think it probably is more, I suppose, aligned with what you mentioned earlier in terms of, you know, the appetite for airlines to move beyond the core business. But inertia definitely seems to be something that you think, um, airlines should be concerned about or the investors in those airlines. So, I thought that would be interesting to get a bit more insight from you on.
Evert: Yeah, I think so. We have a hypothesis that these programs are very valuable. And I think the Covid, what happened during Covid, sort of corroborated that, yeah. At the same time, I don’t think they, the programs are getting the attention they deserve, and I think that can be partially traced back to inertia, meaning these airlines are on a path and they keep going down that path and they will stay on that path because it’s very difficult to stray from that path and do things differently. So, there is a built-in resistance with airline management to make drastic changes. Um, and I think that helps to explain to some extent why, you know, things will be done in a status quo way. Mm. Uh, and not, uh, change materially. The, the, the kind of analogy we started to use is that imagine that BMW that produces, you know, lots of different models. Mm-hmm including the mini. Yeah. Imagine that all the profits are made from the mini model. Uh, but BMW keeps only talking about the new seven series, the new five series, and the new three series. That would be a sort of a very strange situation, right?
Paula: Sure.
Evert: And, and I think we’re seeing this in the airline business were a lot of the value and a lot of the profits are coming from the loyalty program, but the industry, I’m sort of generalizing here a little bit.
Paula: Yeah.
Evert: The industry is more concerned around leasing aircraft alliances, fuel, hedging, new IFE.
New aircraft and doesn’t really talk about loyalty. So, there is this dichotomy between, on the one hand, the relative performance of these loyalty programs and the attention, um, that they get. And that sort of manifests itself, I think, in many ways. One example is that we still see airlines that where the loyalty program is run by people without loyalty experience.
So they appoint people that don’t really have any background in loyalty, which mm-hmm… you know, raises the question, well, does it matter if you have experience or does it not matter? And, well, I think we can, we can debate it. The other question is, if it is such a high value or potential value asset, should it then be run within the airline subject to the same restrictions.
And when we talk to a lot of people that run these programs, they complain about inherent limitations that sitting in the airline brings with it, for example, limited access to IT resources. So, they have tons of new innovative ideas and supported by certain business cases, but they simply can’t get sign off because there is a limitation on resources.
So, I guess you could say that there is a situation whereby there is this big unpolished diamond or asset and it’s still struggling to break free and realize it’s, it’s true potential. And one of the reasons for that is that inertia that we’re talking about in the report, we also talk about in the report about, you know, during the Covid crisis, the big US carriers use their programs as collateral.
The software collateralization where you basically pledge. The future cash flows have collateral for financing and it worked really well. Mm-hmm… But at the same time, whilst it worked really well, it didn’t materially change how these programs were run other than, you know, a special purpose vehicle that was set up in the Cayman Islands, but the way these programs are run and where they sit in the organization, nothing has changed.
So hence our kind of closing remark saying, yes, a loyalty program, its cash flows, they make excellent collateral, but could there be a bigger opportunity and go into, you know, new spaces. And as a result of that, changed the nature of the business. And as a result of that, you know, maybe attract a different valuation and realize other, uh, opportunity.
Paula: Yeah, and even I remember Evert from our last conversation, I didn’t actually re-listen to it, but I do remember you talking about this idea specifically about the autonomy that could be granted to the loyalty program. And the idea of splitting it out as a separate business unit, my understanding is it’s only IAG loyalty that actually has that level of autonomy.
I could be wrong, but I do remember you saying that you had a, a sense or, or let’s even say a wish or a hope, um, or a belief that that was probably the biggest opportunity. Give the loyalty program owners, first of all, the expertise they deserve. And then give them the space to go and build exactly what they’re capable of.
So, it’s, it’s almost, it must be quite frustrating for you because I know with On Point loyalty, you’re brought in to advise at the C-Suite level to have the kind of conversations that again, I tend to feel as a loyalty practitioner, I mightn’t have the, the financial language to have the same conversation that you have at the C-suite level.
So, I guess I’m, I’m assuming what’s happening is you are being brought in to advise the board, and yet not a lot of them are in that frame of mind. As we’ve talked about even two years on. Even with the clarity and the, and the, and the spotlight that we’ve talked about, it still feels like there’s a lot of awareness, education. I’m not sure what the word is. I mean, it sounds easy. I know we’re talking in hypothetical terms, but I vividly remembered, I probably even said this to you last time as well, Evert. I remember seeing Willie Walsh speaking once. When he was CEO of Aer Lingus and I was in Ireland, um, as a travel agent and feeling very hard done by, because they had cut the airline commissions down to, I think it was down to zero from historically the 9%.
And Willie Walsh stood up, and to your point earlier, literally said the airline industry is 100 years old. In that 100 years we have made a loss. And I just kind of went, oh my god. Okay. I totally get it. The airline, it’s extremely difficult and I know there’s that famous joke as well about, you know, if you want to make, you know, if you wanna become a millionaire, the easiest way is to start as a billionaire and then start an airline and, and lose it all.
But, yeah, I dunno what the question is, but I guess it’s just an observation that even with all of these, um, massive factors in our favor, not a huge amount still seems to be changing.
Evert: I think that that is a correct observation. Yeah. Uh, we still have our work cut out, so to speak, and you know, it’s not something that we get necessarily, uh, frustrated by.
But yeah, we do wonder, you know, there tends to be, or we think that there is lots of value and you would think it’s, um, straightforward to at least consider certain options or to pursue that value, but it turns out it is not as straightforward and yes, IAG is a great example. They’re not the only one. There’s others as well.
But certainly, we have some, I think, good examples in the industry that’s basically say, yes, we believe there is value and that speaks to the market about it. I think Qantas is another great example. Yeah. Um, and some others as well. Uh, but yeah, no, we’ve got our work cut out and slowly but surely, I think, um, there is an increasing understanding of the potential value. And also, I think people are slowly coming to terms with, yes, there is value and perhaps there are better structures to realize that value. Um, and no, you know, we’re not advocating every airline to spin off its program.
And yes, we think that there are lessons to be learned from the past. Mm-hmm but I think having said all of that, doing nothing and just continuing to run the program as it was run, you know?
Paula: Yeah.
Evert: Wherever. That’s probably not really using the opportunity that presents itself. And we do think that, you know, if you look at the overall landscape, there is sort of a premier league and then a second division and a third division.
And I think if you are really serious about it, then you wanna play in the, well, let’s call it Champions League.
Paula: Okay.
Evert: And will be left behind. Because we do think that there will ultimately be winners in this space, and there will be people that are a little bit, you know, left behind if there’s certain things are gonna happen that that will change the landscape.
And I think you, you need to be set up to handle those changes. And if you’re not, then potentially you could lose out on a lot of value.
Paula: Absolutely. Well said. Well, you know, work cut out for us, I think is exactly what, uh, what we, we do need to continue to reflect on, even as I was looking at the list myself actually, of the top 10 most valuable programs, only five of them have been guests on Let’s Talk Loyalty Evert.
So, um, if any of the other airlines are listening and want to come and share their story with us, of course we definitely have our work cut out, but we love talking about loyalty, particularly airline loyalty. So, absolutely. It’s fascinating to get your perspective and your insights, and I think for all of us who run loyalty programs, the potential is just unbelievable and we love it and we’re excited about it and we believe in it.
So, I want to say huge thank you to you for, again, I suppose, shining all of your expertise on exactly what the, the factors are that are driving these particular industry trends, helping to educate all of us because I always say I started this show with this idea about education and inspiration, and certainly your report delivers both of those for me.
Um, so thank you for that. So, with that said, ever, I don’t have any other questions. Um, I wanted to give you an opportunity if there’s anything else that I didn’t ask you about the report that you think it’s important for our audience to know. Um, any particular things that did jump out at you that you wanted to mention?
Evert: I think we’ve covered a lot. Yeah. I think, you know, it’s clear that there is huge value in these programs. The key question is, how do you realize that value?
Paula: Yeah.
Evert: Uh, and there’s certainly, you know, I think great examples out there in the market that people can look at. Yeah. Um, so yeah, there’s no reason to, uh, to, um, to panic.
I think there’s a clear way forward and hopefully our report has, uh, shed a little bit lighter on the potential value of these program.
Paula: Absolutely. And sorry, I have remembered I had one question about your new company Evert. You have launched a brand-new business, um, I think about six months ago. Uh, Fidivio, I think I’m pronouncing it correctly.
So why don’t you give us a, a quick overview in terms of what the new business is doing?
Evert: Yeah, I would love to. Um, so basically to make a home story short, you can imagine that we do a thumb of financial modeling for loyalty programs both in the airline space as well as in other industries. And what we have realized is that more often than not, when we speak to the, the, the people in finance that do financial planning and analysis for loyalty programs is that there is no off the shelf tool available that allows you to generate a PNL, run your accounting. Mm-hmm., uh, and do other, uh, FP and A tasks in loyalty. So, What Fidivio aims to do is provide people in the loyalty space, both in airline, but also outside. Mm-hmm. with an off the shelf tool that you can use to build financial reporting and statements for a loyalty program.
So, you can actually build a PNL mm-hmm… Um, it’ll generate your accounting statements, so the balance sheet and the cash flow statement and so on and so forth. And do it in a very automated, intuitive way. So rather than trying to reinvent the wheel in Excel, hiring different consultants every year, we would rather equip our clients with a tool.
Mm-hmm. that essentially does two things. One, it’ll reduce the workload because it can do some of those typical tasks that finance is tasked with. Mm-hmm… including, you know, the, the accounting and the generation of reports. Mm-hmm… So that’s one, it takes cost out of the business. Mm-hmm… And secondly, it’ll basically give you a better view on the performance and the drivers of performance of your business.
So, the tool is set up to help you understand what was the performance, what could be the potential performance, and how to get there. So, the knife cuts both ways. It takes cost out. Yeah. Maybe because you would make less people to do your financial accounting and reporting and at the same time it’ll generate greater insights into the performance of the loyalty program.
Yeah. And we offer it as a cloud-based. SAS software. So, with a monthly subscription mm-hmm. it’s really straightforward. Yeah. So yeah, we’re quite excited to be rolling that out in the, in the next, uh, six to 12 months.
Paula: Amazing. And what I said to you all fair as well, Evert is the industry is excited. So having been at a conference there last year, just after you announced the launch of the Fidivio, there was a lot of talk about it and people were excited.
So, um, definitely feel that there’s great value for the industry in terms of what you’ve built there. And I’m guessing what it also gives the opportunity Evert is, it’ll give you even more, I suppose, global best practice to advice ambitious loyalty programs if they do wanna make sure that they are using every single lever to drive the value in their program.
So, what I’m guessing is the most obvious thing is to let people know where to find you Evert. Um, I’m guessing it’s LinkedIn, but um, yeah, tell us where can people find you if they wanna find out more.
Evert: Yeah, I think the best place probably go to our website, so the report can be found on onpoint loyalty.com.
Mm-hmm and the financial planning and analysis tool can be found on fidivio.com, but we’re also on LinkedIn, so.
Paula: Amazing.
Evert: Yeah.
Paula: Okay, well, we’ll make sure to link to yourself and of course both of the companies on our show notes. So, Evert de Boer, managing partner at On Point Loyalty and CEO at Fidivio. Thank you so much from Let’s Talk Loyalty.
This show is sponsored by The Loyalty People, a global strategic consultancy with a laser focus on loyalty, CRM, and customer engagement. The loyalty people work with clients in lots of different ways, whether it’s the strategic design of your loyalty program or a full service, including loyalty project execution, and they can also advise you on choosing the right technology and service partner.
On their website, The Loyalty People also runs a free global community for loyalty practitioners, and they also publish their own loyalty expert insights. So for more information and to subscribe, check out theloyaltypeople.global.
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