The Three ‘F’s of Loyalty at Air New Zealand (#651)

PAULA: Hello, and welcome to Let’s Talk Loyalty and Loyalty TV, a show for loyalty marketing professionals.

PAULA: I’m Paula Thomas, the founder and CEO of Let’s Talk Loyalty and Loyalty TV, where we feature insightful conversations with loyalty professionals from the world’s leading brands.

PAULA: Today’s episode is hosted by Carly Neubauer.

PAULA: Carly Neubauer, managing director of Elevate Loyalty, an Australian based company specializing in loyalty and incentive services.

PAULA: Carly is also the managing director of One Tap Group, a UK based company providing loyalty payment services.

PAULA: Enjoy.

PAULA: I’m delighted to announce Capillary Technologies as the new title sponsor for Loyalty TV.

PAULA: Capillary’s mission is to bring the loyalty market out of the 1980s and into the present, ditching the slow, chunky manual services of the past.

PAULA: Capillary is all about making loyalty management easy with scalable, AI-powered tech that turns loyalty managers into superheroes.

PAULA: Say goodbye to outdated methods and check out the exciting new way to achieve loyalty excellence in 2024.

CARLY: Hi, I’m Carly Neubauer, Managing Director of Elevate Loyalty and One Tap Group.

CARLY: Today, I’m speaking with Kate O’Brien, General Manager of Loyalty at Air New Zealand.

CARLY: For five years, Kate has been leading the team at the Loyalty Division, holding responsibility across all elements of the loyalty business.

CARLY: This includes strategy development, execution, partner relationships and negotiations, airline loyalty tiers and benefits, data, analytics and the P&L.

CARLY: Kate is an accredited professional and an avid lover of loyalty at its core.

CARLY: Hi Kate, welcome to Let’s Talk Loyalty and Loyalty TV.

CARLY: I’m so excited to have you on the show today.

CARLY: Let’s kick off, you know the drill, these days, we start with, which is your favorite business book?

KATE: Hi Carly, it’s great to be here, thanks for having me.

KATE: So I love Brené Brown, I love all of her work.

KATE: Favorite book of hers is a book called Dare to Lead.

KATE: I’ve listened to it on audiobook.

KATE: I think I’ve listened to it three times now, and I take something different out of it each time, but yeah, love her work.

CARLY: What is it about that book?

CARLY: Cause gosh, she’s such a famous speaker and author and so many fabulous books.

CARLY: What is it about that one that stands out to you?

KATE: I, probably a couple of things.

KATE: I think I took a lot around authenticity and vulnerability and how important that is in leadership.

KATE: And I’ve sort of personally tried to adjust my style a little bit based on that.

KATE: The other thing I often think of of hers is the importance of clarity.

KATE: And I think she says in that book, Claire is kind and how important it is to be clear on direction and expectations and what you expect from your team.

CARLY: Yeah, she’s such a smart woman and such some great standards and suggestions from her as well.

CARLY: Fantastic.

CARLY: And the next question, Let’s Talk Loyalty and Loyalty TV is very well known for, is your favourite loyalty program.

CARLY: So please share with us.

KATE: Oh, so I love the Mecca Loyalty Program.

KATE: I’m a TED member in that program.

KATE: The thing I really love about the Mecca program is, it actually changes my behaviour.

KATE: So, you know, a lot of the Mecca products I buy, I can buy lots of different places, especially if you’re looking online.

KATE: But I actually consolidate my spend and shift to my share of wallet to Mecca because of that program and because I like the rewards and the samples.

KATE: And I think it’s actually quite rare for a loyalty program to change the behaviour of the customer.

KATE: I’m in lots of loyalty programs with lots of different retailers.

KATE: And often I find I will go to purchase something and you’ll get to the counter and they’ll say, oh, you’ve got a reward, do you want to use it?

KATE: And no, it’s a nice little bonus that check it out.

KATE: But I don’t consciously change my behaviour or share of wallet because of the presence of that program for many of them.

KATE: Whereas the Mecca program, I actually do.

KATE: So I think they’re doing a great job.

CARLY: You really described such a core objective and function of loyalty, right?

CARLY: The behaviour change and share of wallet and at the core of what everyone’s really trying to achieve.

CARLY: I think this is really great.

CARLY: And you’re not the first person to choose Mecca, but your reasons are very, very valid, I think, in a loyalty perspective as well.

CARLY: And obviously, the free gifts everybody does enjoy, of course.

KATE: Yes.

KATE: And actually, the samples, I don’t know what the commercial model is on that, but I often, they give you these samples to try and testers.

KATE: And often, well, sometimes anyway, I end up buying the full size of the sample.

KATE: So, you know, there’s not only have they shifted my share of wallet, they’ve actually encouraged a repeat purchase or an incremental purchase, which again, I think is another sort of key metric of what a loyalty program is trying to do.

CARLY: Yeah, absolutely.

CARLY: I think we’ll all be watching this space and see what happens in the future with this particular program.

CARLY: It’s very popular.

KATE: It is.

CARLY: So, aside from just being super smart yourself with a background in mechanical engineering, commerce and completing an MBA in the UK, tell us a bit about how you landed in the world of loyalty.

KATE: So, well, as you mentioned, I originally actually was an engineer and I worked very briefly as a mechanical engineer in Auckland where I grew up.

KATE: When I finished university, I moved to Sydney to go and work in management consulting for a company called LEK over there.

KATE: Really loved the strategy side of things, loved the consulting, getting into sort of solving tricky business problems.

KATE: And after my MBA, I joined Qantas, also in Sydney, in their strategy team.

KATE: So, that was sort of my introduction to the world of aviation.

KATE: And that was, what, 13 years ago now.

KATE: And I’m still here.

KATE: So, really, my pathway to loyalty was through aviation.

KATE: So, I worked in the strategy team at Qantas.

KATE: I met my husband in Sydney, and we ended up coming back to New Zealand 10, 11 years ago now.

KATE: And when we made that decision to come home, I came across and joined Air New Zealand.

KATE: Firstly, in their strategy team.

KATE: But in the 11 years I’ve been here, I’ve worked across strategy, revenue management, pricing, network planning.

KATE: And for the last five years, I’ve run the loyalty program here.

CARLY: Well, we definitely need to delve into the loyalty side of your role at Air New Zealand.

CARLY: That’s for today, for sure.

CARLY: But before we do, is there anything you could tell us a bit more about that partnership?

CARLY: Because it’s a really well-known partnership with Qantas and then the Emirates development.

CARLY: And that’s really well-known now in the loyalty industry.

KATE: Yes.

KATE: So you’re talking about my time at Qantas?

KATE: Yes.

KATE: Yes, yes.

KATE: So that was one of the projects that I worked on during my time in strategy at Qantas was establishing that Qantas-Emirates relationship.

KATE: There’s obviously a loyalty component to it, which is really important, but also sort of establishing the commercial arrangement and how the flying would be structured and how the commercial model would be set up.

KATE: So yeah, really exciting, interesting piece of work.

CARLY: Yeah, fantastic.

CARLY: And obviously in loyalty, we talk a lot about partnerships and just that’s such a well-known and well-established one ongoing as well.

CARLY: So then Air New Zealand, back in New Zealand, and 11 years with Air New Zealand, but five years as GM of Loyalty.

CARLY: So from previous conversations, you outlined that you moved into that role early 2020.

CARLY: And that’s, I think, a pretty memorable time for a lot of people in the world, based on your country and others all waiting to lock down right then.

CARLY: How was that for Loyalty at an airline?

KATE: Well, it was, as you say, an interesting time for everyone, but certainly for us here at Air New Zealand.

KATE: So yes, I started as GM of Loyalty in February 2020.

KATE: So I think we had two or three weeks in the office before the lockdown started to happen across New Zealand or across the world.

KATE: So one of the first things that we had to figure out during that time and one of the first decisions I had to make in the role was, what are we going to do about the status of all of our high value customers?

KATE: And I remember at the time, as the world started to go into lockdown and we had customers contacting us saying, no, I had a trip planned and I was going to get to gold and now I can’t do it.

KATE: You know, how can you help?

KATE: And we were, we knew that we would extend the status of our members.

KATE: It was just a question of by how much.

KATE: And I remember at the time we were sort of deciding between six months or 12 months and what would be more appropriate and it’s 12 too much.

KATE: And in the end, we ended up extending status for three years.

KATE: With on the fourth year, a bit of a boost to help them.

KATE: So little did we know at that time what was in store for us.

CARLY: Yeah, no one could see the future then.

CARLY: That would have been a really hard decision in a meeting room, considering that was very green fields for everybody, right?

KATE: Yeah.

CARLY: And considering you had quite an engaged loyalty member base, how do you keep them engaged through this sort of crisis management moment?

KATE: Yeah, it was an interesting time and quite unprecedented for us.

KATE: So one of the key things once we’d done the status extension, which was, I think, really important to do early and be quite transparent about what we were doing, just to give everyone comfort around what was happening and what the future looked like.

KATE: One of the key things that we really focused on at the time, and just to keep engagement going, was really focusing on growing our air points store.

KATE: So at the time that was a much smaller, more high-value customer focused redemption platform.

KATE: But in the absence of customers being able to spend their points on flights, because we basically weren’t flying at the time, we really ramped up the growth of the store.

KATE: And we put a whole bunch more products on there and lots of different experiences and just ways for our customers to spend their points and continue to engage with us during that lockdown period and during those years where flying was a bit more subdued.

KATE: So it was actually a great story for the air point store.

KATE: We grew from a relatively small number of products over over the last five years, we’ve grown 30 plus percent growth rate.

CARLY: And it’s a great point you’re making around and obviously your air points program and such a great name of a program.

CARLY: But one thing that I think we definitely need to discuss is it’s quite a unique program in the way you approach the currency.

CARLY: It’s dollars for dollars effectively.

CARLY: How did that come about?

CARLY: Or can you tell us a bit about that?

CARLY: Because it is unique.

KATE: Yeah, it is unique.

KATE: So that change was made in the period following the ANZ collapse, which was sort of post 2001.

KATE: In that period, there was quite a bit of restructuring and rethinking that was going on at Air New Zealand during those years.

KATE: And really, I mean, the difference with what we do versus most airline loyalty programs is one air point is worth one New Zealand dollar.

KATE: And it means that our customers can redeem their air points on any seat, any flight for the equivalent of the cash price.

KATE: So it means that our customers have a lot more transparency around how they can use their points and what their points are worth.

KATE: So the value of the point doesn’t change depending on the way that you spend it.

KATE: We do periodically look at whether that’s the right set up for us and whether we should do what most other airline loyalty programs do.

KATE: But we think that it generates a huge amount of value from a brand perspective and trust with our customers.

KATE: And we think it’s the right thing to do for our program and for our airline.

CARLY: Yeah, it is so transparent, I guess.

CARLY: It means you can’t really hide the value or change value very easily.

CARLY: But that level of your members knowing exactly what they’re getting is really special for them as well, no doubt.

KATE: Yeah, and we make it really easy for them to spend their points, in their seat, in their flight, on the air points store.

KATE: There’s a huge range of products there.

KATE: And we think and we hope our customers really value that.

CARLY: Well, considering this is a time of a lot of change with some different airlines and the value of points, it is a controversial, it’s highly topical at the moment particularly.

CARLY: So I think the fact that you can stand by that and be so transparent is definitely unique for an airline loyalty program when we’re in a time of a lot of change, let’s say.

KATE: Yeah, yeah, yeah, exactly.

CARLY: Was there ever any consideration or discussion around paying to join?

CARLY: Obviously, it is free to join Air New Zealand air points as well.

CARLY: It’s a super fast process.

CARLY: You’re not under 30 seconds you’ve joined.

CARLY: So was there any other consideration around that pay to join?

KATE: Actually, not in my time.

KATE: And it’s not something that we’re not considering at the moment.

KATE: No, I think one of the really great things about our program is if you’re a member or a customer of ours, it’s just a really good way to get to that reward moment faster.

KATE: So, free to join, as you say.

KATE: All you have to do when you’re shopping with our retail partners is pull out your card at point of sale, or if you’ve got a credit card, swipe that when you purchase.

KATE: It’s a really great, easy way to get to your flight reward or whether you want something on the Airpoint Store, it’s a great way to get to that reward faster.

KATE: And that’s what we really focus on in the Airpoints program is helping our members get to that reward moment faster.

KATE: So no, not something we’re considering.

CARLY: And you’ve just mentioned partnerships there as well.

CARLY: You have quite a recent partnership that’s so far sounding absolutely fantastic and quite successful for the program.

CARLY: Do you want to talk to us a little bit about that one?

KATE: Yeah.

KATE: So as I mentioned, one of the things that we’re really focusing on in loyalty is giving our members more ways to earn air points at every opportunity through their day.

KATE: Obviously, they earn when they fly with us, but we want them to be able to earn on the ground in more places as well.

KATE: And so we have a great set of partnerships at the moment across retail and financial partners.

KATE: But we’re always looking to expand and grow that.

KATE: And one of the new partnerships that we launched later last year was with the Everyday Rewards Programme, which is part of the Woolworths group.

KATE: So again, gave our customers more ways to earn.

KATE: They can now earn in New Zealand when they shop at Woolworths, BP, and there’s a number of other retailers that are part of that Everyday Rewards Programme.

KATE: But yeah, again, it’s really exciting for us to have Everyday Rewards as one of the Airpoints partners, and we’ve had great feedback from our customers so far.

KATE: They’re really excited about having more ways to earn.

CARLY: That’s awesome.

CARLY: I mean, that’s one thing we definitely experience in Loyalty.

CARLY: You will get your feedback from members.

CARLY: Good, bad, or otherwise?

KATE: We get lots of feedback, yes.

KATE: Excellent.

CARLY: And I am quoting you that you have the three Fs now, the fuel, food, and flights encompassed in the program, right?

KATE: Yes.

KATE: And look, there are a bunch more ways to earn the O’s.

KATE: But we sort of think about the three Fs as the three core categories where customers do expect to be able to earn food.

KATE: So we’ve got, you can earn air points now with New World, who has been a long-standing partner of ours, and now through the Everyday Reward Program at Woolworths.

KATE: Fuel, and then obviously on our flights, but there are a bunch more hotel, retail, DIY, and financial partners that are offering air points earn in the New Zealand market.

CARLY: Cool.

CARLY: There was another thing we discussed previously also, and this is really pertinent to talk about, and would be relevant to so many listeners and viewers around the fact that the business itself, so Air New Zealand as a business really prioritizes loyalty.

CARLY: So the program is well known, the program might be super popular with your members, but the fact that this comes from internally and in your business, and the key strategic pillars that Air New Zealand stand by, you talked about the specific kiaimo strategy.

KATE: Yes, so when we first, February 2020 actually, when I started in the loyalty role, Greg Foran came in as our CEO at the time.

KATE: And we sort of collectively took the opportunity with the new CEO and the lockdowns to review the company strategy, the Air New Zealand entity strategy.

KATE: And coming out of that were three key pillars.

KATE: So grow domestic, optimize international, and lift loyalty.

KATE: And it was really exciting for us in loyalty because it was the first time, certainly for a long time, maybe the first time ever, I’m not sure where loyalty was more explicitly called out as a key growth pillar in the Air New Zealand strategy.

KATE: So it’s been, that was five years ago now, we’ve had a real focus on growing loyalty, but also on just lay, I guess laying a lot of the foundational pieces that needed to be in place for us to actually enable that growth.

KATE: And one of the key investments that we’ve made over the last few years has been to put a new platform and that powers our loyalty business.

CARLY: Wow.

CARLY: Okay, that’s never an easy and fast sort of project.

CARLY: Your project doesn’t really cover it.

CARLY: Talk to us a bit about that, because obviously being such a big change, how did you even undertake that?

CARLY: How does that look from your side?

KATE: Yeah, so it was a three year piece of work for us.

KATE: We actually started doing RFPs and thinking about requirements during the lockdowns in 2020, 2021.

KATE: And look, probably like many airline loyalty programs, we were operating from a 20-ish year old home built platform had served us really well, but probably wasn’t fit for where we want to go and the growth that we want to enable and the things that we want to do in loyalty.

KATE: So yes, we’ve been through the whole process of RFPs and understanding requirements, unpacking all of the places that our loyalty system touches.

KATE: I think loyalty touches about, from a tech perspective, about 50 different systems across Air New Zealand.

KATE: So quite a complex, a very complex piece of work to unpack all of that and then re-connect this new platform into the existing Air New Zealand systems, and all the, I guess, all the systems that this new platform needs to be able to talk to across the airline.

KATE: So we went live with that system August last year.

KATE: So that was a very exciting moment for us, as I’m sure you can imagine.

CARLY: I can’t imagine.

CARLY: I mean, we can, I guess, but it’s such a, it feels enormous.

CARLY: It is enormous.

CARLY: And I’m sure it was a sigh of relief and a big weight off your shoulders once it was done.

CARLY: Well, and we say done, but let’s be honest, it’s never just finished.

KATE: Right.

KATE: You’re right.

KATE: And that, I mean, we are very always reminded of this by our Chief Digital Officer.

KATE: So getting the system in and working properly, obviously a huge milestone for us.

KATE: But as I say, that really just lays the foundation for us to now start to do the things that we want to do with it.

KATE: We sort of talk about it like building a house.

KATE: So the house is in, the house is built, and now we can start decorating and actually start to modify the program or make enhancements, or generate value for our customers and for our airline using this new platform.

CARLY: Yeah, and look, it’s probably starting the obvious and it goes without saying that the technology is so closely linked to loyalty.

CARLY: It really underpins the success, doesn’t it?

CARLY: And that’s just the start of a really quite a big journey.

KATE: Yes.

CARLY: So what else are you looking to do in the program?

CARLY: Is there anything else you could talk to us about?

CARLY: What does the future look like for Air New Zealand and Airpoints?

KATE: Yes.

KATE: So one of the big priorities for us now, and we really were reliant on having our new platform in place to be able to do this, is we are looking at refreshing the tiers and benefits that we offer to our high value airline customers.

KATE: So at the moment, we have silver, gold and elite tiers, and there are certain benefits that you get at each of those tier levels.

KATE: We haven’t refreshed that for a very long time.

KATE: And so we’re looking now at, have we got the right number of tiers in place?

KATE: Many other airlines and loyalty programs have added new tiers at the top end to try and recapture some share of wallet for the very frequent travellers, who we know often will, once they cap out with one programme, will then go and shift their wallet to another airline to try and get status there or maintain status there.

KATE: So that has been a relatively popular thing for airline programmes, airline loyalty programmes to do.

KATE: So just having a look at the tier structure and the number of tiers, but also the benefits that we offer.

KATE: And we know that there are some benefits that we offer today that just don’t get used or valued, and others that we potentially could offer that we know customers would really value, but we haven’t had the capability necessarily to be able to offer them.

CARLY: The technology platform really enables that transformation, doesn’t it?

CARLY: This is where it starts, right?

KATE: Yeah, that’s right.

KATE: And it allows us to do things, you know, if we want to in the future, around choosing benefits or swapping benefits, or just to give customers more value and more choice.

KATE: So, yeah, with that underlying capability, you know, we now have the option of, we can actually decide what we want to do, rather than be forced because of capability or lack of.

CARLY: Are there any benefits that stand out to you that you know members are looking for, or particularly love?

KATE: Well, I won’t say too much because the team are looking at this at the moment.

CARLY: That’s fair, we watch their space, I love it.

KATE: Yeah, one thing actually, going back to the MEKA program, one thing we have, you know, we benchmark and we look at a lot of loyalty programs around the world.

KATE: One thing we really like about what MEKA do is, you know, they don’t just give you a reward when you reach another tier, you get rewards within your tier and just to keep that engagement up and that strive within your current sort of spend threshold.

KATE: So we really like that.

KATE: There’s also, you know, I think there’s probably more we can do.

KATE: We have 4.8 million Airpoints members.

KATE: It’s a really diverse group of customers.

KATE: Some are based in regional New Zealand, where, you know, just turbo-propped flights operating through to, you know, customers based in big cities who are traveling long haul all the time.

KATE: The needs of those different customers are quite different.

KATE: And I think there’s probably more we could do to give more choice or personalization to those members based on their travel requirements and where they’re based and what they would like to see from us as an airline.

KATE: So just a couple of areas to give you a flavor of things that we’re thinking about.

CARLY: Well, that’s exciting.

CARLY: We’ll definitely be keeping an eye on this.

CARLY: And the other one that you just briefly touched on is the highest tier that you have, that you’re seeing members sort of cap out and then start flying another airline because they’re flying so much, if I’m recalling this correctly, and then obviously earning in a whole other program.

CARLY: So how do you then address that to bring them back to stay with you, I guess?

KATE: Yes.

KATE: Well, and that’s what many others have done where they’ve put in…

KATE: It’s really about creating more aspiration at that top end.

KATE: We talk a lot about share of wallet and loyalty, right?

KATE: That’s sort of, I think, one of the key metrics here.

KATE: And they’re really adding in new tiers above what’s there today creates that aspiration to keep the share of wallet with a particular carrier.

KATE: And as I say, this, many others have done this, and it’s something that we’re looking at as well.

KATE: Can you, instead of having customers who are spending quite a bit with us, or traveling really frequently, how do you stop them reaching the cap or sort of capping out of the program?

KATE: So yeah, it’s really about creating aspiration and a reason to shift their share of wallet.

CARLY: Yeah, and retain it back.

KATE: Retain, yeah.

KATE: Yeah, yeah, retain.

CARLY: It’s always an interesting one.

CARLY: It’s great to bring in the next tier and retain that.

CARLY: And then on the flip sides, we’ve seen programs in market where they bring in the next top tier and the people that thought they were the top suddenly aren’t anymore.

CARLY: And yeah, it’s a fun process, no doubt.

KATE: It’s a tricky balance to find, and that’s something we’re working through and the team are thinking about at the moment.

CARLY: Awesome.

CARLY: So, for yourself personally, what do you love about loyalty so much?

CARLY: Like, why are you still here in the loyalty space?

CARLY: What is it about loyalty?

KATE: Yeah, so I think loyalty is a really exciting place to be.

KATE: There’s lots of, you know, there’s lots of diversity in loyalty.

KATE: Now we’ve got the commercial side of things and making sure that we’re investing appropriately and monitoring the financials and the P&L.

KATE: We’ve got our customers, obviously.

KATE: I get to talk to a lot of our customers as part of this role, and it’s always good to get feedback from them, which we do get a lot of.

KATE: There’s the partnership side of things, working with our retail and travel, airline financial partners.

KATE: Always lots happening in that space.

KATE: There’s a team to lead and a strategy to develop.

KATE: It’s like running a business, and I think that’s really exciting.

KATE: There’s always new challenges and new things coming up every day to deal with, so definitely keeps it interesting.

PAULA: Well, for sure.

CARLY: And look, I’d love to ask you, if there was a sliding doors moment, there was no loyalty industry, where would we see you?

CARLY: What would you be doing that you’re passionate about?

KATE: Yes.

KATE: So, well, I mentioned earlier, I studied mechanical engineering in undergrad.

KATE: And actually the reason I did that, I used to do a lot of sailing growing up in Auckland.

KATE: And my reason for doing mechanical engineering was to become a yacht designer.

KATE: So I specialized in aerodynamics and hydrodynamics.

KATE: Obviously, I’m not doing that now, but I sort of every now and then think, oh, I wonder if that would have been a cool space to get into, especially given where the technology has gone with the foiling.

KATE: I was at SailGP last weekend in Auckland, and it’s super exciting.

KATE: Very cool to see what they’ve done in that space.

KATE: So yeah, I think that would be my sliding doors moment.

CARLY: Well, thank you so much for sharing so much about your background, your passion, and of course the Air New Zealand program as well.

CARLY: Really, really appreciate your time today with Let’s Talk Loyalty and Loyalty TV.

CARLY: So a very big thank you, Kate.

KATE: Thank you.

KATE: Great to be on the show.

KATE: Really appreciate it.

PAULA: Thank you so much for listening to this episode of Let’s Talk Loyalty.

PAULA: If you’d like us to send you the latest shows each week, simply sign up for the Let’s Talk Loyalty newsletter on letstalkloyalty.com.

PAULA: And we’ll send our best episodes straight to your inbox.

PAULA: And don’t forget that you can follow Let’s Talk Loyalty on any of your favorite podcast platforms.

PAULA: And of course, we’d love for you to share your feedback and reviews.

PAULA: Thanks again for supporting the show.