Frequent flyer and loyalty programmes – a question of airline and traveller value

31 October, 2019

Frequent flyer programmes have been a common part of many airlines’ loyalty strategies over several decades now. But they have evolved from elemental loyalty models with modest money-making strategies into major revenue earners. With growing industry maturity and drastically improved technology and data analytics capabilities, the nature of FFPs is being transformed.

The contrast between these programmes and the activity of flying is dramatic. One has limited capital investment needs and generates cash almost merely by existing; the other, ringed by safety and economic regulation is highly capital intensive and even more risky, in exceptional circumstances returns a modest profit.

There are however few exponents who have climbed the heights of optimising the FFP business – for it is a business now, with a sideline of loyalty. Qantas is a leader in the field. It is for example targeting EBIT of AUD500 million from its FFP by 2021. To put that in context, in FY2019 Qantas returned a total profit of just over AUD1 billion. And Air Canada, arguably the first airline to create a genuine financial model for FFPs early this century, having sold off its programme, has recently re-acquired it.

With the advent of sophisticated data analytics, FFPs have also become much more than an internalised activity, with the ability now to drive change right across the business, from revenue management to network planning and beyond.

In short, FFPs have become a valuable commodity in more ways than one. But, mingled with their poor cousins, the flying part of the airline, market valuations are often suppressed.

As one the discussion topics at the forthcoming CAPA Asia Aviation Summit and CAPA Asia Corporate Travel Summit, CAPA – Centre for Aviation will delve into this subject and question how important is loyalty in an age of commoditisation?

The panel discussion will explore the strategies behind smart FFPs, look at the value of data analytics as information is accumulated and highlight the arguments for and against owning and hiving off.

As the foremost authority on aviation in the world, CAPA – Centre for Aviation’s events provide cutting edge knowledge about strategic market trends and dynamics to help attendees make informed decisions, delivering the information and connections needed to inspire and improve business. The CAPA Asia Aviation Summit and CAPA Asia Corporate Travel Summit will take place in Singapore on 14-15 November 2019.

Over recent years we’ve been through a period of relatively benign external inputs, with low fuel prices supporting lower fares and a solid global economy supporting demand. This has propelled the industry into a period of unprecedented profitability (although US airlines, mostly operating domestically, have accounted for around half of this).

The period of high profitability is unlikely to continue as oil prices, currently in the mid-USD60s/barrel for Brent Crude, creep up and as business and consumer confidence – at least, outside the US – slips rapidly.

The IMF recently issued a warning that the global economy is weakening “faster than expected” and downgraded GDP growth forecasts for 2019, and the European Central Bank has “substantially” revised downwards its economic growth projections for 2019, implying a slackening of demand in markets which have become increasingly price sensitive.

At the same time, the entire aviation system is undergoing a technology-led upheaval of volcanic proportions, challenging conventional norms and demanding new solutions to new problems (and opportunities).

Airline management’s role is to prepare for and manage the airline prudently through good times and bad; in a downturn this means minimising the impact on profitability while remaining competitive.

The CAPA Asia Aviation Summit and CAPA Asia Corporate Travel Summit will be held on 14-15 November to explore these issues, as well as the commercial and operational pillars underpinning strategic decision making at local and international carriers. It will gather 200+ aviation and corporate travel experts including CEOs from airlines and airports across Asia plus a selection of leaders serving the region.

The Summit is the ONLY platform that delivers a true end to end knowledge and networking experience for the aviation and travel industry, attracting players from across the entire travel ecosystem – from airlines, airports and hoteliers through to intermediaries and travel managers.

This event, hosted at the Capella Singapore, ranked as one of best hotel experiences in Singapore, is a must attend for those seeking to learn from, network and collaborate with today’s aviation and travel industry leaders!