Airline points reward challenges

January 13, 2019


Airplane travel, from the customer’s perspective, is in a state of disarray, and based on what we continue to see from the industry, that may continue into 2019. While most brands are looking to create simplicity, transparency, and value for the customer, the airline industry continues to put forth arcane processes and policies such as new boarding procedures, baggage fees, seating arrangements, and storage space changes that, at their core, are not customer centric. Parents often can’t sit with their children, overhead bins don’t have enough room, and multi-tiered seating makes the boarding process far too complex. I suppose one could argue that this is a contrarian approach to customer loyalty.
If you start with the prevailing view that airline loyalty points and therefore their programs have become devalued, visible processes should focus on the customer, yet everything addressed above runs counter to that. This does not really surprise me. Frankly, I am not sure airlines care that much about their customers, aside from the top 15 to 20 percent. The complexity surrounding baggage, seating, and boarding is ample evidence of this. In an era when customer loyalty programs are striving to add value, to listen to and engage the customer base, airline programs are extremely counterintuitive.
Rather than offering rewards strictly based on how many airline miles a customer has accumulated, airlines now focus on the amount of money a customer has spent. Members of some programs may still earn miles, but now rewards tend to be based on customer segments combined with segment and mileage valuation. That is, a first-class passenger will have access to perks and benefits that an economy-class passenger never will, despite how many miles she accumulates. Airlines used to hand out two thirds of their first-class seats as upgrades to their most frequent flyers. Now these seats are being sold at the margin to those who may not have the status, shrinking the availability of this perk.
This has made the valuation of airline points vaguer and more confusing. For example, if you have a co-branded airline credit card that gives you rewards based on the amount of money you’ve spent, such as American Express for Delta, you can meet a threshold for spend on a higher level. This is a great perk for those who have the card, but the value proposition for interchange rates seems fairly poor. If you spend $25,000 a year with Delta on your AmEx card, you’ll hit all the reward criteria (excluding Diamond status), but the actual value of the rewards you earn is only $625.
In addition, airlines have begun to shrink the sizes of their restrooms in economy class, and children are being forced to sit apart from their parents if they have basic fare tickets. At the same time, airlines are charging more for meals and receive huge sums of money from loyalty programs and the credit cards tied to those programs. None of this squares with heavily discounted fuel bought a year in advance, meaning that new customer-facing charges have been implemented without a corresponding increase in fuel costs. Hmm.
Diminished competition in the airline industry is also a major problem from the customer’s perspective. In “Airline Consolidation, Merger Retrospectives, and Oil Price Pass-Through,” Roosevelt Research Director Marshall Steinbaum studies the last 10 years in the airline sector. This decade saw the consolidation of six legacy carriers down to three, with only one low-cost carrier, Southwest, remaining a national player. This lack of competition has significantly impacted profitability. The top three airlines and Southwest have 5.2 times the number of customers than the next four. They also have 4.3 times as many aircraft and 2.3 times the routing options. Name another industry (aside from telecom and the Big 4, as they seem to own everything) where the top four entrants have that much pricing power and lack of competition! Retail, banking, entertainment, and all the other industries have near substitutes, but airlines are an exception.
Airlines talk about being customer centric, but with this much purchasing power, they don’t really have to be. Their credit card membership numbers are increasing, and their ancillary revenue (generated from product enhancement) grows and grows. Because of this, while other industries are creating clarity in their loyalty programs and driving unique personalized experiences, airlines are shrinking bathroom volume and economy cabin seat pitch. Some airlines are the exception to this rule, such as Southwest, Jet Blue, and perhaps Delta, but in general, 80 percent of airline customers have low quality experiences when they fly.
I think airlines could learn a lot from organizations in other industries. Caesars, Ulta, and Wyndham all continue to put more and more focus on customer loyalty and realize that relevant, personalized experiences generate brand advocates. These companies also recognize that engaged employees have more empathy for customers, which improves customer experience. In short, brands like these have found that loyalty programs are the most effective way to create brand advocates. They offer attainable rewards in return for data and data-based insights, which is the perfect defense against an increasingly data-protected legislative environment.
In our discussions with senior-level brand representatives, Loyalty360 has found that successful loyalty programs resonate because they are simple, have shared value and reciprocity, and are easily understood. They have a genuine empathy for the customer based on a value exchange, create a larger value chain of external participants that offers meaningful enhancements, and create powerful moments of unique experience. The programs of companies like PetSmart and Loblaws provide examples from which airlines could learn a great deal.
Still, airlines continue to make counterintuitive decisions. All one has to do is look at how they are changing the boarding process, which is wrong from the start. First off, having over half a dozen boarding groups creates more confusion. Those who board earlier are paying more for their seats, which is fine, but offering two additional boarding tiers will not make the challenge of loading the plane easier.
Instead of these complicated boarding procedures, airlines should have passengers board airplanes from the rear, as they did about 15 years ago. Passengers too often walk onto the plane and see that passengers with perkier seats are clogging the aisle as they put away baggage. It makes much more sense for passengers to board from the back so that people can put away their luggage without slowing the boarding process.
In addition, economy fares without seat assignments lead to split up families. This adds complexity and confusion to the boarding process, which slows it down and adds stress. It causes late departures and affects an array of other metrics. If airlines were truly concerned about boarding, they would charge for the ability to bring luggage on the plane in the first place and they would make the checked baggage free or at least discounted. Then marginal fliers would tend to check their bags, making the boarding process easier. A variety of methods could be implemented to make sure that unpaid luggage isn’t brought on the plane.
A lot of research is available on how airlines can create an emotional connection with their customers to drive customer loyalty. In fact, Loyalty360 has even contributed to a recent feature published by Bond Brand Loyalty that provides some details on this topic. Clearly, it is time for airlines to catch up with the rest of the customer loyalty space by simplifying their processes, offering better experiences, and offering rewards that don’t alienate 80 percent of their customers.

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