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Frequent flyer programmes are a key tool for retaining customer loyalty, but it is services not rewards that make the difference.

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By  Neil Denslow Published  February 8, 2005

|~|Brian Labelle_m.jpg|~|Brian Labelle, VP, Skywards, Emirates|~|Frequent flying passengers have long been offered free flights and other rewards as an incentive to remain loyal to an airline. However, especially among gold card members, such rewards are no longer enough to ensure passenger loyalty. Instead, the focus of frequent flyer programmes (FFPs) is shifting towards the services on offer rather than just the promise of free trips. Globally, airlines have put FFPs on the back burner in recent years, as they have instead concentrated on cutting costs rather than spending money on marketing. However, with the industry regaining its equilibrium to some extent, there is renewed interest in FFPs, as airlines begin to invest more in sales and marketing activities. “Carriers have held back on investing in FFPs since 9/11, but we are now seeing increased activity from airlines in the CRM [customer relationship management] space,” comments Matthew Woolmer, sales manager, Mercator. “Several airlines have come over the last month to look at our FFP system [CRIS], and a number of RfPs are coming out,” adds Frank Zenke, vice president, sales & market development, Mercator. Carriers in the region are also focusing on their FFPs, as they face up to more competition both regionally and on long-haul routes. Kuwait Airways, for instance, recently agreed to outsource the entire running of its FFP, Oasis Club, to Carlson Marketing Group in a bid to enhance service levels and the benefits on offer to members. “We had done questionnaires and research and we saw that our services were not really covering what was required by our members,” says Fahdel Al Houti, product development manager, Oasis Club, Kuwait Airways Oman Air is also set to make a move into the FFP space, as it is gearing up to launch its own programme. The carrier has shared an FFP with Gulf Air for the last few years, but it is now devising a standalone club, which will be rolled out in the third quarter. “We will be able to encourage more people to fly Oman Air, as they will be rewarded through this system,” says Hamad Saif Hilal Alharthy, the carrier’s marketing programmes & systems manager. The appeal of an FFP to passengers can be seen at Gulf Air. The carrier re-launched its programme in 2003, as part of its wider makeover drive, Project Falcon. At that time, it made a number of changes to the programme, including re-branding it, extending the life of points from three to 10 years, and simplifying the redemption process. “We immediately saw quite a significant increase in our acquisition rate for new members [after the re-launch],” says Michael Johnson, marketing services manager, Gulf Air. “It quadrupled from what we were doing prior to the launch of [the new look] programme.” The carrier now boosts over 300,000 FFP members, although this total is overshadowed by Emirates’ Skywards program, which has 1.3 million members. Skywards’ database therefore contains a huge amount of information about customers, and it has become a key marketing tool for the airline. “We can notify 1.3 million people almost immediately and very cost effectively [about a new service], through our own channels using e-mail,” says Brian Labelle, EK’s vice president of Skywards. This promotion can be through mass mailings to members, but the information stored in an FFP also allows an airline to target its customers much more precisely. It could, for instance, promote golfing holidays to customers who have recorded the sport as one of their hobbies or send details of new services to passengers who often travel to the region in question. “The main purpose [of an FFP] is to get to know the customers,” says Labelle. “We collect a lot of data as an airline, but the data is not in a useful form. All the bookings [and contact details] are there, but only for the purpose of getting the person from A to B, not for the purpose of getting to know them.”||**|||~||~||~|An FFP allows an airline to get to know its customers, as it pulls together all the data collected when bookings are made — plus information from elsewhere — and then links it to the individual rather than the ticket. In this new format, the data can be used in a number of different ways across the airline. For instance, bookings can be made more quickly, as passenger information can be loaded from the FFP straight into the reservations system. Alternatively, check-in staff can offer specific services, including apologises for service failings on previous flights, to cardholders as they arrive at the airport. More importantly, the data in the FFP can also be analysed so that patterns can be identified, including spotting the most frequent flyers and the airline’s best customers. These passengers can then be singled out for special marketing activities and enhanced service offerings in order to ensure they remain loyal to the carrier. “A frequent flyer programme gives you greater insight into the value of your customers, and that then gives you the opportunity to treat them differently,” comments Evert de Boer, general manager, Middle East, Carlson Marketing Group. “People will not fly more because of a frequent flyer programme, but it does give an airline a tool to convince passengers to give it a greater share of their wallet,” he adds. The most obvious way an FFP rewards loyalty is by giving passengers points, which can then be converted into free flights or other benefits. However, such rewards are now the norm in the full service sector, which means that they no longer create a competitive advantage on their own. Furthermore, the value of free flights is also being undercut by low cost carriers, as it can still work out cheaper for passengers to buy, say, 10 tickets from an LCC than to make the same number of trips with a full service airline, even if one of the flights is paid for with FFP points. Airlines therefore need to offer more than just points to retain the loyalty of passengers. This is especially true of the most frequent — and valuable — flyers who are likely to be members of more than one FFP and so can gain points from different carriers. For these passengers in particular, services above and beyond the promise of rewards, make them chose one carrier over another. “What is becoming more and more important is the recognition element;” says Johnson. “That I am not just one of many frequent flyers, but that I have achieved a certain status within the programme that means I get treated differently.” “In the higher yield passengers where you have a lot frequencies, the miles themselves — while they are valued — are not enough on their own to work,” agrees Murray Smyth, vice president, EMEA, Sabre Airline Solutions. “These people will instead put significant value on differentiated services.” These services most obviously include access to lounges and dedicated check-in facilities in the airport, but it is now expanding to cover a wide range of other areas. These can include transport to the airport, for example, or priority when making bookings. Emirates, for instance, guarantees a seat in any class on any flight for its gold card members, which is particularly appealing to business travellers flying at short notice. “We find the take-up on that is quite fantastic, and passengers really do appreciate it,” says Labelle. These kinds of services ensure customer loyalty as gold cardholders get used to them, and they will not then want to fly with another carrier where they are just a ‘regular’ passenger. They are thus effectively locked into that airline, as they will want to both maintain and receive the gold card benefits. (Although, some carriers around the world are making it easier to ‘escape’ by offering gold cards to people who have one with a rival carrier.)||**|||~||~||~|To ensure that passengers who have achieved a higher status do not fall out of that level — which would then make it easier for the passenger to switch to another carrier —airlines make it easier for these members to retain their status. This can include either giving these passengers tier bonuses, such as 25% or 50% more points per flight, for instance, or reducing the number of points that need to be earned in order to maintain their silver or gold status. Gulf Air also offers FFP members a gold card for life after they have held one for five years. “This recognises the fact that these customers have demonstrated a degree of loyalty and frequency with the airline and, as such, we want to treat them differently to those who have not travelled as frequently,” says Johnson. In order to lock in customers as quickly as possible, some airlines, including Emirates, also make use of predictive modelling to identify passengers that could potentially generate a lot of revenue in the future. This is particularly valuable within the Gulf market, because of the high number of executives recruited from outside of the region, who quickly start doing a lot of flying from nothing. This contrasts with in Europe, for instance, where business travellers’ flying tends to increase over a number of years, as their careers develop. “It is very much a phenomena of this region, that people come into the regional office… and then immediately start flying all over the Middle East and even to Africa,” notes Labelle. “We will see even more of this as Dubai grows,” he adds. Emirates targets these passengers by looking out for key identifiers, such as their employer, job titles and early travel patterns, and it can then fast track them into the higher tiers of Skywards. “We identify people as being strong future customers of ours and we then make sure they advance into silver and gold as appropriate — maybe in advance of when they would have otherwise — to welcome them to Emirates, and to try to get them as long term customers as early as we can,” explains Labelle. By contrast, Gulf Air does not do this, as it suggests that other gold card members would complain if it did. “A lot of people want a bit upfront… but to maintain the earning integrity, we have to say it is a loyalty programme and you have to earn the necessary miles to get across the line,” says Johnson. However, while miles flown have become the standard measure for achieving tier status in an FFP, airlines are beginning to look beyond this, aiming to measure the actual revenue that the customer creates instead. This can differ between FFP members with similar number of miles, as they may have paid different fares. For instance, if one passenger habitually buys tickets for their family at the last minute, while another pre-books their travel at a corporate rate. “Miles are still a proxy for the value the customer brings,” notes Labelle. “Even within the top group, there is still a range of members, and by going one step further and understanding the revenue and yields the individual brings, we could be a little more selective in our offerings.” Gaining this information will require close integration between the FFP and other back office systems, such as reservations and revenue accounting. However, it will be key to fine tuning the benefits for members and ensuring that those generating the most revenue for the airline really do receive the best service.||**||

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