Loylogic: Reinforcing the value of frequent flyer miles

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How a great reward experience drives mileage currency and frequent flyer program value.

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Loylogic: Reinforcing the value of frequent flyer miles

  1. 1. Reinforcing the value of frequent flyer miles How a great reward experience drives mileage currency and FFP value. Dominic Hofer CEO Loylogic FFP Expo 2008 Dallas, May 13, 2008
  2. 2. At the end of this speech you ... ... hopefully see rewards as your main value driver rather than your biggest cost factor; ... collect ideas on how to make your currency more valuable. FFP Expo 2008 – Loylogic Inc.
  3. 3. What do experts say about the importance of rewards? FFP Expo 2008 – Loylogic Inc.
  4. 4. “The reward is a crucial part of any loyalty programme. It has to be desirable enough to change the behaviour of the customer.” (The Loyalty Guide) FFP Expo 2008 – Loylogic Inc.
  5. 5. “What we marketing managers have to understand is that rewards are the most important weapon we have at our disposal.” (The Wise Marketer) FFP Expo 2008 – Loylogic Inc.
  6. 6. “Every dollar a program spends on members that are not redeeming is wasted money.” (Kelly Hlavinka, FTMA 2008) FFP Expo 2008 – Loylogic Inc.
  7. 7. In other words: If the rewards are wrong the program will not perform. Great Concept Unattractive Rewards Great MarComm Unattractive Successful Great Servicing Great Accrual Loyalty Program Great Benefits Great Insight Great Campaigns FFP Expo 2008 – Loylogic Inc.
  8. 8. And how much of a “weapon” are rewards in today’s FFPs? FFP Expo 2008 – Loylogic Inc.
  9. 9. Fact 1: Miles issued grow 10x faster than (reward) seat capacity. FFP Expo 2008 – Loylogic Inc.
  10. 10. Fact 2: Big FFPs satisfy less than 50% of reward seat requests. FFP Expo 2008 – Loylogic Inc.
  11. 11. Fact 3: One mile is now worth 44% of the value it had 8 years ago. Devaluation of a frequent flyer mile Source: TPG; Bain & Co. FFP Expo 2008 – Loylogic Inc.
  12. 12. Fact 4: Frequent flyers say FFPs are less valuable. “Over 64% think frequent flyer miles are less valuable than 5 years ago.” (Survey USA Today & FTMA, April 2008) FFP Expo 2008 – Loylogic Inc.
  13. 13. Fact 5: FFP managers say we cannot continue like that. (International Herald Tribune, April 2008) FFP Expo 2008 – Loylogic Inc.
  14. 14. It seems like miles are worth less than a couple of years ago. But does the decreasing mileage value really impact the FFP’s miles sales business? FFP Expo 2008 – Loylogic Inc.
  15. 15. Yes, absolutely! Frequent travelers shift their credit card spending to frequent guest and credit card programs. FFP Expo 2008 – Loylogic Inc.
  16. 16. This is how frequent guest programs boost reward value. IHG Priority Club Hilton HHonors SPG Any hotel, anywhere Experiences in Europe Experience rewards & The American Express Looking for the perfect gift recognition wherever branded pre-paid lodging experience for any occasion your travels take you. cards can be used worldwide is easy with Golden Exclusive benefits, flexible to pay for hotel stays Moments! Whether you are reward options … and more. anywhere American buying a gift for your family, All with no blackout dates on Express® Cards are adding an activity day to Free Night Awards. welcome. your Hilton Family hotel stay or surprising a loved one, we guarantee a memory that will last a lifetime! FFP Expo 2008 – Loylogic Inc.
  17. 17. “Over 43% think frequent guest points are more valuable than 5 years ago.” (Survey USA Today & FTMA, April 2008) FFP Expo 2008 – Loylogic Inc.
  18. 18. “The devaluation of airline miles has allowed consumers to take a fresh look at hotel loyalty programs. The devaluation has been a boon for their hotel partners.” (COLLOQUY, CensusTalk, April 2007) FFP Expo 2008 – Loylogic Inc.
  19. 19. This is how credit card programs boost reward value. AMX Membership Rewards Diners Club Rewards Citi Thank You Redeem for a wide range of ThankYouSM lets you travel rewards: travel the way you want, Tailored Travel: Fly on when you want: virtually any airline, at Our travel booking tool, Pay with Points: Redeem anytime, with no blackout powered by Expedia® Membership Reward points with dates. eliminates hassles like American Express Travel. Exclusive Travel: minimum point requirements Customize your dream and blackout dates. Flight & Room Finder: vacation. Search flights and hotel rooms, transfer Membership Rewards points to your favorite frequent flyer and guest programs.” FFP Expo 2008 – Loylogic Inc.
  20. 20. “With credit card companies increasing more earn and burn options, customers are learning to bypass the traditional airline loyalty program, putting the viability of this model in question.” (Oliver Wyman, December 2007) FFP Expo 2008 – Loylogic Inc.
  21. 21. Survey: 42% think about switching cards; 18% have already done so. (Freddie Awards Survey, February 2008) FFP Expo 2008 – Loylogic Inc.
  22. 22. So how can FFP’s smartly reinforce their reward offering and their mileage currency value? FFP Expo 2008 – Loylogic Inc.
  23. 23. Increasing flight rewards is not a viable solution to the problem ... (A) Increase Reward Seats (B) Increase Airline Capacity Commercial Reward demand demand Overall required capacity Impacts flight displacement Not very attractive, as airline cost for limited relief on capacity increase comes at reward demand. 70% fixed costs! FFP Expo 2008 – Loylogic Inc.
  24. 24. ... while offering non-flight rewards seems to be a very smart option. Non-flight reward advantages: FFP defines cost/mile Easy to manage/scale Attractive for any profile Come at low/no fixed costs Free demand on flight rewards Drive program member growth Steer deferred revenues (IFRIC 13) FFP Expo 2008 – Loylogic Inc.
  25. 25. Survey: 51% say non-flight rewards are important. (Freddie Awards Survey, February 2008) FFP Expo 2008 – Loylogic Inc.
  26. 26. And leading FFP managers agree. “Non-air rewards are a “A spin-off would give us smart thing. They drive the opportunity to offer member engagement non-air rewards which are which is good for our a valuable option for our partners.” members that travel all the time.” (Craig Landry, Aeroplan (Robert Sahadevan, United FTMA 2008) FTMA 2008) FFP Expo 2008 – Loylogic Inc.
  27. 27. And how should an attractive non-flight reward solution look like? FFP Expo 2008 – Loylogic Inc.
  28. 28. Reward Value: “It’s really worth collecting.” Miles to pay Miles-plus-cash (e.g., Apple iPod 4GB Nano) (e.g., 1-mile redemption) FFP Expo 2008 – Loylogic Inc.
  29. 29. Survey: 52% seek value; 94% seek miles-plus-cash. Miles to pay Miles-plus-cash (Freddie Awards Survey, February 2008) FFP Expo 2008 – Loylogic Inc.
  30. 30. Reward Choice: “That’s exactly what I need.” Travel Sand-X Dune Bike Products 2,270,000 miles Experiences Meet John Travolta Merchandise 124,000 points Conversions Donations Cardiac Health Check Vouchers 65,000 miles and many more 1-Day Cover Star 135,000 points JT VIP Package 62,000 points Pit Crew Member 103,000 points FFP Expo 2008 – Loylogic Inc.
  31. 31. Reward Access: “Show me the rewards.” Ease-of-use Personalization (avoid multiple platforms) (show relevant rewards) FFP Expo 2008 – Loylogic Inc.
  32. 32. Reward Thrill: ”It’s fun having these miles!” Auctions Raffles Gambling FFP Expo 2008 – Loylogic Inc.
  33. 33. OK. Now how can this be sold to the airline CFO? He doesn’t have a non-flight reward budget. FFP Expo 2008 – Loylogic Inc.
  34. 34. “Current” Case: FFP without non-flight rewards. “Current” Case: Without non-flight rewards and decreasing co-brand credit card miles sales (illustrative) miles sales flight rewards non-flight rewards FFP EBIT 0 program operations Year 1 Year 2 FFP Expo 2008 – Loylogic Inc.
  35. 35. “Opportunity” Case: FFP with non-flight rewards. “Opportunity” Case: With non-flight rewards and growing co-brand credit card miles sales (illustrative) flight rewards miles sales FFP Opportunity (∆ Case 1 and 2) non-flight rewards FFP EBIT 0 program operations Year 1 Year 2 FFP Expo 2008 – Loylogic Inc.
  36. 36. Two financing options can cover for a missing non-flight reward budget. 1. FFP/Airline: Allocate saved costs from flight rewards. 2. Credit Card Partner: Finances the non-flight reward solution and deducts miles redeemed from miles issued. FFP Expo 2008 – Loylogic Inc.
  37. 37. Take Aways 1. Rewards are key to loyalty success. 2. Mileage currencies are losing value. 3. Credit card programs & frequent guest programs gain momentum. 4. Non-flight rewards are a very smart option to reinforce mileage value. 5. CFO’s can chose between two options: Accept the non-flight rewards cash-out (same cost!) or accept a decreasing FFP EBIT. FFP Expo 2008 – Loylogic Inc.
  38. 38. “Making Miles & Points More Valuable than Money™.” dominic.hofer@loylogic.com FFP Expo 2008 – Loylogic Inc.

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