By Branchspace | 9 June 2020
In the gradual return to recovery, and with the likelihood of only partial network reopenings, airlines will need to incentivise passengers to fly without appearing to limit options. After a spring of cancelled flights, the “new normal” we encounter post-COVID-19 will need to prioritise strengthening customer loyalty with restructured airline loyalty incentives.
In response to the shoring up of interest in leisure and business travel, some airlines have already begun modifying their loyalty programmes, mainly by extending the validity of the tier level. For example, Emirates recently massively reduced fuel surcharges for their premium-class awards across the board, saving passengers money and making travel more accessible. However, this type of offer is likely only attractive to programme members with a significant number of points already allocated. With the threat of a second peak and uncertainty of the near future, the traditional “fly with us now for a reward later” brand of loyalty is unlikely to be effective in the post-pandemic era.
We see three avenues to strengthening customer loyalty that can be easily implemented – even without an existing loyalty programme in place.
Incentivising customers to begin booking flights could be accomplished through a tiered voucher programme. The tiers could function by offering a larger reward to the first 10,000 passengers to fly, a more moderate reward to the next 30,000 passengers to fly, and so on.
This programme would provide for future revenues whilst accelerating initial bookings and creating returning customers. Setting a realistic expiry for voucher redemption – such as a 12-month-period – would grant customers a degree of flexibility. Finally, the actual amount of the expended voucher value could be at least partially compensated through ancillary upselling to customers who feel they’ve benefitted from a “good deal”.
To stabilise cash flow in the short term, airlines could successfully pre-sell tickets six months out when backed by a reward component. Specifically, committing to a certain number of flights or revenue would get passengers an award now. In this scenario, setting up a bare-bones loyalty programme would require the following steps and incentives:
- Allowing customers to easily enrol with just a few basic details (e.g. name, email, etc.).
- After enrolment, the customer commits to a 9-flights pass (fixed route, open-dated, valid in any RBD for 12 months) at a fixed price and receives one flight award with the same conditions. By doing this, the rewards member guarantees a certain price level for future purchases.
- Alternatively, the customer could buy €500 credit for €450 and then spend their credit on flights within the next 12 months.
- Committing to more flights could return more rewards: for example, buying 16 flights returns two awards, 21 flights returns three awards, etc.
- In re-engaging serially inactive customers or one-time flyers, the programme could offer higher rewards: if a customer has flown three flights within the past year, buying 9 flights now would return two free tickets (instead of only one).
This offer would very likely appeal most to business and corporate travellers, generating cash quickly but possibly diluting future revenues. To avoid customer concerns about the airline potentially going out of business, it may be helpful for the product to include third party insurance which would refund the customer any outstanding amount in case of bankruptcy.
A third option would be to pre-sell tickets without committing a certain number of flights.
In this scenario, the purchase of a ticket generates a discount voucher for the next flight. This could be a percentage discount of a fixed amount that has to be redeemed in a short timeframe (e.g. one month). Purchasing the next flight with a discount voucher will generate another voucher with an even bigger discount, and each redemption will increase benefits received.
An example purchasing sequence could be structured incrementally as follows:
- 1st flight bought at 5% discount
- 2nd flight bought at 10% discount
- 3rd flight bought at 15% discount
- & so on until predetermined maximum discount reached
When reaching the price ceiling, each discount received would stay on the same level (e.g. 25%).
This offer would appeal to leisure and VFR travellers, generating cash quickly, but possibly diluting future revenues. To avoid any customer concerns about the airline potentially going out of business, it may be helpful for the product to include third party insurance which would refund the customer any outstanding amount in case of bankruptcy.
These three scenarios can easily be implemented with existing automated voucher generating engines. Furthermore, these avenues do not require having a full-stack loyalty programme already in place.
The common objective for all initiatives listed is prioritising cash generation as that is the most important factor for airlines significantly impacted by “no-fly” restrictions. Each programme also provides incentives for:
- Pioneering the resumption of flights
- Subscribing to flight programmes
- Frequent flying
We believe that beyond the financial benefits, these avenues will lead to increased customer loyalty by providing a more rewarding system. Finally, to be successful, these loyalty incentives must be bolstered by a stable flight schedule and minimal disruption.