May 22, 2012 What is a Loyalty Program
What is a loyalty program? This is a complicated question, especially where airlines are concerned. United Airline’s CFO got up on stage and stated that some of UA’s elite population was “entitled”. This is not surprising, United and Continental had two very different mentalities when it came to dealing with their respective frequent flyers. United Airlines treated their elites very well, especially their upper tier elites, 100,000 mile flyers and Global Services members extremely well. Opposite that Continental Airlines did not provide as many services to their elites at any level. Continental’s goal was to provide consistent service across the brand no matter what level the person had in their frequent flyer program.
Until recently airlines kind of had the same basic loyalty program, but that has changed. It started with Delta Airlines, they massively devalued the redemption side of SkyMiles, but they still have a huge number of members and even elites, why? Well, they upped the benefits on the front end. Elites are treated very well; their top-tier members may even get walked off the plane and on to a Porsche to make a connection. These programs are changing because the back end technology that the airlines use is allowing them to develop and data mine more information about the individual flyer.
United is taking this new information and using it to target high revenue low traffic customers. There is a famous delta power-point floating around the internet that defines each flyer on the airline. Basically there are 4 groups, high revenue high frequency, high revenue low frequency, low revenue high frequency, and low revenue low frequency flyers.
Until recently, they airlines could only tell the amount of miles that a person flew, not how much revenue they generated. Now that they can tell, airlines are competing to attract the high revenue flyers and ignoring how much they actually flew. On the far end of the scale you have JetBlue and Southwest who only award based on revenue. Delta, American, US Airways, and United all still use miles.
United hopes its program will drive loyalty to the airline. UA wants to use that loyalty to leverage higher fares. However, there is a cost to the benefits it provides. If UA has a loyalty program that doesn’t provide any benefits, there is no loyalty and thus UA can not justify higher fares. If the loyalty program is too generous, then the costs of the program outweigh any fare increases. United is trying to rebalance their program because they thought it was too generous and costing them money. Well, without surprise this has angered the pre-merger United elites.
Tags: United Airlines