The Transfer of Airline Loyalty Programs

Frequent flyers or frequent spenders? Is there any difference in their relevance airline loyalty programs?

The airline industry is facing further investigation on top of it loyalty programs. Frequent fliers are frustrated by devalued points, stricter elite status requirements and diminishing returns in their travel investments. This dissatisfaction led to many QUESTIONS the value of these programs and to explore alternative travel options.

Airlines such as United and Delta continue on adjust their loyalty programsconstantly implementing changes that destroy the value proposition for frequent fliers. These changes, such as changing criteria for earning miles and restricting access to certain benefits, can leave travelers feeling undervalued and potentially driving them to seek more rewarding travel experiences elsewhere.

Transfer to Profits Through Loyalty Programs

PYMNTS spoke with several industry experts about the current state of airline loyalty programs and the logic behind their offerings. Mark Ross-SmithCEO, Loyalty Status Co. said that the economy will be challenging with the typical operating margin from the sale of a domestic seat around 12%, and lower in the coach.

“For that margin the airline has to accept payments, check in, provide airport facilities, employ thousands of staff, have gate agents, tag your checked bags and deliver them to you after you land, employ customer support agents, feed you on the plane, comply with a growing list of mandatory safety regulations in all the markets they fly to versus running a loyalty program, which sells points and miles to banks, enjoys a 30%-80% operating margin, employs a lower staff, and has no planes to maintain, no pilots, and no unions,” Ross-Smith said. group. Who needs frequent flyers when you’re always spending money?”

Customer Experience Still Matters

Chris Lewishead of research at FinanceBuzzoffers a different perspective.

“Airlines obviously need to make money, but I think they quickly realized that the way to do that is not by skimping on the customer experience,” he told PYMNTS. “The public discourse about air travel is very negative and many major airlines suffer from it. In the mind of a customer, they expect to have a bad flight or a delay SPIRIT or Frontierbut if they have one of the more premium airlines and they charge more, it’s doubly offensive. Major airlines are getting this and are looking for ways to make that experience better for customers who choose them over cheaper options. “

Frequent Fliers as ‘Brand Ambassadors’

Frequent fliers should be viewed as “brand ambassadors,” John Taylor Garnerfounder and CEO of Odynntold PYMNTS. “Airlines are very low-margin businesses and often lose money, so it’s not surprising that they focus on profitability. However, doing so at the expense of frequent travelers who don’t need to spend as much others with a co-branded airline credit card is also a bad idea. These frequent travelers should be seen as brand ambassadors, which is an extension of marketing experience will tell the their friends, family, and coworkers about it and they can influence which airlines people choose to book in the future.”

Missed Opportunities for Long-Term Loyalty

as American Airlines has shifted its strategy towards maximizing direct bookings and in-ecosystem spending, a critical aspect of customer loyalty can be missed. By focusing only on direct bookings and in-ecosystem spending, American Airlines may inadvertently overlook the long-term value of these loyal customers and their powerful word-of-mouth marketing potential. . Last year American Airlines changed it AAdvantage loyalty program, changing its focus from flight miles to loyalty points.

Ross-Smith argued that US airline revenue now depends on credit card partnerships and high-spending customers rather than frequent flyers. He pointed to airlines such as American Airlines reaping the benefits from making frequent flyers more valuable than frequent flyers, raising concerns about customer satisfaction and the long-term sustainability of traditional airlines. loyalty program.

“American Airlines, for example, is only profitable because of the AAdvantage loyalty program,” he said. “AA is basically a credit card marketing company that flies airlines.”

Premium Offerings Become Popular

This move towards profitability through loyalty programs is motivating Many airlines introduce premium offers (such as business bundles) to attract more customers and encourage higher spending.

“In many cases, business travel is primarily paid for by companies and the miles, points, and status awarded to employees,” Jagdish Ghanshanimanaging partner, travel and hospitality industry leader in The public will be wisetold PYMNTS. “But in the case of business bundles, it is very difficult to ‘cost’ them unless companies have flexible cost and booking policies. To maximize the effectiveness of these bundles, airlines must to work with corporate travel agents to offer business travel packages at the corporate level, ensuring they are consistent with corporate cost and booking policies.

Demand for premium product has never been higher, Ross-Smith said, “and we’re seeing more airlines in the US and around the world installing more premium (business/first class) capacity to catering to the growing demand for premium leisure and business travel .The trend we see as the business bond is another step in the evolution towards catering to the almost unlimited money of company flyers.

As airlines focus on premium offerings, customer loyalty becomes more challenging, especially considering how much consumers spend on travel. According to PYMNTS Intelligence report,”The Ultimate Transaction: Family Spending Habits Reveal Merchant Opportunities in Retail and Travel,” married consumers with children at home may have less disposable income than their childless counterparts, who spent $326 on travel in the past 30 days according to the 2024 survey, from $361 in 2023, and $389 in 2022.

Balancing Status Perks and Income

Airline officials understand that making the status too accessible could lead to more people asking for benefits, especially in the mid-tier tiers where upgrades and other perks are less common. access, causing dissatisfaction, said Lewis.

“Perhaps airlines also realize the need to diversify income streams and become more profit-oriented without cutting into the customer experience, but to do that they need to reward something that affects their profits,” said he. “Make the airline more profitable and they are more likely to reward that through status. Especially if an airline makes a shift in this direction, it’s much easier from a PR point of view for another one that doesn’t” y excessive anger of customers.