Loyalty programs for LCCs...think beyond low fares

Loyalty programs for LCCs...think beyond low fares

Loyalty programs are emerging as a maxim rather than a mere choice for Low Cost Carriers (LCCs)

January 1, 1914 was the New Year that permanently changed the way we travel. The St. Petersburg – Tampa Airboat Line operated the first ever commercial flight carrying its lone passenger Abram C Pheil on a 23 minute journey between the two ports. 100 years down the line, commercial aviation has an annual economic footprint of $ 9.2 trillion (IATA, passenger and cargo), provides 58 million jobs and is nothing less than a life line to 7 billion people across the globe. Over the time the civil aviation business has changed, but what persists even today is the vision, innovation and relentless effort that propelled the first flight. While 'Airboat' made civil aviation a possibility, the Low Cost Carriers (LCCs) have made it affordable to masses. According to Boeing's 2015 market report, LCCs have outperformed the global aviation industry average rate of 5% per annum. The LCCs that offered less than 10% of the short-haul flights in 1994, now account for 30 % of the flights on less than 3000 miles segments. With a positive economic outlook and strong regional demand particularly in Asia, (India, China, South East Asia) Europe and Middle East the LCCs are poised to grow further at an unprecedented rate. However, mounting competition and product indifference, remain a constant challenge to this euphoria.

LCCs, at the beginning, have been elusive of the loyalty programs considering it ornamental and cost intensive. However, now when loyalty programs are increasingly proving to retain customers, increase consumption and generate additional revenue; having a loyalty program has emerged as a maxim rather than a mere choice for the LCCs. In their quest to completely leverage the current record low oil price and strong demand, the LCCs are looking at loyalty programs to not just align themselves with the customer expectation but also to differentiate their products, to gain insights, to sell more, and eventually to maximise their profit. It is very clear that the lofty, conventional frequent flyer programs don't resonate with agile and low cost model of the LCCs, and therefore the loyalty program for low cost carriers ought to be lean, efficient and productive. Today, when LCC's are increasingly launching and expanding their loyalty programs, let us take a closer look at some of the key differentiators that make loyalty for LCCs a different ball game… promising strong returns to the unique business model.


Loyalty for LCCs – A different ball game

Simple and straightforward

LCCs derive their advantage from simplicity and agility, from fare structure to operation every aspect of the business is lean and easy to understand. Loyalty program for LCC should also inherit the same characteristics and hence the proposition must be articulated in a way that value is easily understood by members. Contrary to the complex mileage based approach, a revenue based accrual and redemption approach is much appreciated. Also, any seat booking, single Point redemption, no blackout dates are some of the other features of interest to LCCs.

No frills, as the game is

Low Cost Carriers are also known as no frill airlines and the reason is it is a seat only business and everything else is optional and chargeable. LCCs have positioned their services so well, that even in the absence of multicourse meals, expensive wines, and inflight entertainment, the perceived value to customers is comparatively more than that of the legacy counterparts. As the customer expectation is already set, the LCCs can do away with the 'snob appeal' of legacy loyalty programs as well. Complex tier structure, exclusive clubs, red carpet events, limousine pickups can be replaced with a clearly defined currency, clever promotions and a market place where customer has choices.

Sales oriented beyond repeat business

It is a no brainer that to retain an existing customer is much more cost effective than to acquire a new one. While customer retention is an important aspect of loyalty programs, the LCC specific propositions look beyond the default retention benefit and consider maximisation of member revenue as paramount. Today, when LCCs are aspiring to become e-commerce platform of the travel world selling third party products as well, it is much expected from loyalty programs to align with and rather reinforce their sales process by reaching out the right customer with right offer and eventually motivating them to buy from the airline.

Profitable yet binding

Cartrawler estimates that out of $ 59 billion ancillary revenue generated by airlines in 2015 approximately $ 22 billion is garnered from sale of frequent flyer points and other loyalty related commissions. Besides this, 'paid membership' presents huge revenue potential and immense loyalty effect. Amazon prime and prime now generate $ 400 million a year for benefits like free same day delivery etc. Also, such an arrangement guarantees unmatched loyalty and additional income (in the form of interest) as the customer has already paid for benefits. EasyJet Plus is a quintessential example, charging £ 170 for an annual membership allowing access to seat selection, fast track security, additional cabin bag etc.

Recognisable in a group, as a group

The advantage of flag carriers is that they have wider options to differentiate their services and create a brand out of that distinction. Moreover, those airlines represent regions that makes them even more distinct, for example Qantas, British Airways, Air France, Emirates, and Singapore Airlines. For LCCs, fare remains key differentiator and in the absence of lowest offer, their services become indifferent resulting in a 'me too' brand. The loyalty program for LCCs will leverage a network of recognisable partners, not only for generating revenue or providing earn/burn options to members, but to endorse each other's brand reinforcing the otherwise isolated brand identity.

Ready for alliances

LCCs have always been enthusiastic to explore new and better ways of doing business. Time and again the airlines have re-aligned their offerings to steer through market forces. To meet the growing demand for air travel, LCCs definitely need to ape the alliance concept of legacy carriers, in order to benefit from each other's network and to avoid unnecessary competition. In the absence of synergy with legacy alliances like OneWorld, Skyteam or Star, sooner more LCC specific alliances like 'Value Alliance' will be a common practice. However to project the real value of these alliances, the loyalty programs of the participating LCCs shall be designed to allow seamless earn and redeem benefits across the airlines, leading to a true coalition loyalty proposition for LCCs. 

To know more, connect with IBS' Loyalty Management experts at the 3rd China Low Cost Carriers Summit.

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Tuesday, 25 April 2017

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