A Changing Environment:

When American Airlines and Aer Lingus announced that they were joining the bandwagon of revenue based loyalty programs, it became evident that the airlines were following a growing trend outlined and practiced by major industry players like Delta, United, Qantas and South African. Rewarding customers based on the amount they spend allows for a more fair cultivation of the airline-customer relationship and provides a loyalty proposition truly attuned to customer value rather than just focusing on miles in the itinerary. By moving to the revenue based model, airlines have strategically aligned loyalty benefits with the commercial value of the customer and are thus better positioned to address adverse market conditions such as rising competition and cost.

Apart from reducing cost and liability, the revenue model discourages 'gamers' who earn more points by purchasing low fare and short distance tickets. Today, with more and more airlines switching to the revenue model of miles calculation, it is important to understand the key aspects of this migration. Based on our experience working successfully with South African Airways and Qantas, here's our take on the best way to make an effective transition to revenue based programs.

1. Adopt a Holistic Approach

Revenue based models provide both improved liability control and cost minimization, while being more transparent to members. These benefits can further be maximized if loyalty programs can choose to reform other processes along with the change in accruals.To develop a really lean loyalty proposition, a simplified version of redemption is also advised so as to generate value at both ends of the loyalty proposition viz accrual and redemption. Redemption opportunities such as Southwest's any-seat redemption and South African's lower redemption qualifications have emerged as key differentiators instrumental in transforming loyalty into a member-centric proposition while preserving the interest of airlines.

2. Build Consensus

Since its inception, Frequent Flyer Programs have been a vibrant ecosystem of different partners from a wide range of industries. Today, the marriage between host and partner have become important to a level where partnerships decide the success or failure of a program. One of the basic postulates of the revenue model is to offer a transparent dollar-to-miles equation consistently across channels and partners.

At the re-launch of its revenue based program 'Voyager', South African Airlines rolled out a uniform 1 Mile/1.6 Rand equation throughout most of its partners. The new equation has increased loyalty equity by providing a consistent equation across host and partners. Therefore, before embarking on revenue driven change it is essential to build consensus among partners and develop a uniform equation that works for the member across different partners and channels.

3. Keep it Simple

Revenue models are of great interest to airlines because of the evident profitability associated with them. On the down side however, there is a high chance that airlines may get overwhelmed by the profitability factor and overlook the customer centric nature inherent to the model.

An important aspect of the revenue model is to get rid of complex accrual matrices of the mileage system such as distance, cabin, fare type, zone, etc. Replacing one complex matrix with another one will keep the proposition complex and will make it difficult for members to notice the true benefit of change. Hence a simple accrual equation, like that of JetBlue's 3 points per dollar or South African's 1 point per 1.6 Rand, is very helpful and will build interest among travelers.