Point of View

Airlines and hotels should reward customers with NFTs? Really?

Loyalty--Binay-Warrier-Blog-1

Scarcity creates demand. We know this. It's a commonplace theory in economics and in marketing. If a product is seen as exclusive, something only available to a select few, customers will pay up to 50% more for it [1].

Loyalty program know how to use this search for status through exclusivity. They motivate loyalty and spending by giving consumers perks and privileges that not only confer material advantages but also signal that consumer's elite status to their peers.

The catch with this kind of advantage is that it can be expensive. And given that scarcity is the prerequisite, it's also limited by physical constraints. Staff can only usher so many premium customers to the front of the queue.

Is there a way to create exclusivity in a way that fulfils the desire of some loyalty program members for status, without incurring prohibitive expense? Yes, there is. Step forward, non-fungible tokens, or NFTs. 

Developing NFT loyalty models

NFTs bring scarcity to the digital economy. Each NFT is backed by its own unique code and its place on the blockchain. It's impossible to copy an NFT in the way consumers can copy any other digital assets (an image or audio clip, for example). This makes NFTs perfect as markers of exclusivity.

For travel loyalty programs, NFTs can serve as useful markers of exclusivity in their own right. For instance, you might give a premium loyalty-program member an NFT to display in their program app or on their profile, as a sign of their status. For many consumers, this alone can be something of value.

But programs can also link NFTs to tangible rewards. In fact, Lufthansa is already doing it. The airline launched its Uptrip NFTs in 2023. Passengers earn these when they fly. Loyalty-program members can collect and then redeem these for tangible benefits.

So, what else can NFTs do for the travel industry?

How can airlines and hotels use NFTs?

So how can airline and hotel loyalty programmes use NFTs? And what can they use them to achieve? Here are three use cases:

  • Airlines and Hotels can use NFTs as digital status symbols that mark out prestige travellers and become valuable in their own right to those travellers.
  • Link NFTs to tangible yet exclusive rewards, such as special events access, phygital  experiences  or similar perks either from the brand  directly or its partners, that can be collected and redeemed.
  • Make NFTs that are significant works of digital art in their own right, for instance an original painting of a Dreamliner signed by the airline's chairpersonand use these as rewards.

Importantly, none of these use cases rely on the tradability of NFTs for their value. Recently, many of the previously highly valued and traded NFT collections have fallen significantly in value [2].

This has led to some scepticism about the value of NFTs as tradeable commodities. But this is not the only use case. And it would be a missed opportunity if scepticism about one model led the travel sector to abandon all experimentation with other ways of using NFTs.

This is particularly true as, done right, NFT-based loyalty schemes may be an effective way to connect not just with premium, status-motivated premium travellers, but also hard-to-reach young travellers.

Younger travellers who grow up playing Minecraft and Robolox, are going to be notoriously difficult to retain. When they choose flights, their consideration set contains 70% more airlines than is the case for older travellers [3]. But these demographics are the most likely to buy and value NFTs. In some surveys, a fifth of gen-z already owns NFTs [4]. And they're also highly motivated by social status and peer recognition [5].

Next steps

So yes, airlines really should at least investigate the potential of NFTs to reach and motivate audiences in new ways and for a higher ROI. But they need to go about it in the right way.

To rigorously build and test NFT use cases that will achieve your business goals, you need the right partner. Your technology provider should have an in depth understanding of, and record of success in, applying new innovations and technologies to airline and hotel loyalty programmes.

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