Top trends for airline loyalty programmes in 2024
What were 2023's biggest trends in airline loyalty programmes? What challenges is 2024 going to throw up? And where is loyalty heading in the next twelve months?
We caught up with Marcus Puffer, Vice President & Head of Loyalty Solutions, IBS Software, to get his insights on these questions.
1. Marcus, what were the key challenges and changes for airline loyalty schemes in 2023?
One of the big trends of 2023 was the massive release of pent-up demand for leisure travel. This made things tricky for loyalty programmes.
It meant there were fewer seats free for them to offer as a reward, so they had to make those seats more expensive, in reward points.
There was also the change in demand patterns in 2023, with business travel down and leisure travel up. This has presented loyalty programmes with a challenge.
How can they adapt to rewarding mainly leisure travellers, and do it even when the number of seats they can offer is constrained?
Some airlines have partnered with other carriers, for instance Qatar Airways and Finnair Plus both joined the Avios loyalty currency.
Other airline loyalty programmes are working with third parties such as hotel chains or even coffee shops to make loyalty points more valuable in new contexts.
We've also seen airlines such as Lufthansa experiment with non-fungible tokens (NFTs). For now, these are a novelty. But we expect them to become tradeable and linked to tangible benefits soon.
2. What emerging trends or shifts have you observed in customer behaviour?
There was a shift in traffic, with an explosion in leisure travel and a decline in business travel. But it's unclear whether the leisure boom will sustain its momentum in 2024.
The savings and pent-up demand that fuelled the leisure-travel boom are likely to run out of steam. At the same time, consumers hit by inflation are feeling the pinch on their disposable income.
And along with extra capacity for existing airlines, we're seeing new players entering, or growing in the market. For instance, both Air India and the new Riyadh Air have received hundreds of millions of dollars of investment in the last year.
Soon, the sector will have more capacity and more competition. At that point, the 2023 loyalty-scheme approach of managing capacity, even if it means a perceived devaluing of reward points, and relying on organic demand will run out of road.
At that point, airlines will once again be faced with bargain hunters who put a premium on the ability of loyalty programmes to deliver value and on customer experience.
The sector needs to start preparing for that, now.
3. How has technology played a role in reshaping loyalty strategies in 2023?
In the past, most points were miles based — the more miles you flew, the more points you earned. Nice and simple.
But with increased processing power and artificial intelligence, loyalty programmes have been able to move to revenue-based points systems. This requires a lot of background calculations. But it also gives those airlines the edge, allowing them to reward and incentivize the most valuable customers.
You're going to see more of this in future. The really innovative airlines will use technology to deliver more targeted rewards that provide a better customer experience, help retain the most valuable customers more effectively, and give those customers a reason to spend.
That will give those airlines the edge.
4. What area of loyalty management will face disruption in the coming year?
Loyalty programmes will have to up their game again — and airlines will have to invest more in their loyalty programmes. At the same time, those programmes will have to find a way to deliver meaningful rewards to leisure customers who may only fly once or twice a year.
That involves more partnerships with third parties and better use of data. And that only works if all the suppliers in the loyalty programme, along with the customers, can see the value of that model.
5. How do you foresee consumer expectations evolving and what can loyalty programmes do about it?
Recently, I booked a flight with an airline where I am a loyalty programme member. My airmiles entitled me to an upgrade voucher, which I could use to get a seat in business class.
The first problem I faced was the systems. I couldn't see availability. I had to go to the trouble of calling the call centre, hanging on the line and all the rest of it. When I did get through, it was only to discover that I couldn't use my voucher because there were no seats available.
It was a really disincentivising experience. With the right loyalty platform — one that's data driven, dynamic and enables personalisation — for a start, I would have been able to do everything online, at my own convenience.
And the system could have looked at my value as a customer, for instance my expected lifetime value, and made a decision on whether or not it might be worth opening up a seat after all. This would enable the loyalty programme to give the best experience and maximise metrics such as lifetime value.
To put it simply, every customer wants predictability, reliability and good service. And they want that, no matter what price they're paying. Of course, you make allowances in your expectations based on price.
But there is a certain baseline that loyalty programmes must meet. And they can't do that with outdated, manual systems that push too much labour onto the customer and don't offer a good, much less a personalised, customer experience.
6. How will technology and innovation transform travel loyalty programmes in 2024?
Because it's so easy to use, making the threshold to entry very low, generative AI has the potential to be truly transformative.
It will allow users with no programming knowledge to take diverse sources of historical and real-time data and process them in ways that reveals new insights, more differentiated and specific outputs, and create new value. But it won't do this in all use cases.
Many of the current use cases will turn out to be based on little more than high hopes and hype. But where gen-AI does work, it will give its adopters a decisive competitive advantage.
The key is to identify the most promising use cases, test and develop them rapidly, and quickly select the ones that yield the highest returns. To able to do this, you need subject-specific knowledge.
A partner that understands AI and the air travel sector will have a greater chance of finding the right use case and a greater investment in your success at developing that use case.
In addition to the growth of AI in the aviation industry, I think 2024 will also see even more cloud migration. Cloud provides the ability and scalability to adopt gen-AI and other next-generation technologies. Everyone should be working on cloud migration by now.
7. Are there specific strategies or approaches you'd recommend?
To paraphrase Bill Clinton, "it's the data, stupid." For a long time, as a sector we've talked about big data. But now it's crunch time. AI and many of the technologies the airline-loyalty sector, and the aviation sector more generally, absolutely need, will only work with high-quality data, at volume.
To make that a reality, airlines must be able to gather their own first-party data. But they must also be able to share data with partners across their loyalty ecosystem and broader supply chain. That will only be possible if all parties, including the customer, see the value in doing so and are confident in security and compliance arrangements.
That's why working with the right platforms, technologies and partners has never been more important.