Points is trying to diversify beyond being the world's largest reseller of airlines and hotels points. But this loyalty tech company needs a little more mojo if it wants to produce truly game-changing products.
Editor’s Note: This year we expanded our coverage of the technology companies that do the behind-the-scenes work of powering the technology systems of the world’s major travel companies.
We’re chatting with a handful of industry leaders for our new Travel Tech CEO Listening Series to discover where they think the industry is heading.
In 1981, American Airlines created AAdvantage, the first mileage-based frequent-flyer program, a model that has been copied in a broad way by more than 160 airlines, hotel chains, rail companies, and other travel providers.
Today, loyalty programs, particularly the credit-card programs that generate awards through spending, are contributing to the profits of many travel companies.
There may be more mileage in the loyalty concept yet. Thirty-six years on, China, India, and other Asian Pacific countries are only now becoming enamored with frequent flyer and hotel loyalty programs, suggesting there are markets that remain largely untapped.
Points International, a Toronto-based technology provider for travel loyalty programs, has tried to ride the wave.
It does not run any airline’s loyalty program. But it is the biggest miles and points reseller to consumers worldwide.
Its Points.com website allows consumers to track points or miles from over 100 rewards programs, swap miles and loyalty points between programs, and buy miles and loyalty points to meet the thresholds required for all kinds of redemptions.
On the business services side, Points helps travel brands increase customer usage of their loyalty programs. In this, it partly competes with companies like Switchfly.
Points, a public company trading on Nasdaq with a $141 million market cap, touts itself as having the bulk of the world’s largest loyalty programs participating in some way or another, including all of the 10 largest airline programs and nine of the top 15 hotel programs in the world.
But there may be less to that than meets the eye.
The biggest knock against Points is that its business model may be too dependent on four loyalty program partners, who make up three-fourths of the company’s total revenue. Points doesn’t disclose the names of the partners.
To be fair, Points does work with big-name partners. One of its clients is Air France-KLM, which uses Points’s mileage retailing business to sell customers on miles to “top up” their accounts and to use its platform to sell miles to third-party companies as well.
Still, its dependency on four clients for the bulk of its revenue may be a problem.
It doesn’t earn meaningful money from loyalty partners directly. As airlines increasingly see their loyalty programs as a cash cow, Points’ handful of software-as-a-service subscriptions aren’t capturing any significant share of that business growth.
This business model makes it vulnerable to losses.
A few years ago, when American Airlines acquired US Airways, which had been using Points, American decided to drop Points rather than adopt its system across the merged company.
Similarly, in 2009, Delta drastically slimmed down its ties to Points, trimming the company’s revenue dramatically.
Since 2000, Rob MacLean has been the chief executive of Points. He’s guided it from a tiny business to one that last year claimed revenue of $239 million ($321.8 million Canadian).
One of the ways Points is trying to expand is through a marketing partnership, which kicked off a couple of months ago, with Expedia Inc.
The move is not a game changer. But it is notable in the context of competition between Expedia Inc and Priceline Group.
In 2014 Points acquired a company called PointsHound that offers mileage bonuses, typically 5,000 miles, for a hotel stay.
This past winter Expedia signed a deal with Points to help market that offering to travel brands. The goal is to make the bonus miles product more widely known.
That is probably in reaction to moves by the Priceline Group, which bought a similar startup called Rocketmiles in 2015 and which has been also trying to sell the bonus miles product to brands. Southwest Airlines became a customer last November.
The product isn’t a game-changer for anyone yet.
But it could be more impactful if Expedia, via Points, and Priceline, via Rocketmiles, began to routinely offer mileage bonuses to consumers who shop for travel via their household name online brands like Orbitz and Booking.com.
Skift recently spoke with MacLean about the company overall and industry trends. We’ve edited the interview for brevity.
Skift: What’s your vision for Points in the coming couple of years?
Rob MacLean: Our core business will remain the retailing of the world’s largest currency, namely, miles and points.
We sell well north of half a billion dollars of miles annually to individual members of these programs, often to help consumers top off our accounts to meet redemption thresholds.
This is profitable and economically viable for the loyalty programs and a helpful service to consumers. Our five-year performance is well over 20 percent in terms of revenue growth.
We do that for 37 companies around the world, such as United, Lufthansa, and Hilton. About 80 percent of our gross profit comes from that service. We launched five new ones so far this year, so it’s still a growth area.
Then we’ve recently introduced two business lines.
One helps airlines do a better job of monetizing their customers’ interest in hotel and car purchases. We let airline passengers use an airlines’ website to buy hotel rooms at standard rates either with miles or with cash in exchange for mileage bonuses.
We get the rooms from wholesalers like Getaroom and Expedia, we buy the miles from the airline, and then we put together the offer.
The third area of focus is opening up our loyalty commerce platform to enable companies to tap into the 60 or more loyalty programs that we work with. And the platform works both ways: I’m keen for us to be the platform by which smart companies offer their products and services to the loyalty industry.
Skift: In 2014, your company acquired PointsHound, a San Francisco startup that lets consumers earn miles by booking hotel stays. Why did you change its business model?
MacLean: There were a couple of companies that were starting around the same time. Rocketmiles is probably the most successful rival.
The companies created a niche where they could drive consumers in and use these various commissions and margins that were being supplied by hotels to purchase miles to incent consumers to use that channel.
The simplest way to think about it is that the companies took some of the commission for helping a hotel get a booking to buy airlines miles that might lure a consumer. If you get, say, up to 5,000 miles along with a hotel stay, that’s a compelling proposition for some consumers.
Both Rocketmiles and PointsHound, were, in fact, buying their miles through our platform because we had access to these 40 or 50 different loyalty programs and so it was efficient for them.
We really liked the way that business was evolving.
But, the challenge was, to be very frank, it was simply a view that trying to create a consumer brand, whether it’s Rocketmiles or PointsHound or any other, when you’re competing with a Priceline and/or an Expedia for digital marketing, just felt like a very difficult proposition.
So we thought the smarter business model would be to take that same dynamic and customize it on a partner-by-partner basis. So, make it very Lufthansa-friendly by customizing the offer to their specific loyalty program, make it very customized for them.
The last time I checked Expedia was spending approximately $3 billion a year on marketing their brands, so it I thought that was going to be a really tough challenge.
But, in the case of Lufthansa’s Miles and More program, then the airline could market the opportunity to earn miles from booking a hotel room to its own customers via either the confirmation page of a booking or other email communication.
Until our product, when airlines wanted to upsell customers on hotels they typically passed them over to online travel agencies, via affiliate deals, and got commission kickbacks.
That was a largely stagnant business.
We’ve signed seven deals in the first 18 months of the business, and we have a number of others in the pipeline. We have operationalized six. We launched ANA, Japan’s largest airline, with this product, in May.
Skift: You signed a sales, marketing, and product development commercial agreement with Expedia, Inc. recently. What could you share about that?
MacLean: Expedia will help get the word out to airlines about our offering to consumers of miles, say up to 5,000 miles, for making a hotel booking.
What we saw the airlines doing is looking at their hotel and car upsell efforts and saying, ‘Look, this should be and can be a much larger and more engaging business for the loyalty program members and the use of our miles is critical to making that happen.’
Expedia’s view is that Points buys a lot of hotel supply through the Expedia Affiliate Network. Expedia is our largest supplier.
We just feel like it has got the best set of inventory out there in the marketplace and we wanted to work a little more closely together and they agreed.
Skift: You mentioned Rocketmiles before. In 2015, Priceline Group bought it and, since last November, Booking.com has been using that technology to power Southwest Airlines’s hotel offering by offering flight buyers the chance to book hotels and earn miles along the way — similar to your product. How can Points compete in that B2B services sector?
MacLean: We feel very good about it. It is a competitive environment, as you describe, so while we’d love to win every piece of business, I think we’re fairly pragmatic.
We’re going to win more than our fair share, but not everything. As it is, we’re running a bit ahead of where my expectations were.
We would expect that the market, going forward, will be split between two or three players that are offering really good products.
Skift: Will Expedia’s consumer-facing brands integrate the offer? It needs to counter the Priceline Group, it would seem to an outside observer, now that Booking.com began powering Southwest Airlines’ hotel-mileage bonus offer. Expedia attempted to come up with its own version internally, but it hasn’t seemed to do well.
MacLean: As you know Hotels.com has certainly, in many view, the strongest template in the marketplace for a kind of a broader less loyalty-focused proposition.
So I think you’ll see us out there in the marketplace with both offers because we find the airlines in particular have a number of channels that they’re interested in tackling and our view is together we can solve for all of those channels.
Our plan with Expedia is to jointly leverage our strengths.
Skift: How else could you and Expedia jointly leverage your strengths?
I think they see the strengths that we bring to the table in terms of understanding the loyalty industry and these pre-established relationships thanks to our technology being integrated into many of these loyalty programs.
Probably more importantly, Expedia has an understanding of how we could be a data play.
We could say, ‘OK, Sean, is a customer that looks like this. This is what his balance is in the loyalty program. This is his purchasing behavior. Maybe we should provide this kind of an offer for Sean based on his currency balances and his tier status.’
So we’re taking a lot of that data and being able to be very targeted and smart in terms of how we give you hotel and car offers.
We’re also able to kind of market directly into the databases of our loyalty partners, which is pretty atypical for the Booking.coms of the world.
We’re at the very early stages of that, obviously, but pretty pleased that a company as strong and as well respected as Expedia feels like there’s an interesting opportunity to go to market together on a product like ours.
Skift: Any other refinements to the product coming this year?
MacLean: We rely on Expedia Affiliate Network to source hotel inventory today, as I mentioned, but also a number of other sources.
We’re going to continue to add to that portfolio of inventory sources.
We want to be able to see different inventory to find one that has the maximum commission that we can then bring forward and make available to the consumers and our partners. For example, the more deeply discounted hotel rates we can access, the more we can afford to buy miles to use as an incentive for consumers, and the more we can boost conversions.
That’s a pretty unique proposition when we compare to some of the other folks out there in the marketplace.
And that is leading to very, very significant margins that we can share that are generating really good economics for our partners and really good choice for our consumers.
By end of the year, we will unequivocally be in a position to say we have access to more hotel inventory than any other player in the space.
The other thing that we’ll continue to develop, which was something that was kind of an early innovation from us, was how we use that same margin profile and access to hotels to create redemption offers for the hundreds of millions of consumers that are collecting these miles and points.
We’re not only going to go and stay at a hotel and really earn inordinately high amounts of miles and points but then they can also go and spend their miles and points to buy that hotel space. That’s a bit of a unique proposition as well.
Skift: Using miles to incentivize consumers to buy something isn’t that new or special. Lots of companies do it.
MacLean: Again, doing it at scale takes expertise. We also have an edge that comes from our access that where we can go in and debit and credit all these miles and points from our loyalty program partners.
So, Sean, you could go to New York and stay at a hotel and get the hotel you want but if you don’t want to pay cash, maybe you want to pay with your loyalty currency, we provide that all in a single program where you could either earn the miles or redeem the miles and that’s only going to expand.
The feedback from the industry is fantastic on that. They like to give consumers lots more utility with their miles and points and in many cases take it off the company balance sheet at very very low cost and we make it seamless to do with their systems.
Skift: Hilton recently unveiled its new loyalty program at the end of January and they seem to be using a mix of points and cash. If other providers also start wanting to add cash in the mix how does that affect Points?
MacLean: Of all our partners that we do all the retailing and merchandising and miles and points for, about half of them have a cash plus points program that lives alongside ours.
We recognize that they’re another bit of utility that these programs are trying to give their customers and more flexibility is really where the loyalty industry is going.
We’ve got some solutions that we help some of the industry in terms of how they maximize the value and the offering on the cash plus points.
You’ll see us maybe operating some of that for some of our partners on a go forward basis but generally speaking it’s really just a good indication of how loyalty programs are looking at these loyalty currencies as increasingly more fungible.
Skift: There are estimates that there are 15 trillion miles outstanding. Probably more. And that doesn’t count hotel points. What good is this currency, as you call it?
We can create a situation where loyalty program members really see more value to collecting that currency by becoming able to redeem the miles and points for things they want besides travel.
If they can use, say, miles to book a hotel room, then at the end of the day consumers are more engaged in the program, are going to feel it’s more worthwhile to collect more miles and points.
What most average people don’t know is that about 60 to 70 percent of all the miles and points that are in our respective accounts are actually sold by the airlines and hotels to third party companies.
So they’re actually generating economics on the issuance of miles.
If we can give consumers more ways to use their miles and points there’s been a pretty clear track record those same consumers will go earn more miles and points on which these big programs are getting paid for and it becomes a really interesting business model.
Skift: How can Points stay ahead of the pace of innovation, with so much disruption and startups popping up out of nowhere?
There are some great companies in the UK and Israel and in the U.S. that have really begun operationalizing interesting ideas and products that are relevant to the loyalty industry.
So we see a path where, one, we open up our APIs and we open up our platform for some really smart companies that could build on it and then we could be able to deliver those products and services to the 60 odd loyalty programs that we work with.
That’s our pretty straightforward strategy in the sense that if you’ve got a great idea and you don’t have the time or energy or money to go through a very very long sale cycle with all of these big loyalty programs, by connecting to the points loyalty commerce platform and via our APIs you can have access to 60 plus loads and programs.
Now I can’t guarantee that those 60 plus loads and programs are going to say, “Hey that’s a great idea, Startup X. I’m going to turn that one one and I’ll put my billion consumers that are in the touching middle to commerce platform.”
But what I, at Points, can guarantee you is that technically if Avios out of the UK or United out of Chicago, sees we’ve added your product to our platform and says they’re interested in using your product, we can turn it on in a day.
So the utility of bringing some really smart idea to a platform, making them available to our partners, and enabling more ideas and more eCommerce that was really interesting to us.
That was really the concept of the opening up of the platform and the APIs to smart products and smart companies.
Skift: You have your other product, the loyalty wallet program. Would you explain that a bit, Rob?
MacLean: Yeah the Loyalty Wallet provides a bunch of functionalities that in some ways isn’t terribly glamorous but those in the commercial and technical worlds would recognize as being critical and hard to do on the back-end, like debit and credit functionality, fraud management capabilities, member validation, and security functionality, eCommerce transactions.
All of that stuff is just very practical, hard to kind of pull together at the scale of 60 programs around the world.
The Loyalty Wallet takes a lot of the functionality that is in a loyalty commerce platform, packages that up, and makes that available to a number of partners that are interested in taking loyalty and incorporating it in their product, whoever they may be.
Skift: Like Choice Hotels, for example?
MacLean: Yeah, there’s a couple of different flavors of it.
I’ll speak first to the Choice Hotels example you referenced. That functionality that allows the debiting and crediting, the moving of points, the storefront activity,… two of the recent users of that, we would call it our partner branded exchanges.
So Choice Privileges, which historically has had functionalities that allowed you as a Choice Privilege member you could go on to that website and say, “I want to exchange my Choice points into loyalty points in another program.”
So maybe I want to turn the Choice points into Singapore Airlines’ miles.
Until lately, it was a fairly old and outdated user interface and the process took a four- or six-week window before your points or miles could be converted into the airline that you were sending them to.
Just not a great customer experience.
So what Choice said to us is, “Could we use your Loyalty Wallet to put a much more modern technology store front in place that allowed you to do this?”
So we at Points would go out and do all the connections and integrations to Singapore Airlines and all of their partners and use the loyalty commerce platform to make that not a six week waiting period but a real modern interface that I go in now and I convert my Choice points into one of these airline programs and it’s happening on a real-time or 24-hour basis, depending on the airline partner on the other end.
So we see the loyalty industry has a lot of exchange capabilities built into their loyalty offering to their members but most of it sitting on pretty clunky old technology.
The wallet really is an opportunity for them to modernize that and give their members an opportunity to really experience a much faster and much cleaner proposition on one technology platform. We do all the integrations, we do all the on-going management between Singapore, in this example, and Choice so for these guys they can just focus on marketing the benefits and privileges of their program rather than kind of doing a lot of the operational stuff.
The other thing that comes with that is so maybe there are a dozen partners that Choice works with today. Some of those others are not plugged in via the Wallet, but our platform that has connections to 60 other loyalty programs.
We’ll work with Choice, in this example, or other partners, and say, “Hey you already have the technology connections between Choice and 25 other programs via the Points commerce platform. Would you like the offer Choice members the ability to redeem their points into United Miles, or others that may not be partners today?”
And again, we can help them expand their program and do that in a very simple and efficient manner.
So that’s kind of how the industry is using it to improve their current customer proposition but we also see interesting partners like TripCase or others who want to take the loyalty information.
Skift: On a recent earnings call, some analysts talked about how suppliers are trying to drive harder bargains and that the percentage of margins is moving from about 14 percent down to 9 percent on average. Is that right?
MacLean: We have seen opportunities where we’ve been able to lock down longer-term relationships with our partners and in some cases there we may trade up some short-term unit economics for that long-term stability in a relationship.
But our core business lines are healthy.
Check out other articles in Skift’s Travel Tech CEO Series, including interviews with the CEOs of Amadeus, Sabre, Travelport, and SITA..
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Photo credit: Since 2000 Rob MacLean has been CEO of Points.com, a leading technology player in the travel loyalty sector. Points