Why Air Canada Is Starting From Scratch With Its Loyalty Program

Editor’s note: This series, called Airline Insiders, introduces readers to behind-the-scenes decision-makers for airlines. Unlike our ongoing airline CEO series, Future of the Passenger Experience, we will not question the highest-ranking executives here. Instead, we will speak with insiders who guide decisions on airline operations, networks, marketing, and the passenger experience. 

You can read all the stories in the series here.

When Air Canada spun off its loyalty program more than a decade ago, the decision made sound business sense. The airline, like many at the time, needed cash, and didn’t see why it should control how its customers would earn and redeem frequent flyer miles.

For awhile, the arrangement worked well enough. At first, in 2002, Air Canada merely made Aeroplan, its frequent flyer program, into a separate company, but by 2008, after an initial public offering, it became independent. Aeroplan is now owned by Aimia, a publicly traded Canadian firm that operates it separately from the airline.

But loyalty in 2018 is different than in 2002. While frequent flyer programs were once relatively simple — a chance to reward customers — they’re now about far more than how customers earn and burn miles.

Airlines mine them for data, monitoring customer preferences and needs, which helps them make the right offer to customers at the right time. Carriers also have become more savvy in how they sell miles to financial institutions, with many striking richer-than-ever deals with American Express, Chase, and Barclays. But Aimia owns the rights to Aeroplan credit cards.

Now, Air Canada wants back in. In 2020, when its contract with Aimia expires, Air Canada will start its own new frequent flyer program. It’s still working out details, asking employees and customers what they want. Some, of course, are skeptical. “Why do I get the feeling I am going to get screwed?” one traveler asked in a question-and-answer feature on the airline’s website. Some members are not pleased that their miles will not transfer to Air Canada’s new program.

But Mark Nasr, Air Canada’s vice president for loyalty and e-commerce, said the new scheme will have benefits older programs do not, such as simplicity. “You shouldn’t need a Ph.D. to be able to enjoy rewards,” he said.

In a recent interview, we asked Nasr, who joined Air Canada in 2016 from United Airlines, why Air Canada is launching its own program. We also learned about how the airline prices ancillary products, and why airlines can’t match Amazon’s shopping experience.

Note: This interview has been edited for length and clarity.  

Skift: You’re starting a loyalty program from scratch. Why?

Mark Nasr: For a few reasons. First, we’re in a bit of a unique situation in that a number of years ago we spun off our program, and it’s run today by a separate company named Aimia. While there were advantages to that strategy, over time, [we lost] control over the customer experience, being able to adapt and develop loyalty benefits, redemptions, and other parts of value proposition. We’ve been frankly unable to do it at the pace at which we wanted to. Having a separate company means that they have control over the program. We don’t.

We see the next natural opportunity to take what was this outsourced product, and in-source it. There will be, we think, some improvement to the user experience by having one entity the customer does business with versus two. [It also will] ensure the program’s goals and design are fully aligned with Air Canada as a business, instead of with the business objectives of our third-party partner, Aimia.

Skift: What data are you missing because you don’t run your program?

Nasr: We can’t actually comment in detail on the nature of the contract and the specific assets and ownerships of either side. But what I will say is data which naturally involved the airline, like where you fly and how many miles you earned flying, we have access to today. But richness in information about the customer as it relates to activity outside of core airline air travel is going to be an opportunity for us in the future — hotel activity, ground activity, retail. There’s also a level of richness with the credit card co-brand portfolio.

There’s another point about data, and this is really important. It’s one thing to have data, and then it’s another thing to have the systems and infrastructure to act upon it to deliver value for customers. When we talk about in-sourcing, and we talk about data, one of the biggest advantages for us isn’t necessarily going to be a whole lot more data as much as it’s going to be a more modern platform that allows us to take that data and use it to customize service offerings.

Skift: You have opportunity in starting over. Most airlines have had their programs for 20 or 30 years. Do you plan to copy other airlines or programs? Or will you  rethink loyalty?

Nasr: First and foremost we’re talking to customers, and we’re talking to our employees. We will have interviewed, surveyed, or made meaningful contact with more than 10,000 customers and employees within the first year after we made the announcement, which was last May. We’re well on our way to having completed that already. We’re also benchmarking other programs, and we’re looking at travel programs, which include hotel and airline and a little bit of ground transportation.

We’re looking at proprietary credit card programs. The market has changed a lot, especially in the United States, and to a certain extent Canada, Australia, the UK, with banks starting their own programs. And some of them have very interesting features and components to them, so we’re taking a very close look. And then, finally, retailers. Both brick-and-mortar and online retailers have different kinds of loyalty plays now, and we’re looking very closely at some of those models.

Skift: What do customers tell you they want from a loyalty program?

Nasr: One of them is the ease of doing business with a program, understanding a program. Many of these programs have become incredibly complex. We’re seeing customers derive value out of two main sources. One is obviously the price and availability of an award, but another is how easy it is to understand the program, how easy it is to earn points, and how easy it is to make the redemption. You shouldn’t need a Ph.D. to be able to enjoy rewards. While incredibly complex programs might benefit a very small number of particularly highly engaged customers, we don’t feel that’s the right decision for the broader community.

Skift: Why is loyalty so important? You’re one of two big airlines in Canada. You can fill your planes no matter what. Can’t you share customers with WestJet and still make plenty of money?

Nasr: We’re on a mission to build a global champion, top-10 airline. We operate out of a market which isn’t a top-10 market in terms of population or demand. We’re always looking for more business. Having loyal customers, having a loyal relationship, I think it pays dividends on a number of fronts.

First of all, if we know our customers are committed to us, it gives us more confidence in our network expansion, and adding additional flights, and opening new routes. A second reason is obviously when you have a relationship with customers, they tend to know your brand and your products and services, and we tend to know their preferences and their needs. From that, you can derive higher satisfaction out of the customer. They understand what they’re getting, expectations are set well, and the products and services over time are more customized to the individual.

A third reason is it’s expensive to acquire a customer, between online advertising, GDS [global distribution system] fees, OTAs [online travel agencies], or whatever it might be. If a customer is not loyal to your brand, they’re very likely not booking through your own channel. If a customer is loyal to your brand, they’re more likely to book through your own channel and that can make a significant difference in the cost of that transaction and the margin associated with it, allowing us to reinvest a portion of that back in rewards for the customer. Of course, we also look to build relationships with corporations, with groups, with other bulk buyers of travel.

Skift: You also lead e-commerce for Air Canada. We hear airlines are behind other retailers. Often, Amazon is the example. What does Amazon do better than most airlines?

Nasr: Amazon doesn’t put a bunch of product in front of me which is not really relevant to my needs. But most airlines and hotels, I would argue, if you go to their websites or mobile app, they’re showing a lot of different product, even for the same flight. [It might say,] “Here’s five different fare brands, or here’s 10 different room categories,” or whatever have you. Well, that doesn’t make a whole lot of sense. Why would we show things that are irrelevant?

Skift: So you need to be smarter about how you make offers? How?

Nasr: We want to make sure that the right customer has the right product. If you’re a leisure traveler staying at a destination for a month and just care about getting from point A to point B safely, you might not be interested in many amenities for your trip other than maybe a bag. If you’re a business traveler who’s going to Montreal for a day of meetings, then you’re probably absolutely interested in hopping on an earlier flight, or having the flexibility to take a later one, and being able to use the lounge if there’s a weather delay, and having onboard Wi-Fi.

Skift: Can you say for certain what a customer will want? Maybe your leisure customer will surprise you.

Nasr: I think there’s a line between customizability and optimization. Today, I would argue a lot of travel suppliers have something akin to a kitchen-sink approach to distribution and retailing. Certainly a good deal of progress would be showing relevant products and services and getting it right, but that doesn’t foreclose the ability of allowing the customer to customize if maybe we got it wrong or maybe they’re curious and want to learn about new options that they haven’t experienced in the past. We certainly don’t close a door to allowing customization.

Skift: In general, what information do you use to decide which offers a customer is most likely to buy?

Nasr: There’s differentiation that goes into offers that we put in front of customers, in all of our channels really — on post-purchase emails, live in the transactional path on web and mobile. The customization in those offers are based in a variety of factors. It’s based on knowledge that we have about the customer, or potentially if we don’t know that customer as an individual, [we ask] what do they look like based on other data we have or based on the kind of trip that they’re on. [It’s about] the class of service you’re traveling in, where you’re going to, and how long you’re spending there.

Skift: Let’s take premium economy buy-ups an an example. Do you offer it to everyone at the same price? Or might you vary pricing depending on who is buying?

Nasr: We don’t comment on pricing practices, but generically I can say that special offers, discounting, and other promotions we do at times are targeted to individuals, and at other times are broader based.

Skift: Last year, a Lufthansa executive told me that his company tries to offer someone a paid upgrade at exactly the right time, perhaps just before a posibly tired or hungover passenger leaves for the airport and thinks, “Damn, I have 12 hours in economy class ahead of me.” Have you figured out the best time to make the offer?

Nasr: That’s something we’re still working on, to be candid. We know that there are specific points in the journey process where customers respond particularly favorably to cabin upsell offers. That’s certainly a factor that we use in considering when and where to offer the product. But the specific example you gave of getting down to an individual’s circumstance and whatever their needs are and trying to understand that in real time, I don’t think we’re there yet. You gave an example of a particular passenger that might have had a rough night the night before, I wouldn’t profess that we have enough visibility to understand individual needs. Perhaps I’ll give a more PG example: Somebody had a particularly long day at work and was looking for a relaxing overnight flight back across the Atlantic. We certainly don’t know our customers in that level of depth yet.

Skift: Is email still the best channel for those offers?

Nasr: Email is still an enormously important and powerful channel for us, but I wouldn’t consider it the optimal channel for many customers. Push messaging and SMS can be particularly effective, but they’re also very sensitive channels. There’s only a certain amount of tolerance that any customer has for relevance and for offer cadence, right? [They say,] “Offer me things that are relevant to me and not too often.” We have found that those sensitivities — and rightly so — go up significantly when talking about other channels like SMS and push.