Skift Take

Being a member in loyalty programs today is about as engaging as a trip to the auto mechanic. For most, complex rules and constraints take much of the utility out of the programs while other, more motivated travelers simply find them uninspiring. To survive, tomorrow’s loyalty programs will need much more than blockchain — they’ll need true disruption.

Series: Megatrends 2019

Skift Megatrends 2019

In January we released our annual travel industry trends forecast, Skift Megatrends 2019. Download a copy of our magazine here and read on for additional individual trends in the coming days.

We’re in an era of copy-and-paste loyalty programs. Cowed by active investors and afraid of straying too far from the pack, operators of today’s airline, hotel, and car loyalty programs run the conservative game of offering nearly the exact same thing that the competition delivers. It annually takes 25,000 miles and $3,000 in spend to earn low-level elite status on the major U.S. carriers. Stay in a big-brand hotel for 10 nights and the loyalty benefits start to roll in.

That formula may work for now, but tomorrow’s consumers want more from their loyalty program. “Airline loyalty programs stopped becoming useful to me after all of the airlines started determining status in the same way — by how much you pay for a ticket,” said Jonathan Khoo, a software engineer who travels frequently for work. “Now, I pretty much make flight booking decisions on wherever the cheapest flights take me.”

According to research from Skift, tomorrow’s travelers are less interested in the drumbeat of accumulating points for their weekly flight between Omaha and St. Louis and more in how they can use those points for unique experiences. In short, they want faster gratification and deeper engagement from their loyalty programs. Even shorter: they want disruption.

If only it were so easy. Most legacy loyalty programs are so intertwined with co-branded credit cards, dining-for-miles schemes, and esoteric partner programs that throwing a wrench into the mechanics could make the whole machine explode.

“The problem with loyalty programs today is that they have become too complicated and it often seems like a bait and switch,” said Michael Trager, who runs TravelZork, a website dedicated to loyalty programs. “Promises of free flights to great destinations often require way too much work or are impossible to book. Not to mention, most want to use their miles for family and leisure travel. This means they are trying to travel during peak periods. It’s very diff icult for a family to be flexible, when they have to book (for example) during Easter break.”

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Indeed, since the inception of revenue-based loyalty programs several years back, the calculus for earning award points and elite status has become dramatically more complex. Fly from JFK to San Francisco, for example, and you’ll earn 2,500 elite qualifying miles – the distance between those two points on the earth. But in terms of award miles, the points redeemed for your next vacation in Hawaii, you only earn 1,400 – because your flight cost $200 and as a Gold member of your loyalty program, you earn seven award miles per dollar spent.

Loyalty program backends, too, have become staggeringly complex, especially when giants like Marriott and Starwood merge IT systems.

“Marriott’s done a fairly good job of incorporating some of the best benefits of Starwood, like free breakfast and suite upgrades at many hotels,” said Zach Honig, an editor-at-large at The Points Guy. “These perks are implemented inconsistently, though – hotels often don’t provide an upgrade unless you ask, and the breakfast benef it can range from coffee and a pastry in the hotel lobby to a full à la carte or buffet spread. Customers never know what they’re actually going to get until they arrive at the hotel.”

Airlines are no better. It still takes at least 24 hours for miles to post from a United flight, and if the credit is coming from a partner carrier or credit card, it could take weeks. The simplest solution to this hurricane of complexity, of course, is to wipe the slate clean and rebuild. Slowly, some operators are starting to pull it off.

In 2015, Wyndham relaunched its rewards program to offer a simple, fixed kickback on every night booked. Every hotel in its portfolio earned the same number of points per night while every award night – whether at the Howard Johnson or Wyndham Grand – cost the same. For its efforts, Wyndham saw a boom in new loyalty program sign-ups and was picked as the “most rewarding” hotel loyalty program in 2017. [Editor’s note: Since the original publication of this story in January, Wyndham has backtracked on its award-winning loyalty program strategy and taken a more traditional route.]

Hilton ran a similar overhaul to its Honors program in 2017, taking special care to offer flexible options for more particular travelers. After the relaunch, travelers could redeem Honors points for partial room payments and e-commerce purchases. They could even pool points into family accounts, a perk nearly unheard of in the domestic loyalty program game.

For those without the ability to start from scratch, the solutions may come in the form of better technology adoption. One group ahead of the curve is Carnival Corp. Last year, the operator started piloting the Ocean Medallion, a wearable bit of technology that allows travelers to wirelessly access VIP levels of the cruise experience and feed valuable location and preference information to the mothership.

Big data may also help travel providers better target and address customer needs. It’s far easier to fly 125,000 miles and earn Delta Diamond status out of Detroit, a Delta Air Lines hub, than it is out of San Francisco, where United is king. So why is a San Francisco-based Diamond treated the same as one f rom Detroit? Could a loyalty operator potentially create a program custom-tailored to that Delta passenger in San Francisco?

Dig through the mountains of hype, and blockchain could be one of the keys to getting us out of the doldrums of today’s loyalty programs. But there isn’t an easy solution on the horizon. Reporting f rom the Loyalty Live 2018 conference, writer Seth Miller soberly pointed out that many of the blockchain concepts currently in development were solutions looking for a problem. One diamond in the rough at the conference, however, was in a new system designed to recognize and post loyalty points on a faster cycle. In the next 10 years, blockchain could easily help your miles post to your account the instant you step off the aircraft.

As the median-age traveler moves more toward the digital generation, mobile technologies will also take a f ront seat to innovation in the loyalty program space. Until recently, it still wasn’t possible to book an award ticket through an airline’s mobile app or pay for an upgrade. But later in 2019, both American and Delta plan to open up that functionality, making it easier for mobile-first travelers to streamline their journeys.

Hopeful as these technologies may seem, there’s still a long way to go toward making loyalty programs ready for the next generation of travelers. To get started, airline, hotel, and car rental loyalty program operators need to find the courage to step away from the pack and truly innovate. Some, like Wyndham and Hilton, are already doing that. Others need to start thinking more disruptively – else they get left behind in the dust.

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Tags: loyalty, megatrends 2019

Photo credit: Travelers want faster gratification and deeper engagement from their loyalty programs. They want disruption. Amanda Berglund / Skift

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