Airlines Try to Keep Loyalty Programs Relevant During Extraordinary Times
Skift Take
Loyalty programs are huge businesses for airlines. The American Airlines program, for example, is worth an estimated $30 to $35 billion. At those kinds of valuations, airlines cannot let their schemes atrophy. They need to keep them relevant.
When airlines created loyalty programs almost 40 years ago, they had a simple goal — to keep customers from defecting to the competition. But during the past two decades, frequent flyer schemes have morphed into stand-alone businesses that generate big profits.
Airlines have juiced revenue by turning miles into currencies customers can use for free hotel rooms and flights, consumer electronics, or even wine club memberships. Banks buy most of the points, paying as much as two cents for each one, and give them to their biggest spenders. Other consumer-facing companies also buy them, hoping to jumpstart business by dangling bonus miles to customers.
It works, because wanderlust is a powerful marketing tool, with travelers dreaming of cashing in for a free flight to Hawaii or Tahiti. But now during a global pandemic, few people are traveling, leaving airlines with a quandary: How to keep customers interested when they're mostly staying near home.
It's important to keep revenue flowing because these programs are so valuable. American's AAdvantage scheme is valued between $30 and $35 billion, according to Joseph DeNardi, an analyst at Stifel. Many airline executives have spoken about using programs as collateral for loans to maintain liquidity, including from the U.S. Treasury Department.
To keep consumers interested, some airlines have been creative, adding promotions for people who may not be thinking about flying. Air Canada now allows consumers to earn elite flyer status without leaving home, while American Airlines lets passengers earn status for life if they spend enough on a co-branded credit card.
Many ideas will spur incremental revenue, but given the scope of this c
