Air Canada relaunches its Aeroplan program on November 8. But are loyalty programs still relevant amid a global pandemic? An airline executive says they are. We tend to think he's right.
On his first day leading Air Canada’s loyalty arm four years ago, Mark Nasr asked his team to set up introductory meetings with three banks that issued the airline’s credit cards. To his surprise, one manager immediately gave him bad news. “You can’t do that.”
How odd. Nasr had come from United Airlines, with its massive and powerful loyalty program. When United executives wanted to speak to counterparts at JP Morgan Chase, or any other financial institutions, they got their meetings.
“Our brand is on the card, and we provide the services,” Nasr said, asking for clarification. “‘What do you mean I can’t do that?’ He said, ‘No, no, I’m so sorry. But you can’t do that. We have to ask permission.'”
Approval would have to come from Aimia, the publicly-traded company that owned Air Canada’s frequent flyer program, Aeroplan. More than a decade earlier, the airline spun it off for cash. It kept some control for a while, but when Nasr joined, Aimia was Aeroplan’s sole owner, controlling almost everything associated with it, including the credit card portfolio and access to card company executives.
“I still remember my first conversation with legal,” Nasr said. “The nice lawyer on the other side of the phone said, ‘Hey, welcome to Air Canada. I heard you joined.’ I think I cut him off at that point, said, ‘So and so from my team was telling me I can’t talk to an issuing bank that has a credit card with our name on it. Is that true? If it’s true, how is that possible?'”
From then on, Nasr said he suspected the arrangement could not last. Frequent flyer programs had become big business for most major airlines, and Air Canada wanted its own piece of the profits. To do it, Air Canada would need to bring the program in-house.
There was some drama. At first, Air Canada announced plans to start its own program, from scratch, when its Aimia contract ended in 2020. The airline was committed to it, but it would have been challenging, since customers likely would have lost their miles and points, and the airline would have lost access to valuable customer data. Eventually, after significant negotiation, Air Canada bought the program.
We spoke to Nasr ahead of the big day. Here’s some of what we learned.
Aimia Put Air Canada at a Disadvantage
When Aimia ran the program, it captured most of the profits, putting Air Canada at a major valuation deficit compared to peer airlines.
Rather than take money directly from the credit card companies, like most airlines, Air Canada earned revenue mostly when Aimia bought seats on its aircraft, at a steep discount. Aimia would give those seats to customers redeeming frequent flyer points
Still, the issues were broader than lost revenue, Nasr said.
One, Nasr said, Aimia had spent little time or money to update public-facing parts of the program, leading to clunky user experience. For example, passengers could not use points as they wanted, such as to upgrade to better seats.
And two, while Air Canada essentially had outsourced a key part of the airline, many customers didn’t know it. They couldn’t understand why they received such disjointed service, and they often let the airline know their displeasure.
“The digital channels were totally separate, the phone channels were separate, and there were operational and technical and labor blocks that were reinforcing that separation,” Nasr said. “You had customers that didn’t know who to call or what website to go to, and that obviously is frustrating. You also had customers that, depending on what they wanted to do, needed to speak or go to two sets of contact centers and two sets of websites.”
This Program Should be More User Friendly
Most big airline loyalty programs trace their histories to the early 1980s, when forward-thinking carriers introduced the first schemes. They have evolved since, but most still run on old legacy systems. They’re neither as nimble or agile as customers expect.
With its new program, Air Canada sought to make technology as priority. Customers may not notice any big changes — there’s no flashy tech — but the system is designed to offer a seamless user experience.
“A lot of folks outside of the industry or outside of major legacy companies might not realize that IT, I’d say more often than not, is the biggest constraint that prevents great ideas from actually seeing the light of day, particularly in this industry,” Nasr said. “Not the department, but just the ability from a technology perspective to deliver and operationalize something.”
Search results are an example. Global airlines usually have many partners, and customers can use miles to book a ticket on any of them. A customer wants to search for an award ticket to say, the Maldives, and see dozens of results within a few seconds. But giving up-to-date and bookable results so fast is not so easy. Loyalty geeks often complain about “phantom availability,” or options that show up in searches but aren’t bookable.
At the new Aeroplan, Nasr said he’s optimistic search results will be fast and accurate.
“The thing about technicalities is when they’re solved on the back end, and all you have to do is you click search and you get a reasonable set of results, there’s actually magic in that,” Nasr said. “Sometimes the most amazing things are the most unremarkable things, things just working, and having more optionality and having more flexibility.”
Super-Users Will Earn Outsized Rewards
Air Canada’s program is designed to win loyalty from all traveler segments, including occasional flyers who only seek enough points to fly one free domestic trip per year. But Nasr and many members of his team are loyalty geeks, who love to tell stories about their own epic redemptions.
Once, he said, he and some colleagues at a former employer redeemed 40,000 miles for a first class ticket within Asia. It sounds standard, but that program had a loose definition of Asia — it included Russia — and allowed people to fly highly circuitous routings. As he remembers, they booked a Moscow to Hong Kong roundtrip, with extra-long connections in Frankfurt, Cairo, Istanbul, Hong Kong, Singapore, New Delhi, and Zurich.
It was for fun. They were in their 20s, the program allowed it, and they relished the arbitrage opportunity.
“The game was, how close could we get to 24 hours in each city so we could enjoy it,” Nasr said. “I think in Cairo, if I remember correctly, we got like 23 hours and 26 minutes, or something, on the ground.”
That sort of itinerary can be expensive for an airline, because it must pay its partners for each journey. And Air Canada will have better technology than the airline program Nasr used years ago, so it will block some of these shenanigans. But Nasr said consumers interested in gaming the system will have chances, because some of this ridiculousness can engender loyalty. Anyone who redeems for that type of ticket must really like the program, Nasr said.
“If you’ve managed a program so there are sweet spots, it creates an aspirational value, it can create some buzz,” Nasr said.
Covid Will Not Alter The Loyalty Proposition
This is not a good time for any airline, and Air Canada is no exception. In the second quarter, revenue fell by 89 percent. And with Canada still locked down more than the United States, recovery is not imminent.
At some point, people will want to travel again in real numbers and ticketing revenue should shoot up. What’s less clear is the future of loyalty programs.
Will consumers still obsess over miles and points? Or will they just look for the lowest fare? And will they keep applying for airline-branded credit cards? Or might they prefer simple cheap cash-back cards that have gained in popularity during the pandemic?
Not surprisingly, Nasr said he expects most of it to come back.
“While I’m sure that it won’t be the same as it was going forward, I think there are certain elements that we can rely on,” he said. “People enjoy these programs and find a lot of value in them.”
By now, he noted, programs have thrived for four decades. With that track record, he said, they’re not likely to disappear, or even become less relevant.
“One of the bloggers says that American AAdvantage, when it was founded, was the greatest marketing innovation in the history of the world, and I really think that’s true,” Nasr said. “You think about the amount of interest and value that has been generated, and also you think about constructs that translate worldwide, like travel loyalties in every corner of the globe. It truly is a remarkable thing, and that all happened in the space of 10 or 15 years.”
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Photo credit: Air Canada has revamped its loyalty program. Pictured is one of its business class cabins. Air Canada