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As pandemic restrictions eventually loosen, airlines, hotel groups, and other travel suppliers will count on pent-up demand to flourish. But it’s not clear how this travel boom might impact how travel brands use their loyalty programs for “customer engagement, retention, and reactivation” — to use the industry jargon.
Many brands want to wean customers off promotions that were common before the crisis. A surge in demand may give many brands pricing power. Yet fewer discounts might not translate into higher margins. Companies might face a spike in critical costs, such as jet fuel or rising wages for labor in tight markets, plus mounting debt service costs from their lost pandemic year.
So travel brands may need to hold the line on full prices. They’ll have to enter a “discount detox” program. Executives at travel brands may see loyalty programs as a critical tool to help quash the old discounting habit.
Travel suppliers often lean on frequent flyer programs or rewards programs to coax customers to return for more purchases, and the quest to earn or redeem rewards distracts them from shopping for the lowest price.
A case in point: Between 2015 and 2019, Delta Air Lines boosted its annual acquisition of members to its SkyMiles frequent flier program by 138 percent to about 100 million members, as the company revealed last year when it “mortgaged” its program. In 2019 alone, Delta added more than 1.1 million new Delta SkyMiles American Express cardholders.
Delta has also succeeded at getting its best spenders to join its frequent flyer program. In 2019, the year before the pandemic, Delta saw that about 60 percent of its ticket revenue came from SkyMiles members, a company presentation revealed last year.
If travel brands are becoming more interested in their loyalty programs this year, that would be good news to the tech vendors hoping to sell them services to enhance their programs.
One of the best-known of these tech vendors is Points International, a Toronto-based public company focused on travel loyalty services. The company hopes to surf the wave of a post-pandemic surge in travel, helping travel brands earn increasing margins on transactions over time as loyalty programs habituate consumers to repeat purchases that are less price sensitive.
“Points International’s pipeline of potential new partners and expanded programs with existing partners is very robust,” wrote Gary Prestopino of Barrington Research, in a March report.
Rob MacLean has been CEO of Points International since 2000, guiding its shift from being a startup to being a public company.
In the pre-pandemic year of 2019, Points International generated revenue of about $401 million.
Unsurprisingly, the pandemic slammed the revenues of Points International. But the company still kept busy.
“In 2020, we increased our overall footprint, by which I mean a combination of either new relationships or products and services that we deployed in the market, by almost 15 percent,” MacLean said. “Having a bigger footprint will help us capture more as everything recovers.”
In 2020, Points International added new partnerships with Qatar Airways, Ethiopian Airlines, and Caribbean Airlines. It also deepened several long-standing partnerships through new services launched with Delta’s SkyMiles program, Air Canada’s Aeroplan, and United’s MileagePlus program.
“That was a strong of a pipeline year as we ever had,” MacLean said. “Deepening relationships was a part of that. Air Canada was a good example where, as they relaunched their loyalty program in 2020, the carrier added a whole bunch of new services and opportunities for their members that we were working with them on.”
The pandemic forced many travel suppliers to find ways to use their loyalty programs to engage with their best customers at other touchpoints besides the booking process or during a trip.
So loyalty programs became more like “engagement” programs, given the lack of travel. Some brands have been becoming inventive in finding ways to engage with customers even when they aren’t traveling.
Those engagement efforts might continue even when travel companies back. Travel brands will likely want to maintain an increased number of interactions with customers beyond trip-based interactions, MacLean argued.
Last year, Points International rolled out a subscription program that lets members of a loyalty program guarantee a certain level of miles or points in their account at a reduced cost in exchange for an annual fee.
The first public customer of the subscription program is Copa Airlines. Its ConnectMiles Plan lets members of its frequent flyer program set a travel goal and get closer each month. A flyer agrees to buy a set amount of miles each month at a discount and receives bonus miles in a series of rewards.
In March, to prepare for the travel recovery, Points International raised about $24 million ($31 million Canadian) in debt financing to be able to take advantage of an expected travel revival this year.
Adding E-Commerce Services
Points International is known as a reseller of airline miles and hotel points, helping make rewards in one program become exchangeable. Loyalty currency retailing, such as working with travel suppliers on different ways to promote the sale of points or miles, will remain the company’s growth driver in the near term, MacLean said.
On the business services side, Points International helps travel brands increase customer usage of their loyalty programs by building out e-commerce functions. In this, it partly competes with companies such as Switchfly.
“We see an opportunity to help companies that really want to engage with their huge membership bases but that don’t necessarily want to create their own loyalty program,” MacLean said.
Points International recently has been supporting a vaccine access effort by Lyft, the ride-hailing service. Through the end of May, Hilton Honors members who have linked their Hilton Honors and Lyft accounts will receive 2,000 bonus points when they make a contribution of at least $5 to Lyft’s vaccine access charitable effort.
Overall, Points International has steadily boosted its revenue and profit margins without any significant step changes over time.
“I’ve been accused of being boring at times,” MacLean said. “But you look generally I haven’t found over the 20 years since I started the business, there’s not a silver bullet in loyalty that we’ve all missed as an industry. The trick is to get better at every incremental aspect of merchandising, business development, and analytics, and so on. The momentum builds over time.”
One challenge Points International has faced is engaging with customers, given the tremendous competition for the time and attention of consumers from all directions. Like other consumer-facing brands, the tech company has found that attempting to re-engage customers via email or digital marketing is a constant challenge.
“We face the same reality of everyone in that we may only be able to talk to 40 percent of the consumers that we were speaking with previously, yet we still have a 20 or 30 or 40 percent growth mandate,” MacLean said. “So we’ve had to get smarter at our marketing and making use of our analytics.”
In one example, one of the company’s recent digital campaigns outperformed email by 109 percent.
Points International’s 2019 annual revenue of $401 million was approximately a third higher than its 2016 annual revenue.
In the fourth quarter of 2019, the company had its highest earnings before interest, taxes, depreciation, and amortization (a measure of profit) in its history.
For this year and next, Prestopino of Barrington Research forecast that Points International “should consistently drive net revenue growth of at least 10 percent annually with adjusted EBITDA growth at 11 percent or greater.”
The second half of 2021 should be a year of “lift off” for Points International, said Drew McReynolds, an analyst at RBC Capital Markets, in a March report.
But McReynolds also noted that the company faced “potential risks,” which included the loss of key principal partners such as if any travel brands chose to in-source their technology, and the risk of a weaker-than-expected cyclical recovery in transaction activity.
MacLean hopes the trends in growth and profitability resume post-pandemic.
“The next couple of years for the loyalty industry just have a lot of quarters ahead where it’s just going to be growth, innovation, and a fair amount of excitement,” MacLean said.