Airline FFPs remain strong marketing tools

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Delegates at the 2010 Loyalty event heard that airline frequent flyer programmes continue to be incredibly powerful marketing tools, but competition for customer attention is on the rise

It's official: airline seats remain the most powerful currency in the world of customer loyalty. That was one of the overriding conclusions of the Airline Business/Global Flight Loyalty 2010 event held in Kuala Lumpur in February and it was no small comfort to the industry's leading airline frequent flyer programme experts gathered to debate the future of their corner of the air transport business.

"Distressed inventory is still extremely desirable," explains loyalty expert and consultant Doug Morrison, talking about the thousands of spare seats that can be bought with loyalty rewards from hundreds of carriers.

According to Ravindra Bhagwanani, conference chair and managing director of FFP consultancy Global Flight: "The challenge all FFPs are facing is how to stand out, how to innovate, how to engage customers and of course make a profit." In today's troubled times, no carrier has turned off its loyalty scheme to save money, but many programmes have seen reduced budgets and upgrades put on hold.

For the largest carriers there is still the possibility of selling their FFPs and raising millions in the process. Following the public offering of Air Canada's Aeroplan FFP in 2005 several airlines have studied a similar spin-off.

Qantas got close to it in 2008, but pulled back as markets sank. Brazil's TAM did however sell a majority stake in its Multiplus FFP in March.

But few have taken the plunge or even consider bringing in third-parties to work on the FFP. "Organisations are less willing to fully outsource loyalty management - it is seen as a core asset and a competitive advantage," says Robert Sahadevan, vice-president of United's Mileage Plus scheme.

For its part, Malaysia Airlines will stop well short of selling its Enrich FFP, but the downturn has forced it to think differently about how it is managed. Like many others the aim is to make the FFP a profit centre in its own right.

"We now have a very different mindset and are developing more of a business-like relationship [between the airline and the FFP]," says Tengku Azmil, the airlines' chief executive. The airline has been working to "make the cost of the loyalty programme more transparent," says Azmil. "No-one really knew what the costs were."

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With few exceptions, airline loyalty schemes remain the ones to beat in many markets. "For example, the British Airways FFP is going head-to-head with Air Miles and Nectar [non-airline loyalty schemes] in the UK and basically saying we've got a superior proposition because we've got better rewards," says loyalty expert Morrison.

But the ability of schemes like Nectar to gather retailers and suppliers across several markets and create a strong coalition loyalty plan is not being ignored by airlines. Outlining his vision of loyalty, Sahadevan believes strong FFPs will be able to attract non-airline partners to enhance their programme.

"A few travel loyalty programmes will emerge as clear leaders in each market - they may be coalitions," says Sahadevan. Qantas, for example, is taking this route. Its FFP signed a deal in June 2009 with large Australian supermarket Woolworths to enable its customers to earn the airline's FFP points via their spending in its shops.

To take such opportunities you need to partner with large national retailers. "Also, to do it, a carrier almost needs to dominate its market. This means there are great opportunities for airlines like Malaysia Airlines or Thai International," says Morrison.

A host of questions remain however as FFPs try to differentiate themselves in a crowded market place. But while many airlines place a high value on their FFPs, they know they have to constantly improve their "marketing prowess" to stay ahead, says United's Sahadevan. He believes the winners will be those that become extremely proficient at CRM, combined with having a currency that is perceived as a market leader.

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A host of low-fare carriers are turning to loyalty programmes as their business models mature, with Canada's WestJet joining the fray in mid-March and Malaysian carrier AirAsia also readying a market launch.

Air Berlin is careful not to describe itself as a no-frills carrier and makes no excuses in focusing heavily on its Topbonus programme to appeal to business and leisure travellers, says Johannes Ganser, head of loyalty and partnerships at the carrier.

With over 2 million members, Topbonus has become a significant marketing tool for the German airline. One of its latest ideas is a dedicated "luxury" waiting area at airports for its most loyal travellers. This has been piloted at Berlin Tegel airport and has been so popular it will be rolled out to other airports, says Ganser.