What does true airline loyalty actual mean? It’s not what you think it is, writes Tom Bacon

Loyalty programmes are big business in travel. In fact, some airlines have spun off their loyalty programmes as separate, highly profitable businesses in their own right. But, as many travel experts at the recent EyeforTravel Smart Analytics conference in Atlanta suggested ‘loyalty’ is largely a misnomer. In fact, there is little ‘loyalty’ inherent in these programmes.

Think of loyalty as a preference for a certain airline. ‘Preference’ means that if two airlines offer the same flight time, the same product, and the same price, the customer will select its ‘preferred’ airline. For airline travel, ‘preference’ shouldn’t be defined as ignoring schedule or price in travel decision making but showing bias for a particular airline when deciding on a flight.

In the new highly concentrated industry, with four carriers in the US representing 80% of the domestic market, there is arguably less real choice in many large markets. In this environment, most travel decisions are based on schedule with less opportunity for travellers to show ‘loyalty’ or ‘bias’ in their travel choices. 

Here are the flight concentration levels at some key airports this coming summer:

Passengers in these cities will tend to book the dominant carrier whether or not they are part of the loyalty programme. For passengers who do belong to the associated frequent flyer programme, earning points is not the deciding factor for what flight they select but rather a nice side benefit for a choice they would make anyway.

There are, however, still some relatively competitive markets. Chicago O’Hare, for example, has hubs for both American and United Airlines. However, in Chicago, many road warriors actually travel enough that they can belong to both loyalty programmes and achieve high status in both. These passengers, too, can choose which airline they fly based on schedule and price and earn mileage points as a side benefit.

Finally, up to half of all airline miles earned do not come from flying at all – most major credit cards offer mileage earning programmes.  Such programmes are obviously not really loyalty programmes but effectively a way to pay for trips over time - credit card firms remit millions of dollars monthly to airlines as a way to pay for these ‘free’ flights. 

Only if a passenger selects a chosen airline when the schedule says he shouldn’t is there true ‘loyalty’

In Atlanta, Alex Cosmas, Chief Scientist, from Booz Allen Consulting proposed that true ‘loyalty’ (check out the video of his presentation here) be calculated as the error in schedule-based choice modelling: not ‘total frequent flyer travel’ but only that travel that cannot be explained by schedule/product/price. 

Only if a passenger selects a chosen airline when the schedule says he shouldn’t is there true ‘loyalty’. This process would likely not find much real ‘loyalty’ in dominant hubs and it would likely project two-airline hubs an expected 50/50 share. ‘Loyalty’ would be found to be much smaller than gross frequent flyer metrics.

How does this definition of loyalty change how we view FFP programs?

First, frequent flyer programs do have benefits to airlines besides “loyalty.” Such programs remain an important distribution channel for airlines – in particular, via credit card purchases.  This is a tremendous segment that can be higher yield than the lowest fares yet still heavily inventory controlled; and since it is booked on direct channels it has low distribution cost.

Second, frequent flyer programs can represent a valuable database for customer behavior.  Through analysis of customers’ search and booking behavior, the data can help airlines develop marketing campaigns that can, in fact, drive incremental purchases.

How can suppliers drive more true loyalty?

In general, however, true loyalty cannot be bought via frequent flyer programs. In general, true loyalty is more related to operational and product excellence, or extraordinary customer service.  jetBlue and Virgin America both have invested in brand images that are designed to provide them a positive share gap relative to a strictly schedule- or size-related projected market shares. In general, unfortunately, airlines remain primarily considered a “commodity” by most travelers and choosing among airlines is, still, driven mostly by schedule and price.

By Tom Bacon, 25-year airline veteran and industry consultant in revenue optimization and a regular columnist for EyeforTravel, who attended eyefortravel’s “Smart Analytics” conference in Atlanta in early February. Questions? Contact Tom at email or visit his website