Loyalty programs have a lot of value for airlines. Is it better to raise funds by selling them or to keep them and exploit the resource for short-term cash flow needs? Either way, it’s clear that fidelity is about to enter a new era for creative approaches.
The pandemic has caused economic disaster for the airline industry, which has lost an estimated $200 billion. Among the sector’s few beneficiaries are its freight operations and frequent flyer programs.
Cargo had a bumper year in 2021, with demand up 19% year-on-year, the International Air Traffic Association said recently. Similarly, the three global US airlines praised the performance of their loyalty programs during their January earnings calls. Now United could raise capital by selling part of its loyalty program while bankrupt Aeromexico bought out its loyalty program for $405 million.
“One thing that has survived the pandemic strongly is the ability of airlines to generate revenue through co-brand programs,” said Jay Sorensen, president of Milwaukee-based IdeaWorks, a travel brand consultant. . “I think you see some airlines behaving in a way that reflects that area of relative success.”
“(The value of the programs) is based on the ability to sell miles or points to the banks that issue the credit cards.”
The problem, he added, is that selling all or part of a loyalty program provides immediate cash, while maintaining a loyalty program provides a consistent way to generate revenue as well as a method of interacting with passengers.
United plans to sell up to 15% of its MileagePlus program. While investors have been pressuring US airlines to sell stakes in the programs for at least a decade, carriers have preferred to use the programs as loan collateral or to generate cash through the advance sale of miles. to banks. United reorganized Mileage Plus into a wholly owned subsidiary worth $22 billion in 2020.
During United Airlines’ fourth quarter earnings call, which took place ahead of news of the possible sale of part of its loyalty program, Andrew Nocella, the company’s chief commercial officer, said the The airline’s Mileage Plus loyalty program had registered a record 5.6 million new members. Last year.
“We’re really excited about this, and it shows the growth and prosperity of the program,” Nocella said. “Just a few years ago we were getting 2.5-3 million new members a year, and now we’re at 5.6 million. Our customers are increasingly interested in joining the MileagePlus program.
Delta, meanwhile, recruited 5.5 million new members.
“During the December quarter, we added 1.5 million new SkyMiles members, up 5% from 2019 levels,” Chairman Glen Hauenstein said on the earnings call. “For all of 2021, we added 5.5 million new SkyMiles members – this growing engagement demonstrates strong brand preference.”
The U.S. AAdvantage program also gained more members in 2021 than in 2019 despite lower capacity levels, CEO Robert Isom said on the January earnings call, adding that AA revenue for 2021 was near levels. of 2019.
Vasu Raja, Chief Commercial Officer of American, noted that American’s partnership with Alaska and JetBlue has helped increase AAdvantage enrollment.
“The two markets where our listings are growing the most are all of the West Coast partnership markets from San Diego to Seattle, and the others are New York and Boston,” Raja said.
As for Aeromexico, it reached a $404 million deal last week to buy a 48.9% share of its loyalty program, Club Premier, from Aimia, a Canadian investment firm. Aimia once owned Air Canada’s loyalty program, but sold it in 2019. If the deal is approved by the bankruptcy court where Aeromexico is restructuring, the carrier would once again fully own its loyalty program, which had 6.7 million members in 2020.
“This is an important step in Aeromexico’s restructuring process and marks a major step forward as we continue our comprehensive transformation of Aeromexico’s customer experience,” CEO Andres Conesa said in a prepared statement. .
Meanwhile, Sorensen believes a valuable asset such as a loyalty program is best kept under the corporate umbrella. “A good loyalty program rests on three legs,” Sorensen said.
“One is loyalty, the ability of a program to encourage repeat travel. Second, communication – the airline can communicate with its top travelers based on buying behavior and can also learn what customer behavior is. and third, the ability to generate cash through the program.