written by Kian T. Gould CEO & Founder
The 100-billion-dollar opportunity for airlines: 5 steps towards a more profitable loyalty program
The 100-billion-dollar opportunity for airlines: 5 steps towards a more profitable loyalty program
About the author Kian T. Gould Kian T. Gould CEO & Founder

Collecting miles: What began as a straightforward customer loyalty instrument now offers an enormous opportunity to create non-aviation revenues ag­ainst the backdrop of current technological developments – a potential that airlines are not yet fully exploiting. Find out how, with the right overall concept and an appropriate technological infrastructure, unused bonus miles can become a renewed revenue driver for airlines.

The problem: Unredeemed bonus miles

30 trillion unused bonus miles on customer accounts – this amounts to 30 trillion reasons for airlines to rethink their loyalty programs. This is not because collecting miles as an incentive no longer works – to the contrary: for business travelers in particular, it is still a decisive factor in the choice of airline, and private travelers also include bonus programs in their decision-making. However, there is enormous potential in these loyalty points to use E-Commerce to jump start the engine for non-aviation sales – a 50-billion-dollar opportunity that airlines are currently far from fully exploiting.

The opportunity: Shopping hubs with loyalty program integration

Airline loyalty programs as drivers of non-aviation sales – can this work at all, considering the changed purchasing behavior of passengers? As spend per passenger is on an overall decline, as are revenues from in-flight shopping, many airlines have discontinued this increasingly unprofitable service. However, what if airlines use their loyalty program to become a full part of the travel retail ecosystem – thus taking advantage of the 50-billion-dollar opportunity of unredeemed bonus miles?

Imagine the following scenario:

  • Customers use their bonus points for shopping – not for high-cost in-flight shopping, but conveniently via the airline’s pre-order E-Commerce platform, at the airport or in cooperating online marketplaces.
  • They are suddenly given access to numerous products that are actually attractive for them, such as luxury fashion and accessories, not just core duty free.
  • Passengers also use their bonus points during the journey for specific services, such as additional trips, adventure tours or accommodations.
  • These services can be accessed via the same platform as the airline shop – across all locations, devices and channels, with minimum effort for the customer.
  • Customers benefit from a seamless shopping experience and the best-possible service, such as location-independent E-Commerce and convenient delivery options such as home delivery.
  • Airlines address customers with highly personalized offers via their e-commerce marketplace as described.
  • The current 30 trillion unused bonus miles thus act as new incentives for customers to make purchases in airline shops.

Sounds like a pipe dream? Not even close! Such concepts are already being implemented in similar form, for example at Singapore Airlines’ new KrisShop, which is based on AOE’s travel retail commerce platform OM³ – and is fully integrated into all of Singapore Airline’s customer channels, including the loyalty program.

How to get there: Optimizing airline loyalty programs in 5 easy steps

A digital marketplace that customers can access easily, seamlessly and independent of device? This sounds like a huge technological challenge – but airlines are not that far away from turning this idea into reality.

The foundation for many of the elements mentioned above has already been laid: Airlines have valuable customer data at their disposal, airports cooperate with retail shops, travel retailers have stock readily available in warehouses across the globe and individual components have been digitalized. Combined and fully integrated, this can create a marketplace with various touchpoints to the customer – and bonus miles create a customer entry point with a low threshold, thus acting as a revenue driver.

But how exactly can airlines build on existing infrastructures and use their customer loyalty programs as a business opportunity – and with it the incredible potential that lies in loyalty points?

Step 1: Integrating the loyalty program into the shop system

Integrating the loyalty program fully and seamlessly into an airline shop forms the basis for using bonus miles as a revenue driver for non-aviation sales. Many airlines instead chose to build separate stores, just for loyalty points, that customers cannot find. The easier it is for customers to redeem loyalty points, the sooner they will actually become buyers – and satisfied customers.

Step 2: Adapting the shop to customer requirements

Today’s customers place high expectations on online shops – because they are already used to a wide range of products, immediate product availability and a high level of user-friendliness from popular platforms such as Amazon or Alibaba. Airlines are often unable to keep up with this – partly because of a rather small range of commodity products, and partly because of the usability and customer experience in the shopping process. This can be a starting point: In a shop that is optimized for the entire customer journey and offers interesting products or attractive offers, customers are more likely to redeem their bonus miles.

Step 3: Expanding the premium product segment via airport shopping hubs and drop shippers

When airlines join forces with airports, retailers and brands, they can create online marketplaces with an enormous variety of products, even in the luxury segment – centrally accessible to customers via a single point of contact. If airline loyalty points can now be used across all services in this marketplace, all parties benefit – and the customer is provided with an outstanding customer experience. Unlike in-flight shopping, such a model is very attractive for luxury brands. In addition, hundreds of premium brands that are in high demand by passengers (e.g. Apple, Samsung) can be sold via drop shippers directly to a passenger’s global home address, thereby creating a high margin via loyalty point redemption although being low-margin products.

Step 4: More touchpoints with the passenger

At home before the journey, on the way to the airport, on site or after arrival – air travel offers numerous potential touchpoints that airlines can use if they have the right infrastructure. Services such as parking, fast-track or lounge access can also be integrated – for an optimal customer experience. This increases the probability of converting the passenger to a non-aviation customer.

Step 5: Personalized marketing

Attractive offers at the right time: Airlines already have the customer data needed for this approach. However, they often fail to exploit the potential of this valuable data. With a suitable infrastructure, such as a fully dynamic machine-learning product recommendation engine and full integration into marketing automation suites, it is possible to address users with personalized marketing campaigns in a much more targeted manner – at the right place, at the right time, via the right channel on the right device. There are numerous opportunities to present offers from duty-free- and luxury goods ranges to customers (cross- and up-selling) – and to further boost non-aviation sales. For example, customers can be informed and provided with attractive offers well before their miles expire – and thus be motivated to shop instead of loose their miles, increasing the perceived value of having those miles readily available significantly.

The benefits: Business advantages for airlines

  • Efficient marketing: A marketplace designed in this way enables airlines to use real-time customer data for their marketing, to target customers at the right time and thus create additional touchpoints to the shopping offer.
  • Increased non-aviation revenues: Better usability in the shop and an attractive product range lead to higher conversion rates, higher shopping cart values per customer – and thus to higher sales in the long term.
  • Earn & Burn: An E-Commerce platform with an integrated loyalty program and connected services offers customers numerous opportunities to immediately use bonus miles they have collected, for example for a status upgrade or VIP services. In this way, airlines avoid accumulating large amounts of unused miles and having them reflected in the profit and loss statement.
  • Increased range: The cooperation with airports, brands and retail shops leads to a more attractive offer and more touchpoints to the customer – and thus more reach.
  • Improved customer loyalty: If customers feel that they are actually benefiting from their accrued miles, while also enjoying a satisfying customer experience, this also strengthens customer loyalty.

Implementation: A digital marketplace as a sustainable investment in the future

With a customer-centric digital platform, airlines create a single point of contact for all customer requirements – which represents enormous added value for customers and the basis for sustainable revenue growth. Singapore Airlines’ KrisShop has shown the way with its new Omnichannel platform: The scalable solution with microservice architecture offers passengers premium brand shops and concept stores, a wide selection of luxury products and the opportunity to collect and redeem loyalty points in the shop. The basis for the solution is AOE’s Travel Retail Commerce Platform OM³, which offers airlines the necessary functionalities and features and can be expanded to meet individual needs.

For airlines, the time has come to rethink and build new business models on a digital retailing foundation. An experienced integration and implementation partner and the right infrastructure make it possible to benefit quickly and sustainably from unredeemed bonus miles as revenue drivers and to tap into this 50-billion-dollar opportunity. Airlines that seize this business opportunity now are decisively ahead of the competition. Perhaps even miles ahead.