The Power of the Loyalty Program

Image courtesy of American Airlines

Today's chapter 11 announcement by American Airlines is a strong reminder of the power of customer loyalty and most importantly, of the contemporary significance of the frequent flyer program.

To provide a little bit of background, American's AAdvantage program is credited as being the first loyalty program in the world, having launched in 1981. Currently, it is one of the largest (if not the largest) of such programs with 67 million members.

Fast forward to today: American Airline's parent company AMR has filled for Chapter 11, and AA sent an email to all it's AAdvantage members. What is immediately clear from that email is that AA wants everyone to know that (a) their miles are safe and (b) the program will not be altered as part of these reorganization procedures.

See the entire letter Here

Airlines enter into Bankruptcy through what seems to be a never-ending revolving door. The real news is that their frequent flyers programs are never touched, highlighting the amount of brand equity + trust deposited in them and the fiscal value inherit in them. Aside from the customer loyalty aspect of these programs, they maintain open important revenue generating opportunities with credit card companies, retailers, other airlines, hotels, etc. through point-exchange partnerships.

How much are these programs worth? In 2005, Air Canada sold 12.5% of its Aeroplan program for $250 million, which would value the whole program at $2000 million (Note that this was only for a small program with 4.5 million members). We could use these numbers to project an estimated value for the AAdvantage program of at least $29.8 billion dollars--that is a significantly low estimate, as it only takes into account subscription numbers, and not it's other revenue producing partnerships.

This leaves us at the main point. As it turns out, it can actually be less damaging to a brand to renegotiate with its lenders than to negotiate with its frequent flyers + loyalty program partners....

Comments

Social Media + Hospitality

A recent study by The Center for Hospitality Research at Cornell University constitutes one of the first pieces of empirical research on the effect social media has on hotel purchasing decisions by different market segments. The report titled How Travelers use Online and Social Media Channels to Make Hotel-choice Decisions takes a snapshot of the rapidly changing field of how consumers gather information and make their decisions regarding travel purchases, based on responses of 2,830 recent travelers. This report is particularly helpful in that it gathered findings based on the guest's market segment and reports how a channels importance varies according to the stage in the decision process. "Business travelers often use the hotel recommended by their company, although many of them use search engines or online travel agents for their hotel search. Recommendations of friends and colleagues are less important to business travelers than they are to leisure travelers

Seven Weeks of Modest Occupancy Growth for US Hotels

Weekly US Hotel Demand Update: Week-ending May 20th was the 7th straight week of modest occupancy improvement; at 35%, up from a low of 21% on April 11th. Despite the increase, this is still a 70% RevPAR decline vs last year. April closed out with the worst RevPAR decline ever, down 80% in the US. Driven by declines north of 90% at Upper Upscale & Luxury properties. Top 25 markets continue to be heavily impacted. Finally, on the development front, the pipeline has peaked, with a number of projects on early stages moving to abandoned or postponed. Originally from LinkedIn: https://www.linkedin.com/posts/andres-orta-travels_us-hotel-performance-results-april-2020-activity-6672148618444701697-FUlL

United Airlines' loyalty program worth $22B

United Airlines values its loyalty program at $22B, Skift reports. Opening the secret box to the industry's most valuable assets... its loyalty member audience and point currency. As the travel landscape changes, companies will have to look at ways to leverage their loyalty program members as an addressable audience in new ways without eroding trust. Not since Air Canada sold (and then bought back) its loyalty program, have we had such a public view of the revenue-generating power of loyalty. United's program generated 12% of the airline's total revenue in 2019, you bet that number will be much higher in 2020, and they will be looking for ways to continue to grow that number. Important to note that hotel companies have turned to their loyalty programs as for financing as well, by pre-selling points to their credit card partners. Both Hilton and Marriott have presold close to $1B dollars each. Will we start valuing travel companies by the size of their loyalty program

HOSPITALITY BRAND

Search This Blog