Airline travelers today have very simple expectations — get them from their origin to their destination safely.
And on time. And comfortably. And cheaply. And a free upgrade and a pass to the lounge would be nice too.
So, get them there safely, on time, cheaply, comfortably and with service upgrades that make them feel special. And it would be nice if it were a non-stop flight leaving at the right time. These expectations did not happen overnight; they represent years of evolution. We started with a highly regulated industry with frequent non-stop flights with high comfort and high prices. People only flew rarely, and when they did it was quite pleasant. To the extent that airlines competed at all, they did it on service. After deregulation, prices fell dramatically, but so did comfort and service. Flying became a more common but less comfortable experience. The new hybrid airline model has the airlines promising extremely high levels of service at the top end (private suites and onboard showers) while boasting of incredibly low prices at the other end (US to Europe for $200 roundtrip ¹).
Passengers hear these disparate messages and want it all — high levels of every type of service at very low prices. And meeting customer expectations is critical. We are often told that happiness is reality minus expectations (a quote I have seen attributed to everyone from economists Rakesh Sarin and Manel Baucells to the late NPR Car Guy Tom Maggliozi to Buddha.) One travel writer recently wrote of being unable to get a special meal on-board after it had been offered to him. His reaction — “I was cross because I didn’t get something I hadn’t known I wanted until the airline that couldn’t give it to me suggested it could.”²
The only way airlines can meet (or even exceed) these varied and heightened expectations is by having a relentless focus on the customer. The airlines that succeed are the ones that have a full understanding of their customers. A full understanding includes:
- Customer’s values
- Customer’s value
- Customer’s current context
To be able to provide real value to a diverse set of customers, an airline needs to know what is most important to each customer. Offering bonus miles as compensation after a disruption or other disservice may not be the best investment if that customer is flying on business for a company that takes their miles. The offer of a free lounge pass does not impress someone who already has a lounge membership. Airlines continue to improve in this understanding of customers and what is valuable to each of them as individuals. The inclusion of a broader set of partners in the loyalty program provides deeper insights into members and their lifestyles and preferences. This is critical information in correctly forming customer segments and personas. These interactions provide a transactional history that is far broader than the travel transactions that were previously the sole focus for the loyalty program. Additionally, tracking the acceptance and rejection of targeted offers gives more insights into what is important to each customer.
Knowing what each customer wants is a great starting point. Knowing how much to invest in each customer to keep them happy – or to surprise and delight them – is critical. Initially, total miles flown (in a year or over a lifetime) was a good measure of a customer’s value to an airline. As the variation in fares continued to increase, many airlines have found it necessary to look deeper into their relationship with each customer. Tracking of spend has become critical. Even for carriers who continue to base accruals and tiers on miles, there is a growing use of money as a measure of a customer’s value to the airline. This tracking of customer lifetime value allows the airline to look at the full value of that customer including how much they spend on airfare and ancillary services as well as how much the airline is earning from the sale of miles on behalf of that customer. Airlines have come to realize that someone who flies a lot on alliance partners and uses a co-brand card can be very valuable.
One airline we worked with had three published tiers based on miles and segments flown. But in the background, their member base was divided in twenty-one distinct value tiers that allowed airline staff to better understand the relative value of customers vying for the last upgrade seat or other perks that could be offered.
Expanding how airlines look at customer value is the next step on the horizon for many carriers. Carriers are looking at a wider range of factors to better understand each customer’s value to the airline. This includes influence, whether direct (the person who controls a company’s contract for employee travel) or indirect (a key influencer on social media). Profit contribution and share of wallet are also being looked at although these are proving more difficult to accurately measure. Additionally, as airlines gain a better understanding of customer value, they are merging this data with other customer attributes to be able to better predict someone who could, if treated correctly, possibly become the next very valuable customer.
Customer’s Current Context
Each trip is different for a customer with a different set of needs and priorities. A short delay on an evening trip to get to a meeting the next day may not measure as too much of a hardship. But a trip home with an expectation of arriving in time for a key family event is devastating to that same customer. Knowing what is important to each traveler means what is important at this moment on this trip. Context matters and understanding trip context is critical to making the right offers to a customer. Is this a business or pleasure trip, is the customer traveling alone or with colleagues or with spouse and children? In interviews with the ten most valuable customers at a major European carrier, we were told by one customer that he understands that things happen and schedules fall apart. “I am willing to go with the flow most of the time, but that once a year that I fly with my family I expect you to make me look good. If there is a problem, take good care of us and make me look like a hero.”
Much of the information needed to understand context exists but is unstructured and is likely to be spread across multiple systems. To get around this we sometimes see companies use customer actions as a cue. One example is Starwood Hotels. Their SPG Program gives top tier members a limited number of suite night awards that can be used for upgrades. Starwood uses the request to use a suite night award as a signal that something is different about this trip. By using a valuable upgrade certificate you are telling me this trip is more important than the others.
Airline loyalty programs will continue to evolve to meet the ever-changing expectations of travelers. Keeping the customer at the center of this evolution will help to ensure these programs continue to deliver ever more value to travelers, airlines, program owners and partners.