CEO Blog

The end of alternative facts?

Written by Ravindra Bhagwanani on . Posted in CEO Blog


12 May 2017

Air Canada’s announcement to launch an own Frequent Flyer Program in 2020 did not come as true surprise, but marks nevertheless an important turning point in the industry. The spin-off of loyalty programs is dead. Well, it was never really alive.

Back in history, there was an airline in desperate need for cash to survive, so it spun off its most valuable asset, its Frequent Flyer Program. The program soared afterwards to new financial heights with the private investor on board and management members of the new operator praised the advantages of the spin-off model on every occasion trying to roll it out to other airlines – but ignoring that the airline behind it might have a different view. Then the airline launched its own elite program and will finally halt the relationship all together upon the next contract renewal and reintroduce a full own FFP.

This is a quick summary of what happened between Air Canada and Aeroplan, later renamed into Aimia.

While no other airline bought into the logic of Aimia to fully spin off its FFP, Aimia nevertheless managed to get more than one person in the industry confused and to talk about the “advantages” of spin-off models – forgetting that this business model never made sense for a cash-healthy airline, but unilaterally for the program operator/investor only. There is no doubt about the value they’ve managed to bring to the Aeroplan program, but that is only one side of the truth. Focusing unilaterally on that aspect was, at best, alternative facts building. At the end of the fact, Aeroplan always remained the FFP of Air Canada from a customer perspective.

Privately, Air Canada executives were complaining for years about the set-up since it is hard to swallow that hundreds of millions of dollars of profit related to what was de facto the FFP of Air Canada went to the pockets of somebody else. Reversing that practice at the first opportunity might actually not be so much an outstandingly courageous decision, but simply driven by common business sense.

While both Aimia and Air Canada will be busy on working on their post-2020 reality (although some even question whether there will be any such reality for Aimia at all or whether they’ll simply go out of business – their share fell by 50% right after the announcement made by Air Canada!), all others can learn two lessons from that.

First, full spin-offs of loyalty programs don’t work as they create a strategic and financial gap between the “moral” and financial owner of the program. If the players in the only true spin-off constellation we had in the market and which was praised as the example par excellence for everybody to follow comes to that conclusion, there is nothing more to add here.

Secondly, it is always easy to say afterwards that we knew it all. Let’s be honest, the spin-off debate was one of the hot topics over several years (and even we featured again a panel discussion at this year’s Loyalty Conference in London wondering whether there was still a business case for spin-offs). So what we should learn here is that not every debate, which is pushed forward by certain industry players for somewhat opaque reasons, has the potential to survive. But if your marketing pockets are deep enough and you repeat the same message 100 times, many are more likely to buy into that. The next time you hear about this big latest trend in the industry, ask yourself a few critical questions before blindly following it:
• Who has initially declared this a trend/who keeps on pushing it?
• What is the sustainability of the idea with slightly changed market conditions?
• What are the similarities between the success stories in the market (if any) and your own situation?
• How does that trend contribute to create loyalty?

Following such basic principles will not only save you from bad surprises when it might be too late, but also simply save you a lot of time and let you focus the resources of your team on issues with a more immediate and tangible value. While the most fashionable programs might get some more exposure than the others, they are actually often not the most successful ones. Delivering value to your parent airline is ongoing hard work, which might be most efficient when taking place outside of the spotlight.

And now watch out for all the self-proclaimed specialists out there making their comments – after having followed the logic of Aimia over more than a decade (and often even having been part of it!). There were very few consistently critical voices about the spin-off model in the market, but everyone is now obviously trying to position himself for the future, unfortunately too often by creating another sort of alternative facts. About themselves.