CEO Blog

What is the future of co-branded FFP models?

Written by Ravindra Bhagwanani on . Posted in CEO Blog


06 August 2015

Copa ended last month its long standing practice of co-branding a partner’s FFP by launching its own program, ConnectMiles. Does the model of co-branding FFPs, not very widespread anyway, have a future?

Copa’s co-branding practice dates back very long to the days of its close cooperation with Continental Airlines. As part of this relationship, it also decided to adopt the latter’s OnePass program in early 1999 and to use it in a co-branded version for its own clients, what was certainly easier to do for the rather small carrier Copa used to be back in these times.

Fast forward, Continental doesn’t exist anymore, but the OnePass relationship was initially continued with United’s MileagePlus program. And Copa has no longer 13 airplanes, but 85 (and 94 more on orders). It was high time to reflect the change of strategy from a small regional player to a truly pan American carrier serving 74 destinations in an own FFP. At the end of the day, adopting a partner’s FFP serves primarily the airline operating the FFP and the benefits for the co-brandee of not having to face the hassle to operate an FFP hardly offset the strategic nconveniences when a medium term perspective is applied.

To what degree Copa has really managed to reflect its own strategy into its ConnectMiles program is a different question though as it looks very much like a simple copy of the United program (in which it continues to participate on a normal partnership basis, both being members of the Star Alliance).

Beyond the United/Copa case, the co-branding practice is mainly focused around the programs of Lufthansa and Air France KLM. So is that model, which has never gained a major momentum in the market, to disappear or to stay? The tendency is not clear, at best.

Since 01 August, Air Calin (New Caledonia) has strengthened its co-branded partnership with Flying Blue and is now fully integrated to the elite program, incl. standard elite benefits for Flying Blue members flying on Air Calin. Although the question, which should rather be asked here, is why this was not the case before, given that this should be considered a basis for any co-branded partnership. With Flying Blue’s main other co-branding partners (Air Europa, Kenya Airways, Tarom), this is not an issue for the simple reason as all these carriers are also SkyTeam partners and as such integrated to the elite program anyway.

On the other side, there are clear signs of increasing unease about the model with airlines using that model. As such, Air Europa launched already a few years ago a simple, online only program My Europa, which is available in Spain only and didn’t get much attention in the market. The program runs in parallel to Flying Blue, but is definitely much more attractive than Flying Blue for regular Air Europa customers. Recently, there were also comments from Air Europa that the program should be extended – but it still seems some way off until it might become a fully fledged SkyTeam FFP and goes separate ways from Flying Blue. But looking at the airline’s strategies, one wonders indeed what either Air Europa, Kenya Airways or Tarom have in common with Air France KLM and in what the co-branding model is justified for these airlines…

Over at Lufthansa’s Miles & More, the picture is a bit similar, but there is nevertheless one major difference: The key partners Swiss, Austrian and Brussels Airlines are all owned by Lufthansa, although each of them has a distinctive market positioning. So it was even more surprising when Brussels Airlines announced in early 2014 that it would launch an own FFP by the end of the year (2014), what has, however, not yet happened until now. Even if this might never materialize after all, it points nevertheless to some interesting discussions, which seem to take place within the Lufthansa group…

The strategy question similar to the Flying Blue partners needs, however, definitely to be asked as well for the more independent partners, including Adria Airways (looking for a private investor, which might wonder why a competitor should have access to all customer data!) or LOT, poised for major international expansion, which could definitely suffer from the situation that Lufthansa can easily identify these customers through the Miles & More database and try to persuade them to stay within the Lufthansa group rather than allowing a new competitor in the lucrative long-haul segment to appear right in front of its door.

Historically, many of these co-branded partnerships – which are basically all at least 10 years old – started on a wrong ground, ie on a management team with no clue about what they were doing and no visionary understanding about the loyalty business. Even if an airline views the situation differently in the meantime, it might still prove tricky to get out of these relationships now (how can Adria Airways ever hope to get the same marketing leverage on its own as Miles & More with its 25 million members?).

But it looks unlikely that any new independent airline without an FFP product would still look into this model as serious option these days, showing that the model is indeed something that will enter into the history of loyalty programs as “error”. Or as smart coup of a handful of airlines, which understood to seize the opportunity of the moment and to make good business out of that for far more than a decade!