CEO Blog

Non-air partnerships: Still a basis for your loyalty strategy?

Written by Ravindra Bhagwanani on . Posted in CEO Blog

Leaving partners02 September 2019

Looking at recent developments, it seems more and more difficult to ensure that partnership revenue will be really a given thing for Frequent Flyer Programs forever. And actually not all factors are under the control of airlines.

While there are self-made reasons that non-air partners might be less satisfied with traditional non-air partnerships (high mileage price, decreasing value perception of currency by customers, limited access to data etc.), there is also another shift pushed by the partners themselves, looking like an increasing threat to the traditional model.

Engaging in such partnerships from a partner perspective usually follows a clear strategic pattern – but is not necessarily the end of the strategy. Imagine you are an international B2C company, wishing to penetrate the Australian market. There are very strong arguments in favour of looking for tie-ups with the FFPs for Qantas and/or Virgin Australia: Quick gain of visibility as the two programs between themselves reach out to virtually every relevant Australian household, manageable costs, limited/no upfront investment/risk.

But once your focus moves away from making the big bang entrance to the market to building and strengthening your relationships with your newly gained customers, your perception of the value provided by your partners may change and you see them more and more as a cost factor. As a matter of fact, having managed to engage your customers (on the back of the FFP currency), you start to collect your own data about them and are eager to build your own relationship with them, not necessarily through an own loyalty program, but definitely by using the data you hold about them in an intelligent manner.

And interpreting and using such data for the purpose of your own company is something nobody can do better – and cheaper – than yourself. That is a “recent” opportunity, which is rapidly growing and something nobody had to care about when designing the first FFP partnerships with the likes of Hertz or Hilton 30 years ago. At the same time, many end consumers might not be so loyal to their loyalty currency anymore as they used to be for all the reasons we know. Combining those two tendencies is leading quickly to a picture that might not be so rosy for FFPs in the future.

The question for partners today is much more to decide when they are strong enough to do things on their own – rather than the question whether they should do it at all.

That is actually a development, which already took place at all major hotel chains: Only 10 or 15 years ago, it was still common practice that you could credit your FFP miles for a hotel stay without the need to register in the hotel’s own loyalty program (if it had one at all). Show me today a major hotel chain, where this is still possible. And the result of that? In a typical FFP, the share of miles credited through hotel partners has fallen from ca. 10% to a low single digit figure over only a few years – although there might be even more conversion opportunities etc. than there were direct earn opportunities before. But once hotels hold you in their own currency universe, they obviously do all to keep you in there.

At smaller scale, such development is repeating across the partner board now. Some partners certainly fail to do so properly, but it would be irresponsible for loyalty programs not to recognise that fundamental shift. For partners, FFP partnerships have no longer the notion of a long-term relationship, but of an opportunistic short-term window/cost to achieve their own business objectives. Like children, they need some help in their early days to be pampered up, but then they will soon want to go their own way.

But there are actually two pieces of good news in here for Frequent Flyer Programs:

First, credit card revenue is (still) widely unconcerned by that, although banks obviously push their own products as well. But at least powerful co-brand relationships seem to represent some market barrier here. For now.

Secondly, there will always be partners around being at the right point of their lifecycle to need such support from FFPs. The partnership business will hence not disappear, but the acquisition of new partners will actually become more important, as will the need to work in parallel hard on extending their participation in the program as much as possible – by ensuring partners really get a value out of their participation.

And I would even add a third positive aspect: At the end of the day, this will contribute to help airlines to understand that they can ultimately count on themselves only to be successful. In any other industry, loyalty programs are based on exploiting data, establishing relationships with customers and driving sales. Only FFPs have historically managed to “pervert” the game by adding the aspect of partner revenue – what has, unfortunately, also distracted the attention of some management teams to these secondary fields, however.

Each loyalty manager should hence wonder in what shape his FFP would find itself if partner revenues entirely evaporated tomorrow. If you have doubts that your program would be in a good shape to survive – or at least to justify its existence -, it might be time to act. Such day will hopefully never arrive. But hope has never been a good basis for business strategies.