Can Airline Loyalty Programs Generate Income for Struggling Airlines

MINNEAPOLIS & SINGAPORE | July 24, 2009

As airlines face new challenges seemingly every day now, the temptation exists for them to bolster their financials by selling off portions of the operations and reaping the benefits. One interesting asset that has garnered attention in recent years is the airline frequent flyer program.



A new white paper - "Spinning Off Frequent Flyer Programs in Turbulent Times" - issued by the loyalty marketing expert Evert de Boer, senior director, Global Airline Practice, Carlson Marketing, explores the pros and cons of spinning off frequent flyer programs in light of the current economic climate.



Advantages



According to de Boer, there are six good reasons for selling off an airline's frequent flyer program.



  1. Raise Capital

  2. Unlock Value

  3. Improve Margins

  4. Accelerate Revenue Growth

  5. Achieve Economies of Scale

  6. Improve CRM (customer relationship management) and Data Analytical Capabilities



Disadvantages



Of course, if there were only good reasons, everyone would do it. He cites seven cautions as well.



  1. Program Delivery considering how intertwined the program is in the airline operations

  2. New Owners May Have a Short-term View

  3. Unpredictability of Future Events

  4. Capital Gain is a One-off

  5. Imbalance of Power Between the Frequent Flyer Program and the Airline

  6. Impact of Global Alliances

  7. Current Liabilities



Additional Considerations



The current economic downturn adds another set of wrinkles to be evaluated and their impact debated based on the individual airline's situation.



  • Less Capital Available to Buy the Program

  • Less Travel and Lower Consumer Spending

  • Higher Incidence Rate of Credit Card Defaults and Lower Credit Ratings

  • Reduction in Network Size

  • More Miles Being Awarded, Fewer Miles Being Redeemed

  • Increased Opportunity for Arbitrage

  • Less Appetite for Adjustments to the Balance Sheet

  • Potential Partners Become More Wary



Conclusions



As the economy improves around the world, serious consideration of spinning off frequent flyer programs will once again be a hot topic of conversation. De Boer identifies likely carriers as those with "large legacies with a dominate program in a large and homogenous home market." Unlikely candidates are "airlines that dominate a small home market and serve a high percentage of transfer traffic through their respective hubs."



The complete white paper, "Spinning Off Frequent Flyer Programs in Turbulent Times," is available online from Carlson Marketing at http://carlsonmarketing.mediaroom.com/index.phps=55.



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About Carlson Marketing Worldwide



Carlson Marketing is the world's leading relationship building company. Carlson helps global Fortune 1000 clients increase their top and bottom lines by building stronger relationships with their most valuable customers, channel partners and employees. Carlson Marketing's two global service offerings - Brand Loyalty and Engagement & Events - are supported by six core capabilities: Strategy & Planning; Creative, Interactive & Media; Incentive & Event Management; Award Services; Technology Services and Decision Sciences.



Carlson Marketing employs 2,500 marketing professionals in 44 cities across 15 countries. www.carlsonmarketing.com

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