Low-Cost Carriers and Loyalty Programs - the Ultimate Ancillary Revenue Opportunity?

MINNEAPOLIS, May 4 /PRNewswire/ -- In their latest white paper, the loyalty program experts at Carlson Marketing examine how loyalty programs can play an important role in the ongoing success of low-cost carriers (LCC). Loyalty programs have become the rule rather than the exception with 8 of the 10 largest LCCs offering at least some form of loyalty program.

"Now is the time for the LCCs to make loyalty programs differentiated and customer-value oriented if they are to continue to be competitive. Increased competition amongst LCCs and the growing focus on business travelers have led LCCs to test new models, including forming alliances, operating long-haul routes and offering more products and services," according to Evert de Boer, senior director, global airline practice, Carlson Marketing. "It is therefore only natural for LCCs to invest in and continue to develop their frequent flyer programs. They can make LCCs more competitive, profitable, and better positioned to retain valuable customers."

According to de Boer, LCCs are starting to explore new business models to defend and increase their competitive advantage. A more sophisticated loyalty program will support the efforts to attract incremental travelers and generate third-party revenues.

Generally ranked third behind price and schedule, loyalty programs in the airline business play an important role in the decision making process. However, de Boer says more factors must be considered in explaining the success of traditional frequent flyer programs.

The white paper shows that FFPs provide three sources of value for the airline.

First it is a key influencer of behavior. Membership in a loyalty program is an important consideration when choosing between different alternatives. When price and schedule are on par, having a membership in a specific FFP may be the deciding factor. More importantly, some frequent flyers are willing to pay a premium to travel on a carrier of which they hold a frequent flyer card. Research shows that in a significant amount of cases, corporate travelers are willing to deviate from the corporate travel policy to travel on a preferred but more expensive carrier.

Second, it is a source of third-party revenue.  Airlines have become increasingly innovative in using the FFP and its currency (miles) as an alternative distribution channel. Especially credit card programs – both co-branded and affiliated types – have turned out to be real cash generators for the airlines. In some cases, the sale of miles to partners has in fact generated richer margins than the traditional business of selling seats directly to customers. The level of profitability is dependent on a wide range of interconnected drivers that include generosity, breakage level, partner agreements, airline passenger load factors and overall cost efficiency.

Finally, it is a tool to understand, quantify and predict customer behavior.  "The time is right for LCCs to apply the lessons in loyalty that the legacy carriers have learned over the last 20 years," explained de Boer.  "In fact, there is a natural fit between the LCCs' ancillary revenue drive and the revenue generation from a well-run loyalty program."

The complete white paper, "Low Cost Carriers & Loyalty," is available online from Carlson Marketing at http://carlsonmarketing.mediaroom.com/index.php?s=55.    

About Carlson Marketing Worldwide

Carlson Marketing, the world's leading relationship building company, designs and delivers loyalty and engagement programs for some of the world's best known brands across several vertical markets: Airline, Hotel, Auto, Finance/Insurance, Retail, and Consumer Packaged Goods.  Carlson Marketing's two global service offerings – Brand Loyalty and Engagement & Events – are supported by six core capabilities: Strategy & Brand Planning; Creative and Communications; Decision Sciences; Award Services; Technology Services and Customer Service.  Carlson Marketing – owned by Groupe Aeroplan, a global leader in loyalty management – employs more than 2,200 marketing professionals across 15 countries.

www.carlsonmarketing.com

SOURCE Carlson Marketing