Market Movers Impact of COVID-19 on Airline Industry and Best Practices for Designing Airline Loyalty & Rewards Program

There’s no doubt that airlines are synonymous with Loyalty & Rewards Programs. Many would say that they are loyal to their airline not because of service but because of the rewards and tear levels tied to their program.

In this Market Movers interview, Al Lalani, Co-Founder of Annex Cloud, chats with loyalty advocate Mark Ross-Smith, CEO of Loyalty Data Co and content writer at traveldatadaily.com, about the airline & travel industry, the impact of COVID-19 to the industry and best practices from the travel industry for designing your own loyalty & rewards program.


AL Lalani:

Welcome to another discussion of Annex Cloud Market Movers, where we bring in market luminaries and experts. Today I'm very excited because today's discussion is very near to my heart around the topic of loyalty and specifically Airline Loyalty, which has been in the news much recently. And we'll talk a lot about that today. My guest is Mark Ross Smith. Mark is the CEO of Loyalty Data Co. He is also the editor of Travel Data Daily and the former head of loyalty at Malaysia Airlines.

And a little bit more about Mark, he's written moreover a hundred articles about airline loyalty, most of which are available for free on his blog, on LinkedIn and many other places. He's been quoted and he's been a part of many discussions around several media outlets including CNN, BBC, and many others. Mark, very, very happy to have you. Thank you for joining us.

Mark Ross-Smith:

Thanks, Al for the generous introduction. It's great to be here.

Al Lalani:

Wonderful Mark. Mark, the airline industry as a whole, we've had obviously a very severe challenge. We've seen that obviously back in many years ago but this one's very different from the pandemic because the impact for many of the airlines, if the flying was as low as 10% is what we heard, it's picking up now, which is a good sign. Within this unrest within the airline industry, how... And I'll start with a broader topic because our topic's focusing on the loyalty part of the airline industry. How important is loyalty during a time when people aren't flying? Or how important are loyalty programs in the time when people aren't flying much?

Mark Ross-Smith:

Yeah. This is a really good question, probably the hottest topic of the times right now. So, I think it's important to note that Airline Loyalty is 40 years old now. It's been around a long time since the early 80s is when it really got popular. And since then, it's only ever gotten more and more and more popular and more profitable for the industry. So, now, pre-pandemic times, it was at its peak. It was at its most profitable, most popular, more people were buying into Airline Loyalty than ever before in history. So, let's also keep that in mind.

Secondly, for airlines specifically, loyalty, more specifically is status tiers, is the number one asset that an airline has to drive incremental business. There's nothing more valuable that the airline has that could do to drive more business. And when I say more business, I mean sell tickets on airlines. All right? So, with that in mind, Airline Loyalty is really specifically designed to hit the right touchpoints and metrics for airlines and the loyalty program.

That seems like increasing the ROSC, increasing yield, selling distress inventory, customer retention, customer experience, acquiring your customers via the co-brand credit cards. Co-brands is a really important key detail right now because airlines, they have these co-brand credit cards, consumers are still spending on cards, they're still running balances on these credit cards. And you don't need to fly and the airline or the loyalty program can still generate revenue out of this. This is pretty key.

We see a bunch of airlines right now selling miles and points directly to consumers. We saw a few weeks ago Air Canada for the first time ever in history started selling miles directly to consumers. And I believe they said that it was points.com running through it. And they were saying it's three times more traffic than ever before in the history of running a promotion like this. So, clearly, there is a demand for airline miles.

Clearly, people are still buying into the currency of Airline Loyalty and that reflects how popular Airline Loyalty is as a loyalty business within the airline ecosystem. And on co-brand specifically, you've got to remember, selling miles to banks actually is the secondary thing. The most important thing and the biggest benefit that airlines get out of these co-brand cards is it's an introductory service to the airline.

So, what happens is people go out, they get this co-brand card because they're incentivized because they see this great deal, apply for this card, get 20, 30, 50, a hundred thousand miles. They get the card and then they've got a piece of the brand in their hands. And what happens next is when they need to fly to see grandma or the next flight they can... In their mind, this is a psychological thing. I think Max in one of your previous interviews talked a lot about this.

That person, the logic is, "I've got the card, I'm going to make use of it. I'm going to fly the airline." And so, what's happened, is they actually locked themselves in cycles to fly with that airline in their future. And that revenue that the airline can book out tickets from that customer is basically attributed back to them getting that co-brand card.

So, getting cards into the hands of consumers, you don't need planes to do that. You don't... They can be on the ground right now because it's all about the brand. And so, Airline Loyalty leveraging their brand right now is basically the number one thing that they are focusing on. And that is what is driving a lot of the value creation within loyalty that we're seeing in the world right now.

Al Lalani:

Makes sense. And I think the assets that they've collected go far beyond just the miles and the points that we’re talking about, the credit card piece is a very important part of the business as you've talked about. And it's a self-fulfilling prophecy. It's like a full cycle, right? This helps the other or the other one helps this and goes around. And it was substantiated most recently will it be a major, major announcements from the American Airlines and from United Airlines, where they both raised about close to $5 billion as collateral against their loyalty programs.

So, their loyalty program was significantly more valuable than the 5 billion they raised. American Airlines numbers say that anywhere between 19 and $31 billion worth for the loyalty program itself, which essentially hence the loyalty program's value more than the airline's assets value, who would have imagined, right? I mean, that's a major piece. I mean, from your perspective, I'm sure you've thought of it but for our viewers, how does that make sense? Could you explain that a little bit?

Mark Ross-Smith:

Good times, isn't it? So, there's a lot of really good articles about this online. If anyone's watching, there is a good piece by Brian Sumers at Skift, he really goes into detail around the economics of this. But fundamentally, it works like this, listed airlines, the market capitalization of the airline as a group, the profit to earnings ratio generally is around five, six, maybe seven times if you're a good airline as a multiple of earnings.

And that on par with a bad automotive company, it's pretty low. And the airlines have stayed in that region for a long, long, long, long time. Now, if we look at loyalty specifically or loyalty marketing, which is basically a tech company within the airline, right? It's a marketing company. So, this loyalty has no planes, no fuel, no maintenance, no pilots, none of that legacy stuff that holds them back. They don't really have any physical assets.

They sell something that technically doesn't exist, which is points of miles. It's like cigarette smoke, it just dissipates into the air. And because they're essentially a marketing company, they're valued differently. They're basically valued like other marketing companies are looking at. So, if you look at listed tech companies, generally the valuation is somewhere between 15, 20, 25 times a multiple of earnings.

And so United Airlines, they had a report that came out. I think it was last week. And in the report, they said it was I believe at 1.2 billion profitability in the program last year. So, it's pretty simple, 1.2 billion profit times 20 times multiple 20 something billion valuations are about on par with other marketing and tech companies in that same industry. And so, it's really as, simple as that. And obviously the airlines have used that loyalty program as collateral to secure government loans.

And so, I can hear people thinking that "Mark, they need the airline to get that valuation." And that's true. The airline needs to survive but the airline is almost secondary. Because as long as the airline is there in some capacity, it's still going to fuel the growth of the loyalty program. Joe Denari at Stifel has been talking about this stuff to institutional investors in Atlas for years. He's really one of the guys at the forefront of valuations.

And he was always talking about how a lot of the U.S. legacy airlines were undervalued on the market because the marketing company that has within the airline was not recognized properly. And so, what's happening now is it's a bit dramatic but what we're seeing is that marketing company really comes into the limelight and has proper valuations that reflect the value that it's bringing back to the airline.

Al Lalani:

Yeah. And a couple of things to mention here, we know that if we go back one over a decade and our Air Canada divested its loyalty offering outside of the company and it became a company of its own, which was worth billions of dollars when it divested, right? So, I think there's some proof data point that shows that that loyalty program is really worth it. And it goes to show that this asset that the programs have and that airlines have is here to stay.

I mean, the short-term challenges may happen and people will start flying again as they did the last time around there was a challenge. And those consumers that were part of the programs will come back. And that's how loyal they are and that's why this asset is valuable. I wonder... And I know we talked a little bit about that before as the concept of this value that's generated by these airlines in the industry, how can other industries potentially apply that?

And my mind is thinking about retail or consumer goods or other companies that can potentially build that asset and essentially build an asset that's so much more valuable when they're struggling as well because they don't have this backup. Now, retailers are struggling similarly as airlines but they don't have that collateral that airlines do and cannot raise $5 billion from their loyalty program today. So, potentially, something is there to be learned by other industries. And that's another point to think about.

And then secondly, hospitality loyalty programs have been around for a very long time as well and I wonder if that's going to be as worth as the airlines. So, I think time will tell but there's a lot of other industries that can potentially either learn from and build from for the next decade. Or may have a value that they've accumulated but they haven't really thought about that the way airlines have because it's the oldest loyalty program as you said, 40 years and very, very mature and it's being to be able to extract this amount of value.

So, with that said, I think one of the other things from an Airline Loyalty perspective that I keep thinking about from our perspective... And we apply this to other industries a lot more but potentially something airlines can get into is consumer experience related programs. Now, what we talk about broadly, not just for airlines but just any loyalty program, even retail or others is a lot of old school programs were very transactional. They were focusing on you buying something and then using your points towards buying something else.

And the customer's experience over the last five years specifically has divested significantly. I am on Facebook, I am on social, I am writing a blog, I am listening to a podcast, I am doing several other things as part of my experience while I'm consuming content. I am expressing content and there's a lot that's happening behind the scenes that are not transactional that influences a transaction eventually.

And so, this concept of what we call social and behavioral loyalty is newer but very important now, where people get impacted by what other people say. They get referred to by other people. They listen to other people in their experiences and they want to apply that. And so, to me, the simplest example is if a person tweets about American Airlines and says, "I had a great experience during a pandemic to fly because I felt they were very safe," or, "I felt that they did a good job," or, "they had a good customer service, or, "they listened to me," that's very, very valuable at this point in time because a lot of people just complain.

So, when you have some people that are doing that, that's extremely valuable and you can incent your loyalty members or your loyal members to do that more often as part of making that a step in the consumer experience with a loyalty program. And so, that's just one of the things that they could evolve in potentially in my opinion. But what is your thought on just expanding it to more life cycle benefits and life cycle things rather than just transactional things within loyalty?

Mark Ross-Smith:

You make a really good point here. Let's be clear. I learn loyalty and not perfect. There's a lot that they can learn from in other industries. And I think you quite rightly point out that they could do a lot more, especially on social. Because historically, Airline Loyalty has seen themselves as an extension of an airline, of an extension of a company that flies metal tubes in the sky and less of it as a digital company.

Whereas now, I think what's happening is they're almost forced to look at themselves in the mirror and go, "You know what? We're actually a technology company. We're not an airline, we're a technology company that happens to fly planes in the sky." And to your point about Twitter... So, if you were to tweet on Twitter and say, "I had a great experience on American Airlines," I mean, how cool would it be if everyone is a micro-influencer and on that tweet, you had a link that said, "By the way, sign up to American Airlines Advantage program, click here?" And you've got those referral bonuses or actually maybe something more interesting.

Maybe it's a referral for a friend but not just to join the program but maybe say you fly a lot and I know you fly a lot, I'll send you my referral link and maybe I get nothing when you sign up but once you hit gold, platinum, executive... Once you hit one of the tiers, is where the airlines really make some cash, maybe I get a big benefit as well. Maybe I get 50, a hundred thousand miles for that introduction. Because airlines, they're still in the business of acquiring customers and they've got budgets to acquire customers and they could put into a referral program.

I mean, referral programs are really old. They're nothing new. I think every industry has been using for many, many, many, many years. And it's probably the simple things that Airline Loyalty could start doing on, especially to connects into the whole social influence, to enact real-world behavior and in the air behavior of buying tickets. So, I think there's a lot that airlines could learn from more digital tech-savvy businesses in that regard. But I will make one comment around how sophisticated Airline Loyalty programs track their members.

And so, the number one tracking metric it's called share of wallet or share of spend. And so, the idea is if you get a hundred percent of someone's total flight spend basically, right? So, if you're already flying twice a year but the airline's getting both of those flights because you're taking a flight to go see grandma in Boston, then that's great. The airline is not going to get any more money out of you, right? Whereas you've got another guy is doing 30 flights a year but he's also done 50 flights a year with a competing airline, the share of wallet is actually very low.

And so, targeting different messaging. And maybe this is where social really comes into it to socially influence specific customers with specific actions to get them to fly the airline more. Because airlines know when you're not flying, they know when you're cheating under with a competing airline, this is something most big airlines do today. And they adjust their CRM practice for that. So, if that CRM was extended onto social media, maybe taking a page out of a book of retail loyalty or hospitality loyalty could do that a lot better than airlines. I think there'd be a lot more gains for Airline Loyalty in that respect.

Al Lalani:

Great. Yeah. And I think those KPIs are very, very important as we start looking at what happens in the future because keeping that in mind. And the important point that you mentioned here is the five-year is the specific use case that you can apply from other industries and thinking of itself as a technology company. That's an important point because as opposed to an airline loyalty program, you are a technology company led by digital, with loyalty at its core, that's airlines, that's quite a concept, right? I mean, that's quite a concept.

Great. With that said, I mean, what is your opinion, what is the outlook over the next five years, people will start flying again, that's a no brainer, that will happen. And we've seen that happen again. People will start flying. What's the outlook for these airline loyalty programs as they evolve? What's the outlook for airlines and their use of digital technologies and how you foresee this, not just from a technical perspective or from a consumer experience perspective but also from a business process and people perspective?

Mark Ross-Smith:

Look, without a doubt, the travel industry, 100% confidence it will come rolling back faster and harder than ever before. That's how we roll as humans. We overcome adversity. We power through things like a forest fire. It might devastate that forest has burned down for a bit but when it grows back, it grows back bigger, better, stronger, there are more flora and fauna. And then every before, there are new animals roaming around. Basically, things only ever get better. There are so many times throughout human history. That's what we do as humans.

So, I'm 100% confident that we will be traveling the world again. We want to see things. We want to explore the world. There's a lot of pent up demand right now, a lot of people trying to get out of the country, get out of their homes, they want to experience things. So, keep that in mind. Absolutely we'll come back. What's happening right now is Airline Loyalty in almost every airline, it's the division of the airlines generating most revenue right now. It's the most profitable part of the airline. And it has been for a long time, not old but a lot of airlines out there.

And what's happening is in light of this news of all these loyalty programs valuation's coming out, where the loyalty program is worth more than the entire organization. Really, the question is now is, why is the loyalty manager or traditional head of loyalty, why is he sitting so far down in the organization? Why is he reporting to a chief commercial or a customer experience person? Why isn't loyalty a C-level role? Why isn't loyalty on the board? Why doesn't loyalty have board representation?

Because it represents such a massive chunk of airline revenues, such a massive chunk of airline profitability, airline typically anywhere between 30 and 50% of all customers that fly are members of a airline loyalty program, represents a huge chunk of ticket revenue with the airline. Loyalty really needs to be on the board. That's where it really belongs. In fact, if I was a shareholder in an airline right now, I'd be putting my hand up at these AGMs and saying, "Why isn't loyalty on the board? And how much more cash could our airline have had right now if loyalty had greater representation in management meetings?"

If loyalty was unleashed more, if they could do more, if there was less red tape, because loyalty is a tech company, it's not an airline. And you could imagine if those chains were unleashed if loyalty could move forward and do what it needed to do without being held back by traditional airline stuff and airline thinking, could revenues double overnight? These are the questions that I would be asking if I was a shareholder. And I think we're going to start seeing a lot of that come out now, especially as these loyalty program valuations come to market.

And over the next five years, I think what we'll start to see is airlines or metal tube flying companies, as I call them, they'll have to reinvent themselves, being a great airline... So, okay, like a Delta or a Singapore Airlines or someone like that, being operationally excellent takes a lot of money and a lot of time, and not every airline can get there. And so, if you can't get into that 1% of great airlines of the world, be great at something else. Be a tech company, be a retail company, be a cargo company, be an online distribution company, be a loyalty marketing company.

Be something else that also has an airline and focus on that other thing, focus on making so much cash out of this other thing that almost doesn't matter how operationally the airline runs. Because the airline is then supporting your real business, which is this cargo or retail or tech or distribution or whatever it is. So, I think what we're going to see is a shift away from traditional airline thinking into something else. And airlines figuring out what that something else is for them will be key I think over the next five years.

Al Lalani:

Wonderful. And I love that concept. Essentially, if really... And it's a very good question you ask, which is if this airline loyalty program and the retention efforts are as valuable if not more valuable than the airline itself, why doesn't the head of that group sit on the board or sit on the C-level executive suite, so to speak? And I would even venture out to say, if it's that valuable, that should be a very high-level C-level position, maybe the CEO at some point in time, who knows?

But the key part of this exercise I think is there some evolution there, we're all going to come back. At the same time, we've all understood the value of these programs. And I think this is very interesting to learn from you, essentially from a... When you think of loyalty, you think of airlines, that's the first thing you think about. And so, being the oldest within the loyalty industry, applying some of these techniques from mature programs and applying those to other loyalty programs with other industries, that's what I learned the most today as well.

Mark, this was a great discussion. We really appreciate you taking the time. For everyone that wants to reach Mark, you can find him on LinkedIn. He is very active. Please follow him. He's got some great content that he's floating around. You can also follow his blog, probably at daily.com. And Mark, thank you again for joining us.

Mark Ross-Smith:

Great to be here. Thanks for the chat.

Al Lalani:

Bye for now.

Featured Speakers


Al Lalani

Co-Founder, Annex Cloud


Mark Ross-Smith

CEO, Loyalty Data Co

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For more than 10 years, Annex Cloud has been the worldwide leader in technology and service solutions that transform customer loyalty experiences for organizations, extending valued customer engagements, ultimately making beloved brands. Powered by the modular, comprehensive and scalable Loyalty Experience Platform™ solution suite, Annex Cloud customers capture and use zero- and first-party data to seamlessly deliver value-based individualized experiences across the entire customer journey—from awareness to purchase to retention, loyalty, and advocacy. This one-to-one engagement helps enterprises accelerate growth by increasing average order value, repeat purchase frequency, and customer lifetime value. Annex Cloud is recognized by respected industry analysts and integrates with more than 100 market-leading technologies to seamlessly integrate loyalty across the tech stack.


Loyalty Data Co helps airlines to acquire new high-value customers through a centralised smart status match platform. Created by former airline loyalty executives, the customer acquisition platform is the missing piece in helping airlines drive incremental revenue by attracting the right type of new customers into the airline ecosystem

To learn more about Loyalty Data Co., visit loyaltydata.co/media

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