Analysis
Shiwani
Feb 13, 2018 at 6:06 PM

 

The Chain of Loyalty: Are Blockchains a Hit or a Miss, in Airline Frequent Flyer Programs?-BC FOCUS

Singapore Airlines recently announced that it’s working on introducing a blockchain based digital loyalty wallet. This announcement from one of the leading airlines in the world can be interpreted as a precursor to other carriers following suit and adopting this technology in the coming months.

Blockchain, Digital currencies and the World of Aviation

While Singapore Airlines claims to be the “world’s first blockchain operated airline loyalty digital wallet,” cryptocurrencies aren’t new to the world of flying. In fact, a Polish airline has been accepting bitcoins for booking flight tickets since early 2015, while Peach Aviation of Japan became the first Japanese airline to do so.

Russian airline S7 has begun using an Ethereum based blockchain to sell tickets since last year, while Air New Zealand announced that it’s actively researching the public Ethereum blockchain for several uses.

What does all this mean to the vast number of flyers out there, especially frequent flyers who use airline loyalty programs actively?

Let’s take a look at how blockchain technology will act as a game changer and transform airline loyalty programs drastically.

Loyalty Programs aren’t at their Best, Right Now

Ever since Texas International Airlines launched the world’s first frequent flyer program way back in 1979, airline travel and loyalty programs have come a long way.  Today, loyalty programs are a common sight across industries like retail, travel, entertainment, financials and several others.

In fact, according to a study by the 2015 Colloquy Loyalty Census, an average household in the US participates in over twenty-nine loyalty programs.

The result? A complicated maze of points, a confusing array of redemption methods, difficulties in transferring points among partner merchants making the average user to either give up the program or underuse it.

It’s time for a Drastic Transformation

The time is ripe for loyalty programs to undergo a paradigm shift, making them easier to use and beneficial for all the entities involved.

Enter Blockchain Technology.

Let’s start by taking a look at a few primary ideologies of loyalty programs.

Loyalty programs have to offset the costs of providing the program to customers by maximizing the value gained from the program to the airline. The critical element of a frequent flier program is that it gets a customer locked in, unlike any other marketing schemes.

This means, when a customer has two or more similar offerings from different retailers/airlines, he defaults to the one whose loyalty program he’s a part of.

Simply put, a brand has the power to turn a customer into a life-long user, thanks to the compelling benefits of the loyalty program.

How Loyalty Programs are Turned Upside Down in a Blockchain enabled playing field

In a nutshell, blockchains are distributed ledgers. Meaning, the shared data layer is open to anyone. This essentially means that there will be no more switching costs.

Ok, let’s take a look at this with an airline example. Say, you have been using United Airlines for several years now and are a frequent traveler. This means you would have access to several perks like cheaper tickets, free vouchers, and a whole array of other freebies and value-added offerings, both on air and at other, United partner merchants.

What if you could take all this, including your travel history, accumulated miles, average purchase price and move seamlessly to another airline say Delta and enjoy the same level of benefits?

It changes the very game, right? You as a customer need not be “locked-in” with a particular airline. Instead, you can shift your loyalty seamlessly to the carrier who offers you the best price, best perks and best experience for every flight. You don’t have to be associated with a particular airline, just because you can enjoy some rewards in the future.

With blockchain in the picture, customers no longer have to juggle between an overwhelming array of loyalty programs. Simplified redemption process and quick exchanges between different loyalty points can be done using just one platform. Since customers use a single wallet, they need not compare and analyze the limitations, rules and redemption options of various programs.

Why this matters big time to Airline Loyalty Programs?

All loyalty programs including retail face the threat of disruption from blockchains. But, the travel programs are more vulnerable. Why? It’s because airline loyalty programs are more complicated compared to the average retail or banking loyalty app.

Airline loyalty programs tend to operate on multicurrency and have different components (flight, hotel, car rentals and dining) making them more fragmented and complex.

This means that it’s difficult for the regular user to earn meaningful rewards. In fact, studies estimate that a massive majority of accumulated rewards expire before they can be redeemed.

Blockchain-based loyalty programs can put an end to all this complexity and wasted points, thanks to effortless switching and interoperability.

Stay Tuned for Disruption

When speaking about blockchain technology, one can often hear the words, “game changer” and “disruptive” thrown around. And, it’s true.

The aviation industry isn’t a newcomer to disruptive technologies. In fact, they are often welcomed, as these new revolutionary technologies eliminate inefficiencies and establish market leaders. A recent example is the growth in popularity of online booking sites and apps. Though airlines and hotel chains pay hefty commissions to these online travel agencies every year, they agree that it has streamlined the process and reduced inefficiencies.

Blockchain-based loyalty programs are another such necessary evil scenario and aren’t way far ahead. Several start-ups and established tech firms are actively looking into the possibilities it presents right now. IBM has partnered with a startup Loyyal and is working on a blockchain infrastructure for loyalty programs.

Two Reasons to be a part of the Exclusive Early Adopters Club

First, blockchain based loyalty programs could help reduce the enormous balance-sheet liability. For years, loyalty programs have depended on partnerships with other brands (including other airlines, hotels, retail merchants) to sell points and increase the overall revenue. However, with rising occupancy rates and other factors, it’s not easy to redeem points. This has led to a marked increase in unredeemed points in recent years.

The revenue from these points is kept on hold until these points are redeemed. This presents a massive headache for accounting.

By adopting blockchain based loyalty programs, airlines can maintain partnerships without making it complicated for the user. With a frictionless, robust partner network, customers can redeem points quickly, thereby reducing the mounting pressures on the balance-sheets for airlines.

Second, blockchain enabled loyalty programs will put an end to the “one-size-fits-all” offerings and help airlines provide customers with more personalized offerings. As carriers can add partners seamlessly, it becomes easier to craft on-trend, customized offers for customers, which in turn, further reduces the complexities of point redemptions.

Four Crucial Areas worth Exploring for Airlines and Loyalty Marketers

  1. Program Interoperability – Remember that the more your points can be exchanged with other brands, the more value it has. Though a few airlines do this right now, there’s a lot of friction in the process. The bigger your eco-system, the more value for your core product.
  2. Program Scarcity – Customers feel that airline loyalty programs have lost their value since it feels like everyone gets to be a part of it, irrespective of their travel status. There are no real “Premier” perks. With a blockchain protocol, you can see the spots available in a particular program. This could lead to an increase in value, as the demand for these spots goes
  3. Perk Transferability – In a blockchain driven program, ownership of perks can be easily tracked. This makes it easier for redemptions and transfers with other programs.
  4. Move from “lock-in” to “love-in” – With blockchain, lock-in is no longer feasible. Since switching costs are super low, customers will easily transfer to other programs. The key here for airlines is to make customers love to be a part of the program. Yes, that may seem like a tall order, but with the right inputs, it could be immensely beneficial to airlines.

Wrapping it up

Blockchain enabled loyalty programs may not happen overnight. But, the fact remains that they are happening soon. So, make sure that you’re ready for the revolution and don’t get left behind.

Image source: shutterstock