The Market for Airline Loyalty Systems Summary Report

THE MARKET FOR AIRLINE LOYALTY SYSTEMS SUMMARY REPORT

January 2020

INTRODUCTION

This is the first edition of T2RL’s report on the market for airline loyalty systems. This edition, published in January 2020, describes the state of the market using current contract data along with passenger volume information relating to 2018. The data are derived from T2RL’s extensive experience of working with airlines and vendors on the application of information technology to the real-world challenges of the modern airline industry.

EXECUTIVE SUMMARY

For purposes of this report and comparison between providers, T2RL defines ‘loyalty platform’ as the system which manages an airline’s loyalty or frequent flyer programme covering capabilities such as management of miles/points/currency accrual and expenditure for members, tier management and member profiles for individuals. As part of the overall loyalty ecosystem some vendors are also providing capabilities in the areas of third-party redemption, promotions management, personalisation and consulting. These systems are currently excluded from T2RL market share data.

T2RL data shows that the current market for airline loyalty members is roughly 25% of total global passengers boarded (PBs), being around 1.1 billion members globally1. T2RL estimates that over 500 airlines still have no formal loyalty programme which equates to around 60% of airlines globally. Translated into PBs however, this equates to only 17% of the market, meaning that most of these are the smaller Tier 4 airlines. These figures do not take into account that many passengers are members of multiple programmes and are therefore double counted in the membership numbers stated above. There are also a number of members that are not ‘actively engaged’ with a particular programme meaning there is still opportunity for airlines as a whole to increase customer engagement in terms of loyalty. For more established airlines it is possible to have more members than PBs, for example Asiana Club, however these are few and far between and the majority of these will not likely be ‘active’ members.

There are currently around 200 ‘standard’ loyalty programmes operating in the industry and there are still some airlines continuing to implement loyalty systems for the first time. SWOOP, 9Air, Air Thanlwin and Overland Airways are some examples, whereas other

1 These numbers represent members who are part of a ‘frequent flyer programme’ who gain points or currency when flying with the airline. This excludes membership programmes such as subscription-based models or cashback/credit card programmes.

The Market for Airline Loyalty Systems Summary Report : January 2020

airlines such as Air Transat and Flair will join established programmes such as Aeroplan later this year.

Recently, low cost carriers (LCCs) are showing more interest in loyalty, launching programmes such as Air Asia BIG and Sun Country Rewards. As was the trend when LCCs first entered the airline industry the entry of these new players into the loyalty market has also brought a variety of new and different ways of operating. Loyalty can now be rewarded in the form of cashback (a percentage of the fare to use on future purchases) as with Norwegian Rewards, and by subscription-based fees with additional benefits, exclusive sales, discounts or ancillaries as operated by EasyJet and Wizz Air.

The trend of airline consolidation has also had a direct effect on the consolidation of loyalty programmes with many subsidiaries merging programmes with their parent airlines. Reward-U, the loyalty programme developed by Hong Kong Express and which had plans to roll out to other members of the U-FLY LCC alliance closed down at the end of 2019 as Hong Kong Express joined forces with Cathay Pacific’s well established, Asia Miles. Brussels Airlines has also decided to close its LOOP programme and favour parent company Lufthansa’s Miles & More instead.

Loyalty is now seen as a major component of strategy for a lot of airlines whose long-term goal is to make the most of their position as retailers. Loyalty programmes as well as technology have moved on massively from when the standard frequent flyer programmes were originally introduced in the 1980s. Some of the current key areas of interest include:

• Using data more effectively o Having a ‘360° view’ of the customer is a vital way to understand what and when customers are searching and booking and being able to better target and personalise offers for redemption or accrual. This includes rewarding not just those customers that are frequent flyers, who tend to be business travellers, but also having a strategy in place to attract and encourage spend from all customers, including leisure travellers who may only fly once a year.

• Integration o Integration plays a key role within the area of loyalty – with partners, payment providers, the airline’s PSS and CRM systems. Having a flexible system to allow for quick and easy integration helps airlines to connect with local and relevant partners for accrual and redemption.

The Market for Airline Loyalty Systems Summary Report : January 2020

• Instant and transparent gratification o Customers now expect instant gratification rather than ‘stored value’ and therefore rewards. The redemption of rewards, needs to be in real-time with partners and offers that are relevant to the traveller. Customers also want to know up front how many actual miles or points they will accrue with each purchase. For various reasons such as taxes and codeshare partner agreements, the actual miles/points a customer will accrue can often be quite ambiguous.

• Monetary-based accrual o Changing from a miles-based accrual programme to a monetary points-based accrual programme. Rewards are not based on the distance of the flight but on how much in total the customer has spent with the airline including ancillaries and extras such as upgrades. This means that a fairer reward is given to the customer based on total spend.

The market for airline loyalty has a diverse set of providers, more so than other IT segments in the industry. There are vendors who do not usually operate within the standard realm of the airline industry including players such as Oracle, Comarch and Loyalty Partner Solutions as well as airline focused IT companies such as Amadeus, IBS and Accelya. Players have seen growth in the last few years, mainly driven by airlines moving from In-House systems. The most prominent of these will be when United completes its migration to Loyalty Partner Solutions later this year.

The full version of this report compares the market share of the major vendors in the airline loyalty market including Oracle, Comarch, Loyalty Partner Solutions, IBS and Amadeus amongst others, as well as analysing the addressable market over the next ten years.

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Travel Technology Research Ltd, trading as T2RL is an independent research and consulting company that specialises in the market place for airline IT systems. Based on data gathered and analysed since the year 2000 it has defined and tracked classifications of airlines and their IT providers. Its research is used by airlines to enable them to make informed choices of systems and vendors and by the vendors to help them develop products that best meet the current and future needs of the airline industry. For further information, visit our website at www.t2rl.com.

The Market for Airline Loyalty Systems Summary Report : January 2020