FLY-US AIRLINES

IMPROVING LOYALTY PROGRAM

CASE STUDY
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Michelle Jones is weighing her options. She heads up the loyalty program for Fly-Us airlines, a low-cost carrier based in
North America. She knows their frequent-flyer program (FFP) needs to be revamped, as it hasn’t been updated since the
airline started 10 years ago. Fly-Us has a fleet size of 170, and serves the Eastern and mid-Central market of the U.S. It
competes with several other players for market share. Fly-Us is losing repeat flyers and believes that its FFP is not drawing
enough “miles buyers or co-branded card members. She wants to take an all-options-open approach to drive miles,
customer satisfaction, revenue, and advocacy. She wants to learn from what other airlines have successfully done, consider
industry trends, create a positive impact to its top and bottom line, and create a buzz within the air travel community.

The Case Challenge

Fly-Us has asked for your help. As
a consulting partner, you will help
them understand leading practices
in the airline loyalty space and
undertake a comprehensive reform
to increase its revenue base from
frequent flyers, draw more repeat
customers, and send targeted
promotions for elite tiers. It also
wants to differentiate itself in a
very competitive market with thin
margins. You are to bring in industry
knowledge, market research, SWOT
analysis, and viability/profitability
of adopting a different strategy for
their FFP program. You will also
recommend how Fly-Us should
reform the program with indicative
gains, risks, outcomes, timelines,
and budgets. Consider the following
dimensions:
• Customer perception and
challenges
• Market research on FFP
• Partner ecosystem for redemption
• Marketing challenges
• Change management
• Communication
• Data and technology
Exhibits have been added for
additional data
There is no right or wrong answer;
this is more to check the thought
process of an industry problem
and the depth of research being
conducted. Lateral thinking and an
outside view will be appreciated.
Please limit your observance and from frequent flyers, draw more
recommendation to 5-6 areas and repeat customers, and send targeted
why they these would have the most promotions for elite tiers. It also
impact to Fly-Us situation. wants to differentiate itself in what
is considered a very competitive
Fly-Us introduced its frequent flyer
market with thin margins. Your
program (FFP), “Fly-More,” 10 years ago.
goal for this case study is to bring
Although the program has increased in
in industry knowledge, market
overall revenue because of US macro-
research, and SWOT analysis to
economic growth, it has not seen a
recommend how Fly-US may reform
significant upshift in repeat flyers,
the program with indicative gains,
miles purchasers, or adoption of its co-
risks, outcomes, timelines, and
branded credit card.
budgets. You are encouraged to look
Like all aviation majors, selling miles at following dimensions
has been a lucrative revenue source, • Customer perception and
because revenue recognition is challenges
immediate and helps increase working
• Market research on FFP
capital for the airline.
• Partner ecosystem for
Fly-More continues to offer redemption
“accumulation based on miles flown,”
• Marketing challenges
whereas the industry has moved to a
hybrid model of “miles + dollars spent” • Change management
to balance rewarding high spenders in • Communication
lieu of low-cost, long-haul flyers and • Data and technology
seasonal flyers.
Fly-Us is not a direct ticket seller like
Southwest. Instead, it uses direct and
indirect channels such as Expedia,
Orbitz, and so on.
Fly-Us would like to understand
leading practices in the airline loyalty
space and undertake a comprehensive
reform to increase its revenue base

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 Airline Loyalty
Megatrends
Loyalty programs in Airlines are a
major driver of revenue. In 2019,
global airlines had about 400M FFP
members. The FFP loyalty has grown at
compound annual growth rate (CAGR)
of 25% since 2010, on average, with
FFPs for bigger airlines growing faster
than smaller airlines.
Global loyalty programs—
including hotels, airlines, car rental,
entertainment, and food and
beverage—have seen unprecedented
growth, standing at 3.6 to 3.8 billion
members, compared with 2 billion
members in 2010.
Within the airlines sector,
• >150 airlines globally have FFPs
• Free miles annually accrued is
consistently higher than free miles
redeemed; the moat is increasing
year over year
• About 25M free tickets are handed
out per year, on basis of free miles
redemption
• Until 2018, miles redemption was
based on static miles, meaning that
regardless of when a person was
flying, the redemption rate was the
same. Airlines are gradually moving
to “dynamic miles” redemption,
where redemption rates vary by
season
• About 20% of North American flyers
have FFP with two or more airlines
• Emerging markets FFP are
expanding faster than mature
markets
• Low-cost carriers are not able to
capitalize on ancillary spend with
miles
• 18 trillion miles are outstanding
globally, waiting to be redeemed.
This is worth more than 700B$ of
accrued value.
• Online travel agencies (e.g., Orbitz,
Expedia) have their own FFP, which
competes with the Fly-Us FFP
• 40% of FFP redemption is with
partners (e.g., food and beverage,
hotels)
Airline Loyalty
Megatrends
Traditionally, airline loyalty programs
have been based on providing rewards
on flown miles. However, airlines are
now moving toward “spend” as the
basis for rewards.
FFPs are becoming consolidated
through global air alliances, and a
suite of selected partners across the
value chain and geographies have
become key levers of attracting
new passengers through FFP points
sharing agreements. Fly-Us does not
participate in any of the 3 major air
alliances (Star Alliance, OneWorld,
SkyTeam), nor does it code-share.
Fly-Us is, however, a partner with Hertz
rental cars and shares points with
Hertz for loyalty and redemption.
Airline FFPs are focusing on creating
“wow” moments for their elite status
holders, and marketing themselves
as part of a lifestyle, through data,
analytics, and segmented marketing
campaigns.
Fly-Us has not done much in this
space, and would like to explore and
learn from other industry leaders
Fly-Us partners with Bank of America
for co-branded cards and issues 30K
miles for new card holders.
Its redemption rate fluctuates from
90-100 miles redeemed for 10K miles
flown. Fly-Us still operates on the
“miles flown” regime—it currently does
not allow miles redemption for priority
check-in or checked luggage.
Fly-Us does, however, allow miles
for in-cabin food and beverage, seat
selection, upgrades, in-seat movies,
and other in-flight entertainment.

CASE NOTE - Inclusions and Omissions

Inclusions – Things that you may consider or research as Omissions – You can ignore for sake of brevity, although in
part of your case study real world, they would play a part in such a exercise

• People Factor - Behavior among Corporate vs. Leisure • Refunds, Cancellations, Points gifting, Taxes or
traveler Accounting process changes.
• Resistivity to change • Redemption rate volatility
• Marketing and sales related changes. Client • Points conversion between partners – i.e. Redeeming
Segmentation rental car points to Fly-more
• Usage of Data and Analytics to attract loyal flyers
• Competitive differentiation
• Expiration of points
• Blending with other partners – Cruise
• “Award Chart” changes

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Exhibit 1. FFP membership distribution data shared by Michelle Jones with Infosys

FEP Penetration Distribution

FEP Members/Home Country Current Membership Rate Target Membership

Flying Population Percent Percent
Members
Home country
Airline A heavy user

Foreign
heavy user

Airline B Home country

medium user

Foreign
Fly-US medium user

Home country
infrequent user

Airline D Foreign
infrequent user

Fly-Us would like to have larger percentage of its home country users as FFP. Foreign users are infrequent on low-cost carriers,
and although they sign up, they are either not loyal/repeat flyers or they are unlikely to spend the co-branded card minimum
to accumulate miles.
LCC has unique challenges in moving from Miles flown FFP to Spend based FFP, and this document cited will provide
additional details: https://www.pwc.com/kr/ko/publications/industry/pwc-airline-industry-frequent-flyer-programs.pdf

Exhibit 2. Fly-Us customer segmentation prioritization

Customer Segmentation and Prioritization

High

Large
Public Corporate Invest for
Defend Service Growth
Accounts

Invest for
Growth Small
business Handle
Leisure
Selectively

Low
Low Market Size High

Their FFP program strategy needs to reflect this.

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 Exhibit 3. Fly-More points, positional comparison with global leading frequent flyer program

International Comparison of FFP’s

Partner Network Comparison Members Passenger Comparison

40 120

Passengers (2007, in million)

80
Airline Partner

20

40
Fly-more
Fly-more

0 0
0 75 150 0 20 40 60
Non-Airline Partner Program Members(million)

Exhibit 4. Earn-burn ratio analysis

Earn/Burn Ratio Analysis

Balance of Accrued vs.

20,000
Redeemed Mile Awarded Miles
(Cumulative)

15,000

x 3.2
Mn of miles

10,000 Redemption
Dilemma

Redeemed Miles
(Cumulative)
5,000

0
2010 2018

Although low redemption is good, it also indicates that this loyalty program is not successful, as FFP members are not flying
often. Also, redeeming earlier in the curve is better, as revenue seat miles grow with time, and “free seats” hurt the RASM
(revenue per available seat miles) and yield factor.

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Exhibit 5. Loyalty terminology that will help you understand the industry and the market

FFP FFP financial FFP margins &

numbers numbers Profitability

The number of miles flown Selling miles to accrual

FFP programs are driven partners is generating
by additional numbers per unit member
translated to FFP points or more business for FEP
from the growing program in the last 10
emerging markets the spend on the cards
FFP Though Accual years, so they are key
Numbers put translated to miles is key Partners

Increasingly, families of Redeeming miles (burning Partnership are driving

existing ffp numbers are points) and accumulating the next generation
adding on to the miles pot, miles(earning points) are a developments in the world
particularly as leisure travel Earn-Burn crucial measure of success New of airline loyalty programs
Families
increase Ratio for FFP’s Partnerships
Enrolled

The difference between

The need to identify and
promote active base is
crucial and their needs and
Active wants need to be handled
members differently
The miles whi ch expire
post the average 24 month
cycle are referred to as
breakage, which is a key
Breakage KPI foe FEP”s
Ratio
accrual points and
redemption points is
referred as gross margin
Gross
margin
which is centre pieces for
FFP”s across airlines

Exhibit 6. Examples of innovation in the airline loyalty space, to attract, and reward frequent flyer
program members.

AirBaltic’s BalticMiles app rewards frequent fliers Air New Zealand offers frequent flyers a space to work in
for burned calories download Auckland

Air France KLM ‘employs’ flyers as mystery shoppers

Luthansa lets frequent flyers become the ‘foursquare mayor’

of a route

Airlines give their best customers access to branded

zones at cinemas and events

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External Document © 2020 Infosys Limited
External Document © 2020 Infosys Limited
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