How much will the travel industry pay for giveaways to its loyal customers?

Since the beginning of the COVID crisis, players in the travel sector, led by airlines and hotels, have been multiplying gifts to their most loyal customers. And as soon as 2020 is over, we seem to be heading towards the same practices in 2021, even if we start to see the beginning of the tunnel. A practice that may be surprising in these times when there are no small savings, but which is nevertheless vital. Pleasing loyal customers at any cost? Well, you’ll see that it doesn’t cost that much.

Loyal customers: the post-crisis booster

As we wrote at the beginning of the crisis, without being able to travel, hundreds of thousands of “frequent travelers” risked losing their status in their favorite loyalty program(s) and this represented a real industrial risk for the travel industry.

Why ? Because we are talking about people who travel a lot, either by taste or obligation (and sometimes both) and therefore they are a major source of revenue. Then because it is among them that we find the people who travel the most in “premium” (business class by plane, 5* hotels…), therefore those who generate not only the most income but also the highest margins.

While the sector was at a standstill, they were the majority of the very few people “allowed” or “forced” (depending on the case) to move. A drop in the ocean but better than nothing.

On the other hand, when the sector finally recovers (in 3 months, in a year???), they are the ones who are expected to be the first to massively return to the airports and hotels. Either because they will have to do it for professional reasons, or because they will have missed travelling a lot…or both.

But it’s one thing for them to steal, it’s another thing for them not to fly with the competitor. And here, more than ever, loyalty programs come into play.

A loyalty program gives passengers, depending on their level of “consumption”, advantages that encourage them not to go to the competition. Priority lanes, baggage allowance, lounge access, upgrades (or rather priority when there is an upgrade), preferential seat selection… So many things that make the status passengers generally have no desire to go to the competition and find themselves treated like the common customer.

If in normal times this weapon is already strategic for the industrialists of the sector, it will be even more important to capture this clientele in the recovery and, logically, before capturing it, the most effective thing is not to let its captive customers, its own loyal passengers, slip away to the competition.

But what happens if a customer, because of the restrictions, does not have the possibility to travel or to travel as much as before (we are talking about people who make at least 75 flights per year or even more than 100 and at least as many hotel nights…even with the best will in the world in 2020 to reach such levels was impossible) these customers lose their status? By status, we mean the “string to the bow” that always brings them back to the fold... the airline or chain where they have status.

Well, they will be able to compare offers, prices, services and go for the best (yes, because the characteristic of the loyal passenger is not to choose the best product or the best price…it is to maximize his benefits where he goes the most, even if it is not for the best product…it’s all about compromise).

Inconceivable… so airlines and hotels have done everything to ensure that their loyal customers are not downgraded.

A blank year for loyalty program statutes

So 2020 was a blank year for loyalty program statuses. This means that even if a person has not traveled at all, he or she has retained the status he or she had at the beginning of the year. Sometimes in a very transparent way, sometimes at the cost of not very clear calculations (following numerous customer alerts, we are investigating the reality of Flying Blue’s “promise” on the subject).

And it’s here to stay. Even if a vaccine were to be introduced by the end of 2020, it is difficult to see how a real restart could happen before at least the summer. Many customers are expected to remain at the dock, but we expect that the gifts of 2020 will be extended, perhaps with some moderation in 2021. As proof Hilton is already announcing that the thresholds to be met in 2021 for the 2022 statutes will be halved…which leaves room to be even more generous if the situation does not improve. And it is certain that everyone has such measures ready to be deployed if the situation does not improve.

But how much do these gifts for frequent travelers cost?

These gifts, well these statuses have a cost that we keep reminding. The miles that will not disappear because their validity date has been extended will weigh on the balance sheets of the airlines. A lounge access has a price (premises, food etc). A priority line has a price (yes, the airlines pay the airports a certain amount per passenger who uses them). So many costs that could have been easily swept away in an era of falling revenues. In fact, it is quite paradoxical to see that before the COVID we were worried about a race to devalue loyalty programs while now there is an attempt to maintain statuses at all costs.

So how much will the bill be? Well, not much!

The first reason is, as we have seen, that it is an investment in the future. Knowing that it costs much more to “steal” customers from the competition than to keep your own, this is the cheapest way to restart with a “captive” clientele when the skies are better.

But most importantly (aside from the miles that won’t expire) these are benefits that only cost if they are used. Priority lines? A passenger who does not travel does not use them. Lounges ? Currently closed in France. Elsewhere, depending on local restrictions and airline policies, catering is sometimes reduced to a minimum. Hotel lounges? Closed. Hotel upgrade? Zero cost for the hotelier.

In short, many of the costs associated with maintaining the status of passengers who should have lost theirs are nil, either because the person cannot travel, and therefore cannot benefit, or because the benefit in question is suspended or downgraded by obligation or by choice.

So if we applaud the gestures of the airlines or hotels that did not let down their loyal customers, we must not forget that this commercial gesture was more tactical than anything else and did not cost much compared to the cost of passivity and could even be profitable tomorrow.

Photo : tourist who sees a plane passing by Denis Belitsky via shutterstock