Instead of lowering the number of miles required to redeem flights, airlines can get creative with flexible loyalty redemption options to encourage traveler engagement, while still driving incremental revenue, according to Switchfly.
Airlines have decreased the total number of miles needed to book a rewards flight by 17% over the last five years, thus making loyalty miles themselves more relevant as a selling point. However, it also chomped into airlines’ narrow profit margin on fares: the average profit per passenger across the top seven airlines in the US was just shy of $18 as of 2018. US airlines have been in the black for eight straight years, but that margin is getting slimmer: 9.2% in 2018.
Switchfly, a travel-tech company that works with global travel brands such as American Airlines and Marriott Bonvoy, recently tested a miles-plus-cash based rewards program for a major airline, which lets passengers use their hard-earned miles to partially pay for travel products, while their credit card takes care of the balance. “The airline that launched the pilot program is a reliable, successful carrier with an 80-year track record of providing passengers with exceptional customer service,” said Switchfly CEO Craig Brennan. “As effective as they are, they hit a plateau, they were experiencing loyalty program growth challenges. They needed a loyalty program innovation engine.”
“The pilot program results confirmed that the greater the perceived value, the more inspired consumers are to travel.”– Craig Brennan, Switchfly CEO
The ability to mix currencies, as it were, has had a sort a democratizing effect on the availability of perks that were once out of reach for those who don’t live their lives at cruising altitude. “We launched miles-plus-cash with them because it spoke directly to the challenge of engaging lower-miles balance loyalty members and increasing net profitability for the airline,” Brennan said. “The lower-point loyalty program members realize great benefits from miles-plus-cash because it gives them the ability to mix currencies so that they increase their purchasing power.”
This best-of-both-worlds approach has led to a significant uptick in hotel reservations, Brennan noted: passengers in the Switchfly pilot program have been booking hotels at twice the rate they’re booking rental cars – and hotel bookings, he said, have three times the value or rental-car bookings. “Travelers have more options to pay for their trip, and there is a greater perceived value,” said Brennan. “The pilot program results confirmed that the greater the perceived value, the more inspired consumers are to travel.”