Airlines Remaining Relevant How To Retain Customer Loyalty

AIRLINES REMAINING RELEVANT: HOW TO RETAIN
CUSTOMER LOYALTY
October 2017
INTRODUCTION
TRENDS SHAPING AIRLINE LOYALTY
BEST IN CLASS EXAMPLES
FUTURE OUTLOOK
APPENDIX
INTRODUCTION
Scope
Disclaimer
Much of the information in this
Travel briefing is of a statistical nature and,
while every attempt has been made
to ensure accuracy and reliability,
Euromonitor International cannot be
held responsible for omissions or
errors.
Figures in tables and analyses are
calculated from unrounded data and
may not sum. Analyses found in the
Travel Modes briefings may not totally reflect the
companies’ opinions, reader
discretion is advised.
Airline loyalty programmes are

some of the oldest and most
established reward schemes in
the travel market. Changing
Travel Modes customer demands and needs,
as well as technological
innovations, have forced these
establishments to transform
their structures and embrace
change, albeit at a different
pace. This report reviews the
developments within major
airline loyalty programmes, and
their implications for the end
user.
© Euromonitor International TRAVEL : AIRLINES REMAINING RELEVANT – HOW TO RETAIN CUSTOMER LOYALTY PASSPORT 3
INTRODUCTION
Key findings
Airline loyalty programmes are embracing change, but at a slow pace in light of the
numerous disruptors in the travel industry and the changing nature of ultra-connected
customers. Revenue-driven strategies and costly co-branded cards, once seen as the
main tool to deliver profitability, are no longer the right answer to retain and convert
passengers into loyal customers. Brand engagement, rather than high breakage (ie
unredeemed points), simplicity of the services, customisation and a bigger focus
on the social media element, as well as experiential-based brand
relationships are of essence for the success of reward schemes.
The complexities of air travel can be eliminated by fully digitalising loyalty

schemes, which in turn can serve as the basis for data analytics, which can
inform better customer profiling. Innovative technologies can help deliver instant
real time information, feedback and response, but equally bring service that is in
tune with customers’ needs.
Increasing competition from new airline players, airports and financial providers in the
airline segment puts more emphasis on the need to differentiate. Unique and creative
rewards can attract customer attention, not only repeat customers but also occasional
travellers.
INTRODUCTION
FUTURE OUTLOOK
APPENDIX
Technology impacting loyalty
 Customer loyalty has been changing over the years,

impacted by the shift towards online distribution,
growing e-commerce, social media and the increasing
importance of wearable technologies.
Customer-  The wider product and service choice put in front of the
centric customer is converting the end client into a less brand
loyal force, which in turn requires a more customer-
centric and focused loyalty membership approach on
the part of the airlines. This could be achieved through
more enticing redemption options, which could include
experience-led reward programmes.
Personalisation  The use of customer feedback to help build better
personalisation strategies and improved customer
service is needed to cement passenger loyalty and
trust.
New  Personalisation can help build an emotional connection
distribution between consumers and travel brands, in a competitive
channels environment for travel bookings where brands are
aiming to increase customer loyalty. Loyalty
programmes where commercial interest is the solely
focus of operation are no longer adequate in the battle
to retain customer loyalty.
Customer loyalty deconstructed
Airline Loyalty Deconstructed What is  The 2016 Global Passenger Survey (GPS),
Important for Passengers? 2016 by IATA, indicates which are the major
aspects of the passenger journey that
impact the loyalty of travellers to individual
airlines.
 Leading factors are ticket price, flight
schedule and on-board comfort, according
to the feedback from the respondents.
 Social media, especially online platforms
such as Facebook and Twitter, are very
popular, and serve as tools to exchange
opinions and share experiences related to
travel, including experiences with particular
airlines.
 Carriers are increasingly looking into the
establishment of “in-flight micro-social
Ticket Price Flight Schedule networks”, supported by wearable
On-Board Comfort On-Time Departure/Arrival technologies on board, which they can
Convinience to Airline Hub Responsive Customer Service
monitor and in turn support a personalised
experience for individual passengers.
Inflight Wi-Fi Access Inflight Entertainment
Source: IATA website, October 2016
“Loyalty beyond reason” through emotional connections/experiences
 The shift towards revenue-  The dynamic pace of the  Digital innovations, such as apps,
based loyalty programmes, first development of the airline help travellers to tailor their
seen in North America and industry, and the arrival of new preferences on food,
slowly spreading into other business models, such as the entertainment, check-in or
regions, has been driving the low-cost segment, or online shopping when flying with an
rising profitability of these distribution has also meant airline, which can contribute to
schemes. that customers are in the greater customer satisfaction.
 It has also translated into the driving seat in demanding the  Convenient flight times and route
mushrooming of more co- ultimate in differentiation. networks, in addition to price, are
branded company credit cards  Travellers are increasingly among the major drivers for
and the purchase of air miles, looking to find simple, relevant travellers to choose the airline
which has seen “transactional” loyalty programmes which are they will travel with, rather than
loyalty emerging within this building emotional connections purely basing their choice on the
business environment. with the end customer. loyalty programme they are
 However, this does not members of. As such, travellers'
necessarily translate into a more emotional connection to an
loyal end passenger or more airline will be directly linked to
happy customer, but may lead their satisfaction with this brand.
to a greater readiness to change  The use of behavioural customer
ships and move to the player information, geo-location and
which delivers the best reward transactional history data will add
benefits and experiences. a cutting edge to the specific
loyalty programme.
Apps as a tool for more direct communication and services
Airline Apps Ranking by Monthly  Mobile phone apps have become a critical way for airlines to engage
Users in Europe 2016 with consumers, especially as smartphone ownership has been
Rank App increasing globally.
1 Ryanair  Facilitating direct communication with customers and accessing big
data which provides more insights about the customer base, their
2 easyJet behaviour, their preferences, past experiences and requests is seen
3 Turkish Airlines as one of the facilitators for improving the appeal of loyalty
programmes, and ultimately can lead to customer retention.
4 Pegasus Airlines
 Some of the most popular airline apps in Europe in terms of monthly
5 Aeroflot users for 2016 according to AppAnnie.com are, unsurprisingly, those
6 Lufthansa of major low-cost carriers, such as Ryanair and easyJet.
7 British Airways  Both Ryanair and easyJet launched loyalty programmes, relatively
recently, in 2016 and 2015, respectively, with the aim of establishing
8 Air France a more personalised loyalty scheme profile for each individual
9 Wizz Air passenger.
10 Vueling Airlines  Free seat reservation, priority boarding, an extra bag in addition to a
free return flight are some of the perks these programmes offer.
Source: App Annie.com
 Delta and American Airlines allow passengers to store boarding
passes electronically within the Apple Wallet on iPhones, as well as
within Android devices. Other apps provide instant updates regarding
flight status, amongst other information.
M-commerce: A new driver of loyalty
 As mobile platforms continue to evolve and become more user friendly, on-the-go consumers have
increasingly convenient ways of booking their travel itineraries through the mobile channel.
 Mobile device usage by consumers within the travel industry – outside of the booking process – is growing,
with operators testing how these devices can enrich the travel experience.
 Commerce through mobile phones, tablets and wearable technologies is expected to show strong growth
over 2016-2021, with Colombia amongst the top performers in terms of mobile phone m-commerce, fuelled
by greater mobile connectivity penetration and an improving digital landscape in the country.
Mobile Phone M-Commerce Growth Tablet M-Commerce Growth 2016-2021

2016-2021
Colombia
Colombia
Philippines Czech Rep
Greece Philippines
Poland Poland
US Indonesia
India Morocco
Ukraine UAE
Spain France
Mexico South Africa
Indonesia Thailand
0 30 60 90 120 0 20 40 60 80
% CAGR 2016-2021, constant rsp % CAGR 2016-2021, constant rsp
Smartphone penetration going strong in key markets
 Smartphones saw healthy Smartphones by iOS Operating System 2016-2018

volume growth in China and 60,000
India in 2017, driven by
50,000
increasing incomes and
Sales volume
40,000
frequent releases of new
attractive products, leading to 30,000
replacement demand for the 20,000

latest smartphone models with 10,000
premium features. 0
 In India, smartphones China US Japan UK India
witnessed growth of 8% in 2017, 2016 2017 2018
due to the increasing availability

of budget smartphones in the Smartphones by Android Operating System 2016-2018
market. Growth in internet 500,000
penetration has also played a
400,000
key role in rising smartphone
Sales volume
sales. 300,000
 Overall, the digitalisation trend 200,000

will continue to play a major role
100,000
in driving demand for
smartphones globally in 0
populous markets as China, China India US Brazil Indonesia
India and US. 2016 2017 2018
Loyalty through digital wallet…
 The use of digital wallets as part of airline

loyalty programmes is gradually expanding,
despite rather slow initial uptake by
Airline
customers. That said, the degree of mobile Social
Brand
payments adoption differs among different
airlines, mainly due to lack of technology
standardisation and security issues.
 The increasing use of mobile devices with
built-in payment solutions as part of travel
itineraries is, however, boosting the need to
facilitate the earning, redemption and
exchanges of points and miles between Mobile Loyalty Convenience
loyalty programmes from one device at
various locations and in different currencies.
This is enhancing customer engagement
and retention of on-the-go passengers,
such as tech savvy millennials, and
supports omnichannel purchases.
 Among the airlines adopting digital wallets
are Jetblue and Southwest Airlines. Experience
…but it is a fickle business
Loyalty Programmes: Who really is benefiting? Estimated Value of Airline Loyalty

 Most of the loyalty programmes are believed to Programmes in 2017
benefit mostly high-spending passengers, making 40
this an extremely profitable business for carriers.
 In the US, it is estimated that in 2017 American 35
Airlines’ loyalty programme is worth USD37.6
billion, followed by Delta and United. 30
 Increasingly, however, airlines are making it more
difficult for economy class travellers to earn good 25
USD million
redemption rates for flights, or different perks, such
as cabin upgrades, extra bag for free, access to 20
airport lounges or free flights. In addition, many of
the co-branded cards used as part of the loyalty 15
programmes have high annual fees, and most of
the time are used for purchases outside of the
10
actual flight trip, such as spending with major
retailers.
5
 Indeed, the business of co-branded card is
regarded as so profitable that, according to 0
company sources, Delta expects to achieve USD4 American Delta Air United Southwest Alaska
Airlines Lines Continental Airlines Airlines
billion in revenue per year by 2021 from its Holdings
partnership with American Express.
Source: Trade press
Co-branded cards and airline rewards
Merchant Card Name Network Annual Fee Purchase Rewards Major Perks
Elite status; Delta Sky Club
access; priority boarding;
Delta Air Delta Reserve American 2 miles/USD (Delta
USD450 Global Assist service; annual
Lines, Inc Skymiles Express purchases)
mileage bonus (spending
requirement)
Premier Access; United Club
United membership; free bags (first
Mileage Plus 2 miles/USD (United
Continental Visa USD450 two and companion); award
Club tickets)
Holdings Inc ticket fee waivers; Hertz elite
status; Hyatt platinum status
Southwest 2 points/USD (flights, Variety of point redemption
Southwest
Rapid Reward Visa USD99 car rentals partners, options; 6,000 anniversary
Airlines Co
Premier hotel partners) points
3 miles/USD (Alaska
Alaska Alaska Airlines USD75 Companion flight fare; free
Visa Airlines purchases)
Airlines Inc Visa Signature checked bag
SAO Parking (Congonhas
LATAM TAM Itaucard and Guarulhos airport);
BRL498
Airlines 2.0 Platinum MasterCard - LATAM ticket instalment;
Group SA MasterCard TAM benefits (priority check-
in, boarding)
Co-branded cards and airline rewards (cont’d)
Merchant Card Name Network

Annual Fee Purchase Rewards Major Perks
Deutsche 5 miles/EUR2.0 Airmiles programme; Avis
Lufthansa Miles & More MasterCard EUR55 (online shopping upgrade voucher; EUR50
AG portal) voucher (Lufthansa tickets)
Travel insurance; roadside
assistance; purchase
insurance; extended warranty
Skywards
Emirates 2 miles/USD programme; Express Miles
Infinite Credit Visa AED1,500
Group Plc (Emirates.ae) mileage bonus; airport lounge
Card
access; special benefits (golf,
valet service); additional
discounts and opportunities
Purchase insurance; personal
Flying Blue
Air France- 2 miles/EUR (Air accident insurance; travel
American American
KLM Group EUR600 France and KLM); 2 insurance; Hertz discount;
Express Express
SA miles/EUR (Hertz) additional cards available;
Platinum
lifestyle service
Flight companion coupon
British
(spend requirement); travel
Airways
Internationa insurance; purchase insurance;
American American 3 Avios/GBP
l Airlines GBP195 online management; ticket pre-
Express Express (British Airways)
Group sale privileges; additional card
Premium Plus
available; British Airways
Card
Executive Club membership
Credit card loyalty lounges: More competition in the market
 Co-branded partnerships, especially with airline

players, have a significant role for card issuers such as
American Express.
 However, the company began to build its own airport
lounge network in 2013, at major airports such as
Dallas/Fort Worth Airport, Las Vegas McCarran
Airport, New York’s La Guardia Airport, San Francisco
Airport, Miami Airport, with plans to open new
Centurion lounges in Hong Kong and Philadelphia
Airports as well. Access to the lounges is given to all
holders of Amex Platinum and Centurion cards.
 Impeccable service, fine dining and amenities such as
spas and showers are among the attractive offerings
these lounges provide, and thus compete directly with
the proposition major carriers have for their loyalty
card holders.
 Other companies are also venturing into the business
with pay-to-enter lounges, such as the Marhaba
lounge by the Dnata air services group in Melbourne.
 The fight for customer loyalty in the market is
reinforcing strategies for differentiation and
personalisation in a bid to fuel customer loyalty. Source: Company website
Airport loyalty programmes: Friend or foe?
Top 5 Leading Airports ('000 people) 2015-2017  In the battle for increased profitability and
customer loyalty, airlines are seeing competition
Airport Geography 2015 2016 2017 from airport operators which are launching their
Atlanta own rewards schemes. In destinations such as
(ATL) US 101,490 104,172 105,964 Copenhagen, Milan, Florida, London, Chicago and
Airport Atlanta, local airports are already participating or
Beijing have loyalty initiatives.
Capital
China 89,939 94,394 99,113  Heathrow Airport has been very active in
Internation
rewarding travellers for shopping in its retail shops.
al Airport
The Heathrow Rewards programme has been
Soekarno-
Hatta Indonesia 94,814 95,267 95,733 operating since 1999, and the airport has
Airport revamped the programme by launching a digital
Dubai loyalty card and distributing it via smartphones and
United Arab beacon technologies. It has also begun to use
Internation 78,015 83,670 89,390
Emirates cloud-based services, which has improved its
al Airport
Los operational efficiency.
Angeles  Such developments are further boosting the
US 74,956 80,922 84,708
(LAX) competition for customer loyalty but also can help
Airport encourage increased travellers' spend per trip.
Influencing customer behaviour and preferences
Top Five Airlines Globally for Reward Availability  A survey conducted by the IdeaWorks Company
2017 identified the leading airlines in terms of seat
% Total Loyalty reward availability for its customers for USD1
Rank Airline
availability programme spend on base fares. The leader board was topped
Rapid by the low-cost airline Southwest, with its
1 100.0% Southwest
Rewards RapidRewards programme, which, according to the
2 94.3% Jetblue TrueBlue survey provides 100% seat availability for its
customers. Aside from being a low-cost operator,
3 90.7% airberlin topbonus
Southwest seeks to stand out from the competition
Lufthansa/ with a strong focus on customer service. Indeed,
3 90.7% Swiss/ Miles & More Southwest Airlines claims that it consistently has
Austrian the highest customer satisfaction and the best on
5 90.0% Air Canada Aeroplan time performance of all the major US airlines.
Source: IdeaWorks Company 2017 Survey  The top three places in the rankings are taken by
airlines targeting customers interested in value for
money, predominantly in North America and
Europe. The Asian carrier China Southern was
placed sixth in the rankings. It has been hoping to
improve its operations, including its loyalty
rewards, by taking on board a new 8% minority
shareholder – American Airlines Group.
Personalisation vital component for loyalty schemes
 New consumer segments such as millennials and

Repeat loyalty customers
generation Z, in addition to major disruptive trends in
the market have forced airline loyalty programmes to
go beyond product and service discounts in a bid to
retain and attract more repeat customers.
 As part of this re-imagining of the status quo, airlines
are focusing increasingly on the importance of Behavi Customer
customisation of services. our satisfaction
 Better connectivity is seen as a tool to support more
convenient engagement with the brand, which in turn
can facilitate a tailored service proposition. In-app Travell
Real time Flight
feedback, digital wallet, proximity-based messaging view er’s
spend
and touch ID options are only some of the means wallet
airlines are adopting to customise their services.
 Ryanair, for example, recently launched an app which Co-
provides a one touch payment option, similar to the brande
d credit Retention
retail giant Amazon, with the aim of boosting
card
convenience and improving the customer experience – activity
a major shift in its corporate strategy. According to
corporate sources, as part of its loyalty programme,
the airline provides its customers with early sales
offers, discounts and a free return flight for every 12
flights purchased in a calendar year.
Loyalty rewards for the occasional traveller
Norwegian Air Shuttle ASA
 Norwegian has been expanding its route network

very aggressively, and has disrupted the industry
with low-priced flight offerings for long haul
destinations.
 At the same time, the airline has been delivering a
reward scheme which provides reward benefits
quickly for its clientele. The programme had over 5
million customers as of March 2017. It allows
travellers to earn CashPoints, where 1 CashPoint
equals NOK1.
 The scheme enables passengers to earn more
reward points through additional purchases, such
as hotel rooms, car rental, airport lounges,
attractions, trains and retail chains such as Tesco,
Argos, Sky, ASOS and Apple.
 The points earned can be used to pay for a flight or Source: Company website
any extra services the client wants, such as bags or
seat reservations, which can be redeemed within a
year. After six flights, the passenger can receive a
new reward. Norwegian Rewards also provides
special deals for families or friends.
INTRODUCTION
FUTURE OUTLOOK
APPENDIX
Customer service: A must for Southwest
Southwest Airlines Co was the fifth largest airline in the world in 2017, with a 3.4% value share.
 In 2017, Southwest was the absolute low-cost  This initiative will allow the low-cost carrier to boost
leader in the world and in the US. overall efficiency and compete head-to-head
 Southwest is undergoing a major operational against the Big Three in the domestic market, and
overhaul, upgrading technology and applications internationally.
that were outdated.  Southwest seeks to stand out from the competition
with a strong focus on customer service.
Southwest: Rapid Rewards – The best loyalty programme in the US
 Unlimited reward Rapid Rewards Advantages

seats, no blackout
Flexibility Southwest allows passengers to change their ticket. If the new
dates and no
flight is cheaper, Southwest refunds the difference in miles. On
expiration dates are
cancelled tickets, the airline returns the miles and refunds the
just a few of the
taxes paid.
benefits Rapid
No fees Most airlines charge a fee for every additional service (bags, etc)
Rewards offers loyal while Southwest does not.
Southwest Low Reward points are generally worth between 1.4 and 1.6 cents
passengers. redemptions each, meaning that one-way flights from Southwest “cost” less
 There are a number than 2,000 miles. This is good value, given a standard domestic
of factors that have ticket from competitors generally is 12,500 one way.
contributed to the No blackout The airline allows passengers to book a seat through its reward
success Rapid dates programme, whenever it is available.
Rewards has More points per Southwest awards between six and 12 points per dollar spent on
achieved over the dollar spent flying, depending on the type of fare. United and Delta offer five
years, allowing to 11 points.
Southwest to more Companion Southwest allows the traveller to designate a companion for free
than double its Pass on unlimited flights for up to two calendar years. The customer is
membership, credit only required to earn 110,000 miles in a calendar year.
card holders and
revenues from the
programme.
American Airlines loyalty programme: Fully revenue based
American Airlines is set to invest a total of USD1.5 billion in 2017 to further improve its product and
operations
 American Airlines’ AAdvantage loyalty  In 2017, American Airlines AAdvantage ranked sixth in the
programme is part of Oneworld Alliance, Best Airline Rewards Programs US News, based on such
which is among the most popular indicators as network coverage, ease of earning free flights,
programmes globally. It provides travellers award flight availability, additional benefits and airline quality.
with the option to earn five miles for every  In May 2017, American opened a newly renovated Flagship
dollar spent on travelling. Lounge and brand new Flagship First Dining at New York’s
John F Kennedy International Airport. The airline also
introduced Flagship First Check-in for loyalty travellers.
American: AAdvantage revamped
 American Airlines Group Inc made some major changes to the AAdvantage programme in 2016, including
the introduction of revenue-based mileage earning. In 2017, AAdvantage announced the introduction of a
fourth elite tier, the introduction of a revenue requirement for status, a change in upgrade priority and a new
upgrade benefit for top tier members.
Advantages changes for 2017
Fourth Elite Tier
• Called Platinum Pro, the fourth elite tier is designated for members who earn 75,000 elite
qualifying miles and/or 90 elite qualifying segments in a calendar year. According to company
sources, the benefits of a Platinum Pro status are free unlimited upgrades within 500 mile eligible
regions, higher upgrade priority than Platinum members, and nine miles per dollar spent.
Revenue requirement for status

• The Elite Qualifying Dollars (EQDs) introduced by American match exactly those from
competitors: Gold (USD3,000) Platinum Pro (USD6,000) Platinum (USD9,000) Executive
Platinum (USD12,000) The only difference is that competitors have no option to get a waiver
through a co-branded credit card.
Change in upgrade priority

• The airline will be prioritising upgrades based on a 12-month rolling Elite Qualifying Dollar (EQD)
total, based on elite status.
New upgrade benefit for top tier members

• Executive Platinum members will receive free upgrades for flight tickets within regions which are
eligible for 500 mile upgrades.
Singapore Airlines: Loyalty first and foremost
Singapore Airlines carried 18.9 million passengers in 2017
 Singapore Airlines has a strong brand image as a  Singapore Airlines’ Krisshop is still the most
leading luxury airline with an attractive loyalty prominent source of income for the carrier. Since
programme. The airline has a balanced portfolio of 2016, Krisflyer members have been able to redeem
high-end schedule, mid range schedule and low- miles on the Krisshop platform, which is expanding
cost carriers, allowing it to service different to include new brands and merchants.
segments of the market.
Singapore Airlines: Krisflyer can help expand customer base
 The Krisflyer programme expanded in 2016 to provide its

Premium members with the possibility to redeem their miles for travel in
Economy Premium Economy Class, further entrenching the airline’s
The Krisflyer
premium positioning.
programme is
one of the most
Make-a-Wish  In a marketing and CSR move, Singapore Airlines partnered
successful in the
Charity with the charity Make-A-Wish, allowing members to donate
world, with a
Donations miles to the charity to help make wishes for children with life
large network
threatening medical conditions come true.
and a myriad
benefits offered
 The Krisflyer network is growing and includes 30 global airlines
to customers. Growing
and more than 1,000 destinations in 170 countries. Krisflyer
The group Network
miles can also be generated from non-airline partners, and can
continuously be redeemed for upgrades and flights within the group.
innovates and
introduces new  Singapore Airlines has been upgrading its airport lounges and
services to SilverKris rebranding them as SilverKris Lounges, with customer service
maintain and Lounges
also upgraded, along with the diversity and quality of food and
enhance the beverages.
programme’s
positioning.  Singapore Airlines’s Krisshop offers members the possibility to
Krisshop
Merchandise redeem points by purchasing items from various brands via the
website www.krisshopair.com.
Singapore Airlines: Krisflyer market segments
Krisflyer has expanded its reach to target the dynamic start-up and
SME environment of the Asia Pacific region by introducing a new
programme especially designed for entrepreneurs, whether they are
Corporate travellers: flying as a group or individually.
Highflyer loyalty The programme also offers 5% cash back to businesses.
programme
SIA is not a trend setter in offering corporate frequent flyer packages,
Air France has the Bluebiz programme, Lufthansa has Partnerplus
and Qantas offers the Business Rewards programme.
Singapore Airlines also launched a new service aimed at generating

more income from a highly appealing target group – the millennials
segment.
SIA created an account in partnership with United Overseas Bank,

Millennials: Krisflyer allowing youngsters with no access to credit cards to become
UOB account Krisflyer members and redeem points, as well as have access to
special services on all airlines of the group.
This could open up a entirely new market for the group and create
loyalty among young customers even before they become frequent
flyers.
Lufthansa: Using technology to gain competitive advantage
In 2017, Lufthansa launched Amadeus Airport Pay, allowing customer to pay for ancillaries at the
check-in desks or the gate via digital wallets or m-payment devices.
 Lufthansa’s rewards scheme Mile & More is one of  As of 2017, Lufthansa has equipped all flight
the oldest in Europe, with over 20 years attendants and cabin crew managers with
experience, and wider spectrum of partners. In tablets or “Cabin Mobile Devices”, enabling them
2017, the airline launched a new website, to view the seating plans, and access details
www.miles-and-more.com/fintech, which provides about the flight.
members with information about digital financial  This simplifies procedures and management
services, as well as crowdfunding, financial processes, improves customer profiling and
management and digital insurance. If members experience, while improving corporate efficiency.
become clients of these fintech companies they
can also earn more Miles & More points.
Lufthansa: Building partnerships
 Lufthansa’s loyalty programme Miles and More is the key driver for the group’s USD1.3 million in ancillary
revenues. It offers access to 40 airline partners and 270 companies, according to corporate sources. The
scheme is responsible for 57% of total ancillary revenue for the group.
 The airline is one of the best performers in this area, although recent changes have attracted criticism from
customers. The airline has consequently introduced more perks and benefits to rekindle Miles & More,
boosting loyalty and brand perception.
Miles & More has partnered with Chinese loyalty app Mileslife,
which allows customers to earn miles by spending in-app at
many local merchants in China, as well as with 40 airline
Mileslife Partnership partners, including 28 members of the Star Alliance.
Merchants include mid- to high-end restaurants and leading

spas, through to boutique hotels and luxury resorts.
Lufthansa: Innovation all the way
As part of its vision to become the most innovative airline in digital

technologies, Lufthansa is continuously boosting its SMILE (Surpass My
Individual Lufthansa Experience) programme, which uses customer data to
provide new services, which in turn is hoped to boost loyalty.
SMILE Innovations
One example is the recent installation of 200 Bluetooth beacons at Munich
Airport to read digital boarding pass data and send offers to travellers who
have more than 65 minutes to wait before departure via the Lufthansa app,
offering perks such as lounge access.
Lufthansa’s PartnerPlusBenefit corporate loyalty programme allows

customers to earn points from10 airlines – Air Canada, LOT, Lufthansa,
Eurowings, Austrian, ANA, Swiss, Brussels Airlines, United and TAP
Portugal.
Corporate Loyalty: The programme started targeting small to mid-sized enterprises in a bid to
reach out to millennials and young entrepreneurs, and boost loyalty among
PartnerPlusBenefit this key target group.
It is focusing more extensively on small business by offering 3,000 points for

joining the programme, and regular special offers, making it more attractive
than many competing programmes, such as BA’s, which devalued its On-
Business programme in 2016.
Qantas: Thinking out of the box about loyalty
2017 marks the completion of The Qantas Transformation Program, through which it
realises AUD2.1 billion in benefits.
 In February 2017, Qantas launched  According to company sources, the new artificial intelligence-
Qantas Concierge, a Facebook backed service is set to become a dominant customer service
Messenger Bot designed to help tool, allowing Qantas to learn from customer interactions and
customers plan a trip. conversations and, ultimately, personalise travel offers.
 The initiative made Qantas an official  Qantas continues to invest in the customer experience,
Facebook partner, joining companies such particularly in its digital transformation, through innovative
as eBay, Uber and Disney. offerings such as straight-to-gate mobile check-in and the
new small business product offering.
Qantas: Loyalty overtaking ticket sales
 Qantas Airlines is a global carrier which operates one of the most profitable loyalty programmes, with over
11 million members and USD1,454 million in revenues for the 2016 financial year. The loyalty segment of
the business has been strengthening its financial performance by diversifying the type of companies it
works with beyond its frequent flyer arm, such as banks and supermarkets (eg Woolworths).
 The external partnerships have helped boost customer engagement and increase market share. Specific
communities have been established by the Qantas Loyalty department, such as Qantas Golf Club.
 In 2017 Qantas Loyalty also introduced its first credit card and a new programme, Qantas Business
Rewards, which is focusing on attracting small and medium-sized companies. The launch of the credit card
is aiming to entice customers through day-to-day spending. The company also joined forces with the
leading peer-to-peer accommodation player – Airbnb – to allow its passengers to earn additional points
when they book through this accommodation channel.
 The loyalty programme for Qantas is of huge importance to its revenue generation, so much so that in
June 2017 it was the biggest earner for the company.
Qantas: Ambitious plans
 Qantas expects its loyalty programme’s earnings to almost double by 2022, and it is preparing to sell air
miles to a widening pool of 22 companies, and not just credit card operators.
 This is a huge value proposition, given that members will hunt for points, creating an incentive for retailers
to buy miles from Qantas to reward their own customers.
 Qantas’s loyalty programme is a very powerful tool in the structure of the airline, so much so that more than
a third of credit card spending in Australia in 2016, which totalled AUD303 billion, was being made on
Qantas co-branded cards.
 In 2016, frequent flyers earned more than 120 million points and redeemed 4.9 million flights.
More money
for points
• Partners buy • Points are typically
miles from • Qantas makes money redeemed after 24
Qantas to on every point, as the months, meaning
reward their own cost of redeeming a Qantas generates
customers point is less than the revenues in advance.
Air miles value it is sold for. Higher
sales revenues
Qantas: Major business focus
 According to Qantas, its frequent flyer programme is the only business unit to report consecutive earnings
growth since 2012.
 In June 2017, underlying profit at the business hit a record AUD369 million, and it seems on course to
reach as much as AUD600 million by 2022.
 The current operating margin of 24% makes the loyalty programme more than three times as profitable as
the international aviation business unit, and almost twice as lucrative as domestic operations.
Operating Profit Margins at Qantas Units June 2017
Loyalty
Jetstar
Domestic
International
Freight
0% 5% 10% 15% 20% 25% 30%
Source: Company reports
Enhancing customer experience
Air France-KLM’s H1 2017 results showed growth, with a net profit of EUR152 million.
 In 2016, Air France-KLM launched initiatives to  Air France-KLM is working towards improving the
further boost benefits offered through its rewards loyalty proposition by partnering with other airlines
programme Flying Blue to the lowest “Ivory” status and allowing passengers to redeem points from
members of the programme, in order to encourage flights via various companies. In 2017, this
them to use it more and improve their status. included a new partnership with WestJet and Delta.
 Among other things, Ivory members have been  Air France-KLM is expected to increase its
offered up to a 10% discount on the first footprint in Asia Pacific by sharing loyalty points
chargeable item of baggage, and seat selection as and rewards with Singapore Airlines Group
part of the boost to the programme. companies, including SilkAir and Singapore
Airlines, and potentially Scoot in the longer term.
Air France-KLM: Digital transformation
High service with Chatbot Increasing focus on children Virtual Reality to the Fore
 A “chatbot” is being launched by  A new service making travel  Air France-KLM created a
Air France-KLM to attend to easier for children is also being virtual reality experience which
customers’ needs, such as launched by the airline, whereby was originally launched at the
tracking checked baggage or parents can book their children’s Viva Technology show.
lost baggage, calculation of trips via the Air France-KLM  The programme included a 4D
excess baggage fees and bags app, and can then track their volumetric video for a high-tech
that passengers may want to trips in real time, sharing the immersive experience.
add to their flights. information with the people
 Air France-KLM is testing
 The system is set to offer expecting the children at the
immersive VR headsets on-
customers a personalised arrival destination.
board for potential use for in-
response, thus replacing human  Air France has also launched a flight entertainment, according
resources, which are being new dedicated travel area for to corporate sources.
redirected towards more children travelling alone at
complex customer complaints or Charles de Gaulle airport. The
requests that can only be dealt area is equipped with gaming
with by a live discussion. devices, and offers free Wi-Fi at
 This type of innovation maybe all times for children so they can
be perceived as highly efficient stay connected using their
for the airline, but may still face smartphones or tablets.
scepticism from travellers in the
early days of the launch.
IAG: Consolidating all loyalty schemes under one umbrella
IAG recorded 4.3% growth in revenue passenger kilometres over the six months to 30 June 2017
 International Consolidated Airlines Group (IAG) is among the top three  Innovation is at the heart of
players in Europe which has consolidated under its operation several Avios, which in 2017 launched
airline brands, among which are British Airways, Iberia, Iberia Express, an app for Amazon Alexa in a
Vueling, Level, Flybe and Aer Lingus. bid to facilitate the access of
 The wide spectrum of companies which the company comprises its members to information
requires the development of better synergies regarding its Avios about their loyalty points and
loyalty programme, especially in a business environment where the membership status.
customer has access to cost-saving points-based initiatives with the
help of the social media.
IAG: Creating repeat experiences
IAG is moving towards the consolidation of loyalty

programmes by introducing Avios as the main currency
Synergies for all loyalty programmes of the different subsidiaries.
However, each of the airlines will maintain their own
separate “members club”.
Loyalty
IAG created its own innovation hub, following in
Outsourcing Lufthansa’s footsteps. Hangar 51 was created in 2016,
and has already funded two start-ups.
IAG: Synergies between Avios and independent loyalty programmes
Vueling Club Aer Club Executive Club & Iberia Plus
 Vueling Club’s loyalty  Aer Lingus’s loyalty programme  The British Airways Executive
programme was rebranded from rebranded from Gold Circle to introduced a “status freeze”
Punto to Vueling Club in August Aer Club, but the transition led possibility in 2017, allowing
2017, and is shifting two million to many members being customers to freeze their
Punto members to Vueling Club, downgraded to a lower status. membership for a year during
turning all points into the IAG’s The result was a PR crisis that periods when they are less likely
main currency: Avios. was poorly handled by to travel.
 Under the new programme, management, who remained  BA’s Executive Club remains
travellers will be able to collect rather defensive. active and is among the most
and spend IAG’s Avios and use  Aer Club’s new scheme is highly regarded loyalty
them to receive discounts or based on how much passengers programmes in Europe. It also
free flights on different Vueling spend per ticket, rather than the adopted the Avios currency in
fare categories, including Basic, number of miles that they fly, 2011.
Optima and Excellence. which also came under fire from  Iberia Plus is the only
 The group nonetheless chose to some Gold Circle members. programme that is still not being
retain a dedicated Vueling Club,  Like Vueling Club, Aer Club will referred to as a “club” but
which will in the future provide shift towards offering customers largely functions in the same
more services to Vueling’s the possibility to redeem miles way as others do, using Avios
customers, albeit using Avios as via hotels, airlines and retailers, as a currency.
its main currency. using Avios as the common
currency.
IAG’s Hangar 51 vs Lufthansa’s Innovation Hub
Innovation hubs
 Globally, airlines are aiming to boost loyalty among customers, either through greater investment in their
loyalty programmes or through technological innovations that can help them differentiate themselves from
the competition.
 In Europe, Lufthansa was the first among the key operators to launch an “innovation hub” – a platform
dedicated to support innovative digital start-ups that can develop competitive products and services.
 According to corporate sources, the move is seen as a way to outsource innovation and support idea
generation from the most creative players in the market.
 IAG mimicked the model of Lufthansa’s Innovation Hub by launching Hangar 51 in 2016. Unlike
Lufthansa’s hub, which announced no major investments, Hangar 51 has invested in two companies,
Esplorio, an app that records and shares travel experiences, and Vchain, which is working on a technology
set to improve and speed up airport processes with the help of biometrics and digital authentication.
 Hangar 51 is focusing on four major aspects – improving airport processes, digitisation of the business, big
data analysis while supporting start-ups which can drive more innovative idea for the company and which in
turn can potentially disrupt the airline segment.
 In 2017, Hangar 51 launched a second competition which is aimed to support new businesses financially.
INTRODUCTION
FUTURE OUTLOOK
APPENDIX
FUTURE OUTLOOK
Major takeaways
Balancing Act Technological Connected Loyalty

Innovations
•With the increasing •Digitally-led strategies •Connected consumers

number of price can help build long- demand connected
comparison and review term customer value loyalty, which in turn
websites, many while driving sales. can allow them to
travellers are more •Exploring new access goods and
bargain hunters than channels, such as bots services in a way that
loyal clients. Attracting that drive more fits their individual
the attention of these conversations and preferences and tastes.
consumers with evolve into new forms •Integrating consumer
immediate rewards on of customer information via omni-
all parts of the trip, engagement, is a trend channels can help
improved accessibility that will impact future achieve stronger
to these schemes and developments within connectivity and in
one-to-one relationship the airline segment. return improve client
with the individual •Thus technology is experience.
customer can help build creating additional
emotional connection touch points between
between the loyalty the airlines, their
member and the airline brands and
brand. consumers.
AIRLINES REMAINING RELEVANT: HOW TO
RETAIN CUSTOMER LOYALTY
FUTURE OUTLOOK
APPENDIX
APPENDIX: COMPETITOR ANALYTICS
Competitor Analytics tool
 Competitor Analytics is a new tool from Euromonitor International that focuses on fmcg companies and
competitors. It visualises the retail sales footprint and performance of more than 25,000 companies by
geography and product category.
 Competitor Analytics also maps the competitive landscape for each of these companies, allowing users to
see with whom each company competes and in which specific markets. To do this, the tool calculates a
numeric “distance” between competitors, allowing the user to track how the competitive landscape is
evolving and which companies are becoming strategically more or less similar.
 For a detailed explanation of the graphics in each of Competitor Analytics’ four tabs – Overview,
Competitors, Treemap and Overlap Matrices – please refer to the following slides.
Overview
 The Overview tab (shown in the graphic below) provides a global snapshot of a company’s sales footprint
and performance, highlighting where it is winning and losing by country and product category.
 It shows company (GBO) retail value sales and absolute growth by countries and categories in current
terms and US dollars at a fixed exchange rate for the years spanning 2008 to 2014.
 The grey bars represent value sales in the selected “Start Year”, while the green bars show the subsequent
absolute value sales increase between the user-selected start year and 2014. Red bars denote a retail
value decline over the same time period.
Competitors
 The Competitors tab (see graphic to the

right) plots the “competitive distance”
between the selected “focal” company (in
this case Unilever) and its competitors.
 The vertical axis measures the size of
“market overlap” between two companies,
and is the metric for quantitatively
measuring competitive distance. The higher
a company is on the vertical axis, the bigger
a competitor it is for the focal company.
 Meanwhile, the horizontal axis captures
each company’s total retail value sales over
the selected time period, irrespective of
market overlap.
 Flat lines (eg Nestlé in the chart to the right)
indicate that a competitor’s total sales are
growing, but mainly in markets where the
focal company is not present.
 Lines moving steeply upwards (eg Procter
& Gamble) show that competitive similarity
is increasing strongly over time relative to
overall retail sales growth.
Market Overlap
 Market Overlap is a measure of

competitive distance between two
companies in retail value terms.
 It is calculated as the sum of the
smaller of the two company’s
retail value sales in each of their
common country/category (aka
market) combinations. The sum of
these observations indicates a
total Market Overlap.
 In 2014, Procter & Gamble and
Unilever were present in 711
common markets (see right)
across the global fmcg universe.
 In US deodorants, Procter &
Gamble was the smaller of the
two, and thus defined the Overlap.
 In US hair care, Unilever was
smaller and thus defined Overlap.
 Replicating this exercise across
all 711 markets in which both
companies were present yields a
total 2014 Overlap of US$23,420.
Treemap
 Treemap (as shown in the graphics below ) shows either overlap with a competitor (the left graphic) or
individual company sales (the graphic on the right) by product category and/or country.
 The size of each box indicates the proportional size in US dollars of a country, category or market relative
to the total overlap or sales for the geographies and industries selected.
 The colour gradient reflects sales or overlap growth/decline over the selected time period. The darker the
green, the higher the growth, and the darker the shade of pink/red, the stronger the rate of decline.
Overlap Matrices
 Overlap Matrices (as shown in the graphic below) compare two selected competitors (Unilever Group vs
Procter & Gamble Co) in terms of their respective presence across countries and product categories.
 The darker the colour shading, the higher the company’s retail value share in that market. The graphic
below shows that Procter & Gamble has a strong share in hair care in China, whereas Unilever is weaker.
 Overlap Matrices also highlight respective market gaps and potential white space opportunities. Dark grey
boxes indicate that one of the two companies shown is present in that market, but the other company is not.
A light grey box means that neither of the two selected companies is present.
APPENDIX: INDUSTRY FORECAST MODEL
About Euromonitor International’s Industry Forecast Model
 The Industry Forecast Model is a new tool from Euromonitor International that integrates intuitive,
judgment-based forecasting with the quantitative techniques of an econometric Industry Demand Model.
 The Industry Demand Model assesses the relationship between several historic quantifiable independent
variables (demand drivers) and historic retail volume sales for different markets that Euromonitor tracks.
 In identifying these relationships, the model estimates elasticities for each statistically significant demand
driver, including income growth, changing retail prices, demographic trends and retail channel trends.
 Multiplying these elasticities by corresponding year-on-year growth forecasts for each demand driver allows
the Forecast Model to build annualised retail volume and value forecasts for a market in a given year.
 While estimated demand driver elasticities are constant, forecast demand driver growth can change over
time. For example, forecast GDP growth for a given year is regularly upgraded or downgraded in
Euromonitor International’s Macro Model to reflect changing economic and sociopolitical conditions.
 In turn, changing only forecast growth for GDP in this example allows the Packaged Food Forecast Model
to create multiple retail forecasts that capture the impact of these changing macroeconomic conditions.
Impact of Russia GDP Shock on Chocolate Confectionery Retail Volume Forecast in Russia 2015
2015 real GDP Chocolate income Income effect on 2015 chocolate
% growth forecast elasticity chocolate growth % volume growth
Baseline Forecast
+1.43 0.37 +0.53pp +1.41
(June 2014)
Updated Forecast
-3.82 0.37 -1.41pp -0.55
(December 2014)
Soft drivers and the Industry Forecast Model
 The power of Euromonitor International’s forecasting methodology is that it blends statistical modelling with
local market observations reflecting local industry consensus. As such, retail market forecasts also rely on
the insights and expertise of Euromonitor’s global analyst network. Euromonitor analysts work closely with
the Industry Demand Model to ensure that it remains consistent with their empirical observations,
guaranteeing that quantitative and intuitive expectations fully complement each other.
 Euromonitor analysts also capture all the demand drivers beyond the scope of the Industry Demand Model.
These “soft drivers” remain critical to future retail sales, but are either fundamentally unquantifiable or have
no globally comparable data with which to measure them.
 Soft drivers are captured and measured exclusively by empirical research from Euromonitor analysts, and
their overall positive or negative impact is estimated on top of the results of the Industry Demand Model.
Demand Driver Soft Demand

Forecast Demand
Elasticities: Drivers:
Driver Growth:
From Industry From Country and
From Passport
Demand Model Industry Research
Industry Forecast Model
Growth decomposition explained
 To help understand and illustrate the impact of each demand driver to a market’s retail growth performance
and prospects, Euromonitor International employs a graphical tool called “growth decomposition”.
 The fundamental idea behind growth decomposition is that a product category’s retail sales performance
and future prospects can be explained through changes in underlying demand factors.
 As explained above, the impact of demand driver change to retail market sales can be calculated by
multiplying a demand driver’s observed elasticity by that demand driver rate of change over a period of
time. Multiplying demand driver elasticity by forecast demand driver growth yields the percentage points of
overall retail growth that that specific demand driver is contributing to the market forecast under review.
 In addition, Euromonitor analysts estimate the impact of “soft drivers” to overall retail growth via their
empirical research. The relative impact and importance of “soft drivers” can be shown alongside that of the
measurable demand drivers identified by the Industry Demand Model.
 In the growth decomposition visual below, the percentage points of growth that each demand driver is
contributing to overall market growth are illustrated in the coloured segments of the stacked bar charts.
Significance and applications for growth decomposition
 By attributing a fraction of overall retail growth to each contributing demand driver, overall category growth
can be “decomposed”. In doing so, an extensive picture of underlying market fundamentals and processes
on a category-by-category and country-by-country basis can be provided.
 Ultimately, growth decomposition allows Industry Forecast Model users to:
 Identify different demand drivers that affect historic sales, and will likely impact future market prospects;
 Evaluate the relative importance of different demand factors over time and then identify which factors
generate the highest deviations in historic - and ultimately future - consumption;
 Illuminate the underlying market dynamics for each product category;
 Measure and predict the effects of demand driver shocks, either expected or hypothetical;
 Facilitate scenario analysis by generating understanding of which demand factors can be influenced by a
manufacturer or retailer and which are beyond their control.
Key applications for Industry Forecast Models
• Quarterly Forecast Restatements

• Regularly updated retail market forecasts to reflect latest macro expectations (ie,
quarter-on-quarter real GDP growth revisions) for all markets.
1
• “What If?” Scenario Analysis
• See and compare how a hypothetical event (ie Eurozone recession, China Hard
Landing, Grexit) stands to impact different market forecasts.
2
• Growth Decomposition and Demand Driver Elasticities
• Understand, compare and respond to the forces driving expected market growth
across different product categories and countries.
3
• Assess Market Potential
• See the ceiling on retail volume or value sales and growth, regardless of a specific
forecast scenario. How much more can that market really grow?
4
FOR FURTHER INSIGHT PLEASE CONTACT
Nadejda Popova
Project Manager – Travel
Nadejda.popova@euromonitor.com
RELATED ANALYSIS
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Mega Trends – Middle Class Retreat - August 2017
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AIRLINES REMAINING RELEVANT: HOW TO RETAIN

Airline loyalty programmes are

The complexities of air travel can be eliminated by fully digitalising loyalty

Technology impacting loyalty

 Customer loyalty has been changing over the years,

Customer loyalty deconstructed

Source: IATA website, October 2016

“Loyalty beyond reason” through emotional connections/experiences

Apps as a tool for more direct communication and services

M-commerce: A new driver of loyalty

Mobile Phone M-Commerce Growth Tablet M-Commerce Growth 2016-2021

% CAGR 2016-2021, constant rsp % CAGR 2016-2021, constant rsp

Smartphone penetration going strong in key markets

 Smartphones saw healthy Smartphones by iOS Operating System 2016-2018

replacement demand for the 20,000

witnessed growth of 8% in 2017, 2016 2017 2018

due to the increasing availability

 Overall, the digitalisation trend 200,000

India and US. 2016 2017 2018

Loyalty through digital wallet…

 The use of digital wallets as part of airline

…but it is a fickle business

Loyalty Programmes: Who really is benefiting? Estimated Value of Airline Loyalty

Co-branded cards and airline rewards

Co-branded cards and airline rewards (cont’d)

Merchant Card Name Network

Credit card loyalty lounges: More competition in the market

 Co-branded partnerships, especially with airline

Airport loyalty programmes: Friend or foe?

Influencing customer behaviour and preferences

Personalisation vital component for loyalty schemes

 New consumer segments such as millennials and

Loyalty rewards for the occasional traveller

Norwegian Air Shuttle ASA

 Norwegian has been expanding its route network

Customer service: A must for Southwest

Southwest: Rapid Rewards – The best loyalty programme in the US

 Unlimited reward Rapid Rewards Advantages

American Airlines loyalty programme: Fully revenue based

American: AAdvantage revamped

Revenue requirement for status

Change in upgrade priority

New upgrade benefit for top tier members

Singapore Airlines: Loyalty first and foremost

Singapore Airlines carried 18.9 million passengers in 2017

Singapore Airlines: Krisflyer can help expand customer base

 The Krisflyer programme expanded in 2016 to provide its

Singapore Airlines: Krisflyer market segments

Singapore Airlines also launched a new service aimed at generating

SIA created an account in partnership with United Overseas Bank,

Lufthansa: Using technology to gain competitive advantage

Lufthansa: Building partnerships

Merchants include mid- to high-end restaurants and leading

Lufthansa: Innovation all the way

As part of its vision to become the most innovative airline in digital

Lufthansa’s PartnerPlusBenefit corporate loyalty programme allows

It is focusing more extensively on small business by offering 3,000 points for

Qantas: Thinking out of the box about loyalty